Annual Report & Financial Statements 2015
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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
need to replace the
printer number
Financial calendar
2014/15
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2015 goes ‘ex-dividend’
Record date for 2015 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2015 paid
2015/16
Interim results to 31 March 2016 announced
Interim dividend for 2016 goes ‘ex-dividend’
Record date for 2016 interim dividend
Last day for dividend reinvestment plan election
Financial year ended
Interim dividend for 2016 paid
Results for year to 30 September 2016 announced
Final dividend for 2016 paid
* These dates are provisional and may be subject to change
Annual Report & Financial Statements 2015
30 September 2015
8 December 2015
14 December 2015
29 January 2016
2 February 2016
4 February 2016
14 March 2016
8 April 2016
17 May 2016*
7 September 2016*
9 September 2016*
19 September 2016*
30 September 2016
14 October 2016*
29 November 2016*
23 March 2017*
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TREATT IS A WORLD LEADER IN
PROVIDING INNOVATIVE INGREDIENT
SOLUTIONS TO THE FLAVOUR,
FRAGRANCE AND FMCG INDUSTRIES,
SUPPLyING CUSTOMERS GLOBALLy
FROM BASES IN THE UK, USA, CHINA
AND AFRICA.
Treatt’s reputation and in-depth knowledge of flavour and fragrance ingredients and their
sources is recognised as a trusted resource by its customers worldwide. We offer our
customers exceptional service along with cutting-edge solutions so that they can create
unique and innovative products to help drive their own commercial success.
Our business
Our products and solutions range from ingredients for the flavour and fragrance industry
such as essential oils – especially citrus, aroma chemicals, and specialty products developed
by Treatt, to functional ingredient ranges such as wellness and beverage specialties. We
supply a diverse client portfolio including many leading flavour & fragrance manufacturers,
as well as FMCG companies. Our products are found in a myriad of consumer goods
worldwide, from beverages and food products to perfumery and household goods.
Designed and produced by corporateprm, Edinburgh and London. www.corporateprm.co.uk
TREATT PLC I
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04
Our ingredient solutions
We offer innovative and trend-setting product
concepts for our customers. Our experts such
as tea sommeliers, brewers and citrus gurus
inspire innovation and customers alike.
53
54
Group and Parent Company
Balance Sheets
Group and Parent Company
Statements of Cash Flows
55 Group Reconciliation of Net Cash Flow
to Movement in Net Debt
56 Notes to the Financial Statements
87 Notice of Annual General Meeting
Parent Company Information
92
and Advisers
93 Financial Calendar
01
02
What makes us special
Our people are the cornerstone of our success.
Their engagement in the business, together
with
their expertise and experience, are
key to our success in creating value for our
customers through innovative and exciting
ingredient solutions. Our knowledge, customer
partnerships, unique products, services and
operational excellence also give us the edge. 03
Strategy objectives
Our
strategy of delivering added-value
ingredient solutions across key market sectors
continues. We are making particularly good
progress in the beverage sector which itself
breaks down into a number of important
segments for Treatt, including the fast-growing
craft beer market.
Corporate Governance
30 Corporate Governance Statement
35 Directors’ Remuneration Report
47
Independent Auditor’s Report to the
Members of Treatt plc
Financial Statements
49 Group Income Statement
50
Group Statement of Comprehensive
Income
Group and Parent Company Statements
of Changes in Equity
51
Contents
Treatt’s Mucky Races team
Overview
01 The Report
02 What makes Treatt special
03 Growth strategy
03 Our values
04 Our ingredient solutions
05 Looking ahead
06 2015 Review
07 Group five year trading record
08 Chairman’s Statement
10 Chief Executive’s Report
14 Financial Review
18 Directors’ Report
21 The Board
22 Strategic Report
Annual Report & Financial Statements 2015OverviewTREATT PLC I
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Diverse workforce
Our diverse workforce holds the
key to developing new ways of
thinking, enabling Treatt to reach
a wider range of customers and
grow our business.
Our Certified Tea Sommelier gives us
a greater understanding of tea
People
Our people are the cornerstone of our success. The deep engagement
of our employees in the business, together with their expertise and
experience, are the key to creating added value for our customers. It
is this passion that drives the development of innovative and exciting
ingredient solutions which in turn allows our customers’ products to
stand out. The unique combination of our unrivalled knowledge, strong
customer partnerships, tailored solutions and operational excellence
really does give us the edge.
Knowledge
Our long tradition of sourcing natural raw materials from all over the
world gives us industry-leading experience in the field of ingredients for
the flavour and fragrance, and personal care and cosmetic industries.
Travelling the world building personal relationships with our producers
and farmers gives us first-hand in-depth knowledge that we then pass
02
on to our customers. We help our customers to succeed and serve as
a source of information in various aspects of the challenges facing
the flavour and fragrance industry. Treatt’s Market Reports, which are
available on our website, are widely recognised by industry experts
globally for the insight they provide on market conditions worldwide.
Our capabilities
We are passionate about developing creative, innovative solutions
for our customers and the recent investment in our new applications
centre means that we can now collaborate even more closely with our
customers to add further value to their products by developing new
flavour combinations and formulating blends. Our tasting panels
provide the quantitative data on which customers can assess and
identify solutions in different beverage applications.
Operational excellence
With manufacturing bases in the UK, the USA and in Kenya, we offer
a geographical spread of risk and access to world markets and are
flexible enough to adjust to customers’ needs. Production efficiencies
are assured by sharing best practices in technical and management
processes.
CREATING A DIvERSE
AND POSITIvE
ENvIRONMENT FOR
OuR PEOPLE TO
SuCCEED
I TREATT PLC
Annual Report & Financial Statements 2015
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Growth strategy
We continue on our path towards sustainable long-term growth by providing an environment and culture for innovation and success.
Setting
milestones
Growth
Targeted
customers and
segments
Innovation
Focused sales
approach
Concentrated
product range
Excellent quality
and services
Market-driven
new product
development
Cost control
Well motivated
and experienced
workforce
Group
Strategic developments
Our strategy of delivering added-value ingredient solutions across key
market sectors continues. We have made significant inroads into the
beverage sector, which itself breaks down into a number of segments with
considerable potential for Treatt, including the exciting and fast-growing
craft beer market with its increasing experimentation with flavours. The
beverage market continues to innovate and brings opportunities to develop
new products in these areas, especially the wellness and natural areas
as demand grows for lower calorie and health-conscious products. We
have recently invested in a new beverage applications centre from which
we can partner with our customers to develop new flavour combinations,
formulate blends, conduct taste trials and explore different beverage
applications. In our Analytical Department we have a new robotic
MultiFlex Dynamic Headspace GC-MS Olfactometer with odour detection,
giving us scope for new opportunities. It brings new technology into Treatt
which permits direct analysis of liquid products such as consumer goods
and beverages. This technology is used by the leading companies in the
beverage industry in their new product development and QC functions. It
allows Treatt to get much closer to understanding the issues of FMCGs,
investigate real products on the shelf and transfer the knowledge to our
global new product development and applications efforts. It enables closer
co-operation between QC and Innovation departments across the Group
and undoubtedly increases our capability in developing flavour solutions
for our customers.
Our values
We are at our best when we:
Excite
customers
Communicate
Innovate
Exemplify
quality
Do it the
right way
Go the
extra mile
Work as an
enthused team
Are
profitable
Motivate
and engage
TREATT PLC I
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100%
Natural ingredients
We travel the world to source the
highest quality flavour and fragrance
ingredients
We offer innovative and trend-setting product concepts for our
customers. Our own in-house experts such as tea sommeliers, brewers
and citrus gurus inspire innovation, whilst also ensuring the ingredients
used and the final solutions excite our customers.
Being the manufacturer of our own raw materials allows us costing
flexibility as, for example, we can break apart orange and other oils.
We can also take advantage of production economies of scale based on
volume requirements.
WE SuPPLy A DIvERSE
CLIENT PORTFOLIO OF
LEADING FLAvOuR &
FRAGRANCE AND FMCG
COMPANIES
Through the fractional distillation of essential oils we are able to isolate
components and/or add ingredients, providing customers with bespoke
solutions. We tailor these solutions for our clients on a project-by-project
basis, working with them throughout their product development process.
Building deep relationships with our customers is an important factor for
their success as well as our own.
Our customers are reassured by our stable supply chain and full
traceability. They have confidence in our rigorous quality assurance,
composition and contaminant analysis, together with appropriate
labelling for smooth, safe transportation across the globe.
04
I TREATT PLC
LOOKING AHEAD AT THE
CHALLENGES AND TRENDS
INFLuENCING THE FOOD AND
DRINKS INDuSTRy
Health and Wellness – sugar reduction
Consumer priorities such as health and wellness are a key focus area
for us. Reducing sugar consumption continues to be top of the agenda
for the food industry. It takes a lot of effort and expertise to reduce sugar
so that the product still tastes good. Treatt has been working on this
for a number of years and our innovation teams now have a variety of
non-caloric tailored solutions to reduce calories without sacrificing the
sweet taste that everyone loves. The results of our in-house sensory tests
have concluded that a combination of proprietary sweet essences with
natural specialty ingredients is very effective in dealing with the slow initial
sweetness profile and bitter aftertaste associated with stevia and other
non-nutritive sweeteners. Our new line of innovative sugar solutions does
just this, imparting a sugar cane juice note and increasing the perception
of greater sweetness without introducing any dominant flavour notes.
21%
Natural flavours
forecast to grow in demand
over the next 5 years by 21 percent
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Trend forecasting
The shape of the food industry is changing rapidly. As a result of the global
community in which we live and the heightened role of social media,
consumer trends move quickly and encompass the globe, no longer being
limited to a given region or demographic segment of the population. We
are committed to identifying and understanding such trends to allow us to
develop ingredients and solutions that provide value to our customers. By
basing our business development and R&D efforts on such trends, we can
ensure we are aligned with the market to deliver sustainable and profitable
growth. The flavour concepts that we have identified show that consumers
are increasingly choosing beverages that use natural ingredients. Recent
analysis for example has shown that melon, especially the exotic varieties
such as kiwano melon, is trending. This concept is likely to fit well with
the desire for naturally lower sugar content beverages while still offering
a distinctive range of flavours for those looking for new taste experiences
whilst not straying too far from the familiar.
$140bn Global market
for juices, juice drinks and nectars
$10bn
Global market
for flavoured alcoholic
beverages
Source: Foodtrending.com
252bn
Litres
of carbonated soft drinks
consumed globally in
2014
05
Annual Report & Financial Statements 2015OverviewTREATT PLC I
.
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.
.
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m
1
5
£
m
4
6
£
m
0
4
7
£
m
5
4
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2
9
7
£
m
1
4
7
£
m
9
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5
8
£
Revenue
w Financial performance
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5
1
0
2
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.
£85.9m
2013 2014
2011 2012
2015
2011 2012
Adjusted Profit Before Tax
Dividends Per Share* (pence)
m
2
6
£
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m
9
6
£
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m
0
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8
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2
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0
1
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2013 2014
2015
2011 2012
2013 2014
2015
£8.0m
Adjusted profit before tax shows
the trend in profits before tax (but
ignoring exceptional items).
4.04p
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
%
2
9
.
%
6
7
.
%
4
9
.
%
6
9
.
%
1
.
0
1
%
5
0
2
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%
4
4
1
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%
4
9
1
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%
9
9
1
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%
1
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2
2
8
1
1
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2
5
1
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8
2
1
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9
9
0
.
8
7
.
0
2011 2012
2013 2014
2015
2011 2012
2013 2014
2015
2011 2012
2013 2014
2015
10.1%
22.1%
0.78
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.
to EBITDA
Average net debt
measures the debt of the Group
relative to its profitability. The lower
the ratio is, the more manageable
the level of debt.
* 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 accounted for in the subsequent financial year.
06
I TREATT PLC
Group five year trading record
INCOME STATEMENT
Revenue
EBITDA (pre-exceptionals)
Operating profit
Adjusted profit before taxation
Growth in adjusted profit before taxation
2011
£’000
2012
£’000
2013
£’000
2014
£’000
2015
£’000
74,518
74,009
74,097
79,189
85,934
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%
10,109
8,690
7,950
15.2%
Exceptional items
—
(598)
(1,093)
(1,402)
(174)
PROFIT BEFORE TAXATION
6,372
4,462
5,134
5,502
7,776
Taxation
Non-controlling interest
(2,017)
(7)
(1,390)
—
(1,655)
—
(1,553)
—
(1,786)
—
Profit for the year attributable to owners of the Parent Company
4,348
3,072
3,479
3,949
5,990
BALANCE SHEET
Goodwill
Other intangible assets
Property, plant and equipment
Net deferred tax 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
Non-current Redeemable loan notes (net)
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)
1,075
661
10,998
(390)
—
45,045
(13,481)
—
(7,065)
(2,959)
(699)
—
Total equity
25,551
26,003
27,443
28,760
33,185
CASH FLOW
Cash generated from operations
Taxation paid
Net interest paid
Dividends paid
Additions to non-current assets net of proceeds
Acquisition of interests in joint ventures or subsidiaries
Net 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
Adjusted basic earnings per share
Growth in adjusted basic earnings per share
Dividend per share4
Dividend cover (adjusted to exclude exceptionals)4
Net assets per share
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
8,667
(1,469)
(740)
(1,978)
(1,027)
—
180
(204)
2,987
(4,955)
4,655
(1,290)
3,429
(7,994)
(12,949)
(8,294)
(9,584)
(6,155)
9.2%
20.5%
1.18
8.50p
40.5%
2.90p
2.92
48.8p
7.6%
14.4%
1.52
6.88p
(19.1%)
3.10p
2.22
49.6p
9.4%
19.4%
1.28
8.64p
25.6%
3.70p
2.33
52.4p
9.6%
19.9%
0.99
9.95p
15.2%
3.84p
2.58
55.0p
10.1%
22.1%
0.78
11.94p
20.0%
4.04p
2.94
63.0p
Notes on calculations:
1 Operating profit divided by revenue.
2 Operating profit divided by total equity plus net debt.
3 Average of net debt at start and end of financial year
divided by EBITDA.
4 The dividend per share shown relates to the interim dividend declared and final dividend
proposed, both of which are paid after the year end and accounted for in the subsequent
financial year.
07
Annual Report & Financial Statements 2015OverviewTREATT PLC I
A yEAR OF ENCOuRAGING GROWTH,
WITH ADjuSTED PROFITS uP 15%
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I TREATT PLC Results
I am delighted to introduce this year’s Annual Report with news of another
year of increased profits for the Group. Group revenue is up by 9% to
£85.9m (2014: 79.2m) and adjusted* profit before taxation has grown
by 15% to £8.0m (2014: £6.9m). At 11.94p, adjusted basic earnings per
share have improved 20%.
It is gratifying to see that the cash performance of the Group has continued
to improve with net debt falling to a nine year low of £6.2m (2014: £9.6m).
Consequently, the average net debt to adjusted EBITDA ratio, which
compares net debt to the cash generation of the business, has fallen for
the fourth consecutive year to 0.78 times (2014: 0.99 times).
The positive performance for the year was spread across the Group,
with growth in both our core flavour & fragrance sector, as well as strong
growth in the beverage market. In addition our Earthoil brand delivered
encouraging growth in the personal care market.
Dividends
The Board is proposing a final dividend of 2.76p (2014: 2.60p)
increasing the total dividend for the year to 4.04p (a 5.2% increase).
This equates to a rolling three year dividend cover of 2.29 times. If
approved by shareholders at the forthcoming AGM, the final dividend
will be payable on 8 April 2016 to all shareholders on the register at close
of business on 4 March 2016. Shareholders who wish to participate in
the dividend re-investment plan for this and future dividends should
elect to do so by 14 March 2016.
Strategic overview
Through the implementation and development of the Group’s strategy as
described elsewhere in the Annual Report, we are becoming ever better
placed to take advantage of significant market opportunities. To be able to
continue to report growth in Treatt’s performance, as I have done these past
few years, it is important that we make focused investments in strategic assets
to ensure that we can deliver sustainable growth for all of our stakeholders.
Our most important strategic asset is our people. From the buzz and
excitement in R&D, to the dedication to deliver exceptional service in
sales and operations, there is, at the heart of our business, a vibrant and
unique culture which drives our success. The investments we make in
training and developing our staff have grown over the last few years, and
we continue to concentrate on attracting, investing in and retaining the
very best people in the industry.
innovative,
As an
technically-led, customer-focused manufacturing
business we have laid the foundations for future growth. Careful investment
must be made to help ensure our strategic targets are met and, in making
it, we are mindful that the need to generate growth and profits in the short
term must be balanced with the need to invest for longer term growth.
The highly competitive global environment will challenge our
customers, as well as us, and it is crucial that Treatt operates from
a flexible, efficient, cost effective and integrated manufacturing base.
We must prepare not only to meet today’s demands but also for those
that we know tomorrow will bring. Treatt operates in markets that are
becoming ever more fast-paced, complex and increasingly controlled
by regulation. The Group is ready, and well-placed, to invest both in
new premises in the uK as well as on-going improvements to the uS
infrastructure as and when required.
£85.9m
Revenue
Group revenue is up by 9% to
£85.9m (2014: 79.2m)
UK site relocation
The Group has outgrown its current manufacturing facilities and must
invest to ensure it remains a manufacturer fit for the present and the future.
As previously announced, we intend to relocate our uK facilities as soon
as we can. With an estimated cost of £15m – £20m, net of disposing of
the existing site, shareholders will be keen to know the exact timelines and
funding proposals for the relocation. We have identified a possible site but,
as this is part of a major strategic business development within the area,
we have not yet been able to enter into formal negotiations to buy the land.
In the meantime we continue to monitor and consider alternative sites as
and when they become available. In consequence, the precise timing of
our move is not yet known.
Corporate Governance
There have been no changes to the Board over the last year – though
the composition and performance of the Board and its committees is kept
under regular review. Our aim is to ensure that we have a Board with the
right mix of skills, knowledge and culture to lead the strategic direction of
the business in the years to come.
We pay special attention to managing risk. 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 regularly reviewed by the Board.
Prospects
The new financial year has started steadily, with some encouraging signs
that our first quarter will be, as expected, a better first quarter than the
disappointing start we had last year. We are seeing some growth beginning
to feed through from our newer innovation and opportunity pipelines as we
continue to focus our strategy on innovative ingredient solutions for global
FMCG customers, particularly in the beverage sector. Earthoil has started
the new financial year well and we hope for a greater contribution from this
business over the coming year.
Thank you
Finally, and most importantly, I want to close by thanking all Treatt
colleagues, wherever they may be based. I am forever bowled over by your
energy and sheer dedication. We have a fantastic team, and it is through
your hard work and endeavours that I am able to report again on another
successful year for Treatt. Thank you!
TIM JONES
Chairman
7 December 2015
* All adjusted measures exclude exceptional items, details of which are given in note 8.
09
Annual Report & Financial Statements 2015OverviewTREATT PLC I WE ARE DELIvERING ON OuR
OBjECTIvES CREATING A SuSTAINABLE
GROWTH IN PROFITS WHILST INvESTING
IN OuR BuSINESS FOR THE FuTuRE
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£8.0m
Profit Before Tax
Delivering on our objective of sustainable growth.
10
I TREATT PLC
2015 has been a year of continued progress. Treatt operates in a competitive
and dynamic market which brings challenges as well as opportunities, and
against that background it is pleasing to report our third successive year
of increased, and indeed, record levels of profit. Our adjusted profit before
tax this year of just under £8m is a significant achievement by colleagues
throughout the Treatt business and I take this opportunity to pay tribute to
their performance and considerable effort in delivering on our objective of
sustainable growth. Our success this year has not been easily achieved;
notable new business wins have been hard won, retention of key business
has often been challenging and yet the determination of our team to deliver
on our objectives has never wavered.
I am privileged to see at first hand the boundless creativity of colleagues
throughout the business, and their passion to succeed is the energy
which translates into results. My belief in our culture is reinforced every
day through our colleagues’ behaviours. The levels of engagement I
witness are often inspiring and hugely motivational for me. As always,
it is our people who make the difference which delivers success, and I
thank all of our colleagues across the Treatt Group for their significant
efforts for the business.
Delivering on our strategy
We have a well-defined strategy at Treatt which we have revised and
updated in the year to reflect the progress and future aspiration of
our journey which began in 2012. Our transformation continues and
our direction is clear. Focusing on those customers who can provide
sustainable value and concurrently keeping our cost base under
appropriate control have been the two fundamental strands to our
success and are embedded in our approach. Our goal to achieve a
level of intimacy with our strategic and target customers has delivered
some interesting new wins in the year and we expect that momentum
to continue next year. Selling ingredient solutions to consumer goods
companies, most typically in the beverage market, is often a technical-
led communication, and the increasing expertise we have within the
business is proving to be a true competitive advantage as our customers
recognise our ability to meet demanding briefs with innovative solutions.
Pleasingly, these peer relationships between technical counterparts can
lead to customer visits to Treatt’s facilities where customers collaborate
with our technical teams by working alongside them to make that final
refinement to an ingredient solution. This can in turn lead to Treatt being
involved in experimental concepts, driving ever closer relationships with
the customer and speeding up the sales cycle. Our new applications
centre in the uK, opened last year, is making a difference in these
efforts and gives a clear signpost to the direction that the company
needs to take if it is to continue to grow.
The two most notable new wins in the year came from divisions of customers
where we had leveraged existing relationships to open new doors. Both of
these wins were in beverage, one sugar reduction solution and one iced
tea solution. Both of these wins took a high degree of technical input from
Treatt’s various expert teams. Growing with customers is a key element of
our strategy, and deep relationships formed over years of proven added-
value are important for obtaining further opportunities. As the consumer
goods product life cycle shortens and we see a trend for more seasonal
or limited edition products, flavoured solutions may well become shorter
term wins. We do see, however, that this trend offers Treatt an enormous
opportunity as we become our customers’ partner of choice for innovative
ingredient solutions.
Investing in our future
Effectively selling sophisticated ingredient solutions to progressive
consumer goods companies requires a physical environment which is
both functional and is also an attractive environment for customers to
return to - one which reflects our abilities to add value to their businesses.
In order to capitalise on the opportunities we see in the market and further
develop our strategy, the success of which is beginning to come through,
there are a number of investments in the next few years which we believe
will enhance the business for the long term.
Our current uK site has met our needs since 1971 but is no longer
suitable for meeting the future requirements of our customers who
seek innovative, technical-led, solutions. We have adapted our uK site
over the years, improving our facilities where we can to make them as
appropriate as possible; but this gets more difficult as time goes on as the
surroundings we have today are simply no longer optimal for our needs.
As our business continues to evolve in this added-value direction, we can
expect more collaboration with customers and it is critical that our facilities
invite a feeling of confidence in our processes and, importantly, demonstrate
the depth and sharpness of our technical abilities – which is reflected in the
excellent science occurring at Treatt for the benefit of our customer.
We have had a good insight into the future with the recent opening of our
beverage applications centre which can be seen above.
The new facility will also bring levels of engagement across the business
to even higher levels as our colleagues will be in one purpose-built
facility as opposed to the many discrete units of Treatt in the uK today.
There is no question that the levels of communication, collaboration and
integration will provide the essential energy to drive our business forward
to greater success, providing durability in value for the long term. Above
all, our customers will be left with an enhanced feeling about Treatt
11
Annual Report & Financial Statements 2015OverviewTREATT PLC I
Our Earthoil personal care business increased capacity this year with the
addition of a new seed press for vegetable oils for cosmetic applications.
Productivity and optimisation will see additional benefits coming through
in the financial year ending 30 September 2016. Through the provision
of the fair trade premium we are helping to improve the lives of the
local communities, and have received a letter of thanks from one of the
beneficiaries in Kenya.
Product development
Successes with our sugar reduction portfolio have again been evident
this year and high value innovation continues on this persistent need
in the beverage industry. Whilst reducing sugar in beverages may seem
straightforward, maintaining the flavour and taste experience of sugar
without calories is a challenge. Treatt has brought valuable and technical
solutions to our customers in this regard. Our opportunity pipeline
continues to grow and turning those opportunities into realised business
will be an important objective for the team in the coming year.
As more flavoured beers are launched in the global market, our work with
breweries to increase their chances of success in this ever-popular sector
continues to gain momentum. Our ability to innovate in both flavour and
functionality makes us an increasingly attractive partner to our customers.
Our efforts in product and process engineering have delivered some good
financial returns in the year and the full year impact from this work will
be evident in the coming year. This work involves multi-disciplinary teams
around the business and can take many forms such as efficiency gains by
removing unnecessary steps in a process, gains from increasing yields or
partnering with suppliers to perform adjustments to their processes which
can increase value.
The performance of our partner, Endeavour Speciality Chemicals, together
with our own efforts to utilise speciality high impact chemicals, where
legislation permits, to provide powerful nuances to our product offering is
showing good progress.
Tea is increasingly being used as an ingredient in many beverages,
including alcoholic drinks, and its perception as a healthy option makes
it an attractive target market for Treatt. The Ready-To-Drink tea market
in the uS is anticipated to continue to grow at a CAGR of 6% through to
2018. To take advantage of this expanding market, Treatt has introduced
some new innovative tea products this year. One of our product innovators
has recently qualified as a Certified Tea Sommelier to give us a competitive
and our capabilities as our product mix transitions to increasing added-
value business. Our cost base will improve significantly too, as the new
site will drive away inefficiencies which currently exist, and improve our
competitive position.
As such, the Board has, as previously announced, committed in principle
to investing in relocating to a newly built facility, remaining in the Bury St
Edmunds area, with current estimated costs (net of disposal proceeds for
our current site) of between £15m - £20m. It is important to remember that
this is not just a bricks and mortar project. This is a business development
project aimed at taking Treatt to the next stage in its development. Our
new facility will enable us to excite our customers, improve efficiency and,
we believe, accelerate our growth.
Indeed, not all of this investment is in land and buildings but in fact
includes a significant investment in new plant and machinery, as well as
technical capabilities – in other words bringing forward capital investment
which we would need to do in any event in order to continue delivering
upon our strategic objectives.
We are ready to progress this move as fast as is practicably possible, but
the release of land on our preferred site is currently in the hands of local
developers and authorities as it part of a major new business development
project in the east of England.
This is a hugely exciting opportunity for Treatt which we believe will act
as a catalyst for growth and provide an added-value platform for all of our
stakeholders, ensuring continued success for the long term.
We are also planning to continue our investment in the uS by enhancing
our technical facilities there. This will involve expenditure of around $2m
over the next twelve months to provide a technical centre to encompass
the strategic expansion of our R&D capability. The technical centre
will house our brewing and application suite, designed to enhance
the customer experience and provide elements of visual commonality
between the proposed relocated uK Treatt and the uS facility, thereby
giving strategic global customers a common impression of Treatt.
We believe that the Far East, and China in particular, are significant
growth opportunities for Treatt. Despite mixed messages about its growth
prospects, the latest data on China indicates that it will continue to be a
significant force in global economic growth, and those companies in the
right sectors will stand to benefit. For example, Chinese ‘Millenials’, those
born in the 1980s and 1990s, are now 16-35 years old and entering their
prime consumption years. This generation now makes up 31% of China’s
total population, representing 415 million consumers — more than the
working population of the uS and Western Europe combined. It is this
generation that will drive new product consumption, development, and
innovation within China going forward.
Treatt’s ability to capitalise on this potential growth and future demand
for our products in the Far East will be enhanced by continuing to invest
in our technical capabilities and services in China where we are moving
to larger premises before the end of December 2015. This will enable us
to establish an application and sample lab, the cost of which will not be
material, in order to provide samples to customers in a timely way and
also to have technical application capabilities on the ground to support
customers effectively in what is a very competitive market.
12
“Thank you for your great support”
Mary Nungari
Fair trade premium benefactor, Kenya
I TREATT PLC
edge with customers and a greater understanding and knowledge of tea.
Our innovation work has also allowed us to successfully expand our
footprint at a number of beverage customers.
Some of the key new ingredients developed by Treatt will be offered to
strategic accounts on a much more exclusive and targeted approach
than before, to enhance the customer relationship by bringing something
exclusive and special, whilst ensuring that value is captured.
We also continue to deliver growth opportunities with a bias towards
natural and authentic ingredients, utilising our existing product portfolio
as well as the know-how and skill set for product development we have
built up over many years. We have recently been developing low cost,
high impact, price stable oil-based flavour solutions which will allow us to
further penetrate high-growth and more cost-conscious markets in South
East Asia, Latin America and Central Africa. We are determined to build
upon the foundations we have created and take this part of our business
forward to the next stage of growth and opportunity.
This year we have strengthened our marketing team who are working
closely with every part of the business as well as having increasing touch
points with customers, including social media, in order to better engage
with our customer base. Being able to show our customers that we are
forward-thinking by giving them an understanding of what will be the new
flavour trends over the horizon has led to some notable opportunities in
the year.
Our culture
Treatt has a people-centric culture which encourages passion, enthusiasm
and energy. Investment in training and development has never been
higher and the return on that investment has never been more apparent.
Our training strategy is designed to ensure that we have the necessary
skills aligned to business needs as well as offering opportunities for
development and we will continue to invest in colleagues across the
Group. At the risk of repeating myself, it is the output of our engaged
teams which is driving the success at Treatt. To enhance our success,
and in line with our strategy, we will be further investing in talent, in the
form of additional budgeted headcount. We are trying to inspire an interest
in science as a career in the younger generation, as well as promoting
Treatt as an employer of choice, engaging with this young audience at
local science fairs and at the Suffolk Skills Show, the biggest careers show
in Suffolk. In the uS, we are honoured to have been selected as one of
CareerSource Polk’s Best Places to Work last year, being recognised as
being the most innovative for motivation and retention of employees, as
well as for having the best training and development initiatives. A good
stream of work experience students and summer placements, as well as
intern opportunities, is providing one such avenue for Treatt’s potential
workforce.
A team of 32 employees in the uK took part in Mucky Races, a 5km
run featuring obstacles, mud and water. It proved to be a fantastic team
building exercise and entry into further races is planned!
We are also engaging more with our local communities through the
provision of volunteers to help in the community, and the sponsorship of
local initiatives.
TREATT HAS A PEOPLE-
CENTRIC CuLTuRE
WHICH ENCOuRAGES
PASSION, ENTHuSIASM
AND ENERGy
Our information exchange committees in both the uK and the uS
continue to be a valuable resource for management in terms of ideas and
suggestions about improvements in the business. The committees have
an active influence which enhances engagement levels.
The years ahead
As you will imagine, my focus is very much on delivery and the challenges
ahead and I take huge encouragement from our success over the last
few years, our investment plans for the future and the drive, initiative and
implementation of ideas I see across the business. Great people working
in a positive culture augurs well for continued progress for the business.
DAEMMON REEVE
Chief Executive Officer
7 December 2015
13
Annual Report & Financial Statements 2015OverviewTREATT PLC I ADjuSTED EARNINGS PER SHARE
INCREASED By 20% AND FREE CASH
FLOW OF £6.2M – SOLID FOuNDATIONS
FOR FuTuRE GROWTH
l
a
w
i
e
i
c
v
e
r
n
a
n
fi
14
I TREATT PLC Financial overview
Up
8.5%
Up
15%
Up
5.2%
Up
20.0%
Revenue
£85.9m
Profit Before Tax*
£8.0m
Dividend
4.04p
Earnings Per Share*
11.94p
Net operating margin*
Return on capital employed*
Average net debt to EBITDA*
2015
10.1%
22.1%
0.78x
2014
9.6%
19.9%
0.99x
Income Statement
Revenue and profit
Revenue for the year grew by 8.5% to £85.9m (2014: £79.2m). This
growth was widespread across the business, with sales to FMCG
companies being a key driver in the year. Revenue was also positively
impacted by historically high market prices for certain key ingredients,
particularly lemon and lime oil, the effect of which is expected to ease off
over the coming year. The continued delivery of our strategy has meant
that over the last five years Group revenue has grown by 36%.
An important long term KPI for the Group is net operating margin which
increased to over 10% for the first time in ten years as the strategic
benefit of growing revenue whilst maintaining a tight control of costs
Revenue
10.2% pa
Profit before tax
8.8% pa
COMPOUND
10 yEAR GROWTH*
Earnings per share
9.9% pa
EBITDA
8.4% pa
has begun to show through. This resulted in a 14% increase in pre-
exceptional operating profit to £8.7m (2014: £7.6m). Alongside net
operating margin, return on capital employed of 22.1% exceeded the
20% mark for the first time in a decade as the growth in profitability has
been built on a well-controlled capital base.
Exceptional costs in the year of £0.2m (2014: £1.4m) related to the
continuing legal costs concerning the Earthoil earn-out dispute.
Although not material in the year, these costs have been accounted
for as an exceptional item in order to maintain consistent treatment
with prior years. Excluding these costs, earnings before interest, tax,
depreciation and amortisation for the year increased by 12% to £10.1m
(2014: £9.0m). Profit before tax after exceptional items rose by 41% to
£7.8m (2014: £5.5m). Further information on the exceptional items is
given in note 8.
Dividends and Earnings Per Share
The proposed final dividend of 2.76p per share (2014: 2.60p) increases
the total dividend per share for the year by 5.2% to 4.04p, resulting in a
dividend cover of 2.9 times pre-exceptional earnings for the year and a
rolling three year cover after exceptionals of 2.3 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 55% over the last five years. The rolling cover is therefore
comfortably in the middle of the policy range. Basic earnings per share
(adjusted to exclude exceptional items – see note 11 to the financial
statements) for the year increased by 20% to 11.94p (2014: 9.95p). The
calculation of earnings per share excludes those shares which are held by
the Treatt Employee Benefit Trust (EBT) and Treatt SIP Trust (SIP) since
they do not rank for dividend, and is based upon profit after tax.
Foreign exchange gains and losses
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 and ended the year 7% stronger against GBP at
* All measures are adjusted to exclude exceptional items.
15
Annual Report & Financial Statements 2015OverviewTREATT PLC I
Financial Review continued
£1=$1.51 (2014: £1=$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 trading loss of £0.3m in 2015
(2014: £0.3m loss) and a gain on foreign exchange contracts of £0.2m
(2014: £0.4m gain). As part of the Group’s hedge accounting, a foreign
exchange loss of £0.2m was taken to reserves (2014: £Nil).
There was a more substantial currency gain of £0.8m (2014: £Nil) in
the ‘Statement of Comprehensive Income’ in relation to the Group’s
investment in overseas subsidiaries, principally in respect of Treatt uSA.
Finance costs
The Group’s net finance costs for the year increased by 2.2% to £0.74m
(2014: £0.73m) as a result of an increase in the pension finance costs.
Although debt levels have fallen considerably, this has not fed through to
lower charges since a significant proportion of the Group’s finance costs
are fixed through an interest rate swap (see below), and the carrying cost
of unutilised facilities now represents a far greater proportion of the overall
cost. On a pre-exceptional cost basis, interest cover for the year increased
to 11.7 times (2014: 10.5 times).
As part of the Group’s risk management, in 2011 R C Treatt fixed $9m
of uS Dollar borrowings at 5.68% for ten years by way of an interest rate
swap. This swap has been designated as a ‘hedge’ in accordance with
IFRS and consequently any movements in the mark-to-market of the
swap are taken directly to equity. At the balance sheet date, the fair value
liability, net of deferred tax, of the swap was £0.6m (2014: £0.4m).
Group tax charge
The current tax charge of £1.9m (2014: £1.7m) represents an effective
rate (based on profit before tax and exceptional items) of 24.2% (2014:
24.7%). After providing for deferred tax, the overall tax charge has
increased by £0.2m to £1.8m (2014: £1.6m); an overall effective tax rate
(after exceptional items) of 23% (2014: 28%), reflecting the impact of the
continuing reduction in uK tax rates and a different profit mix between
tax jurisdictions. 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 18%, the Group’s overall effective
rate of tax is expected to fall for the next two years.
Balance Sheet
Group shareholders’ funds grew by £4.4m (2014: £1.3m) in the year to
£33.2m (2014: £28.8m), with net assets per share increasing by 15% to
63p (2014: 55p). Over the last five years, net assets per share have grown by
47%. Net current assets now represent 95% (2014: 96%) 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 £0.4m (2014:
£0.5m) as a result of shares held by the EBT and SIP, 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
The Group has continued to improve its cash performance and in the
year net debt fell by £3.4m to £6.2m (2014: £9.6m) with a corresponding
16
reduction in the level of gearing from 33% to 19%. The Group has a mix
of secured and unsecured borrowing facilities totalling £20.7m, of which
£8.5m 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 when they fall due.
Although there was an increase in cash tied up in working capital for
the year of £1.5m this was largely due to a stronger end to the financial
year, as compared to the previous year. Overall, the rate of increase in
working capital was slower than the growth in revenue, as improvements
in inventory turn led to a reduction in inventory levels year on year. The
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.
The level of capital expenditure in the year remained at the lower end of
our expectations with a total spend of £1.0m compared to £0.8m in 2014.
There were no major projects in the year, whilst capital expenditure in the
uK tended to be related to on-going routine renewal and maintenance
whilst plans progress towards the proposed relocation.
Treatt Employee Benefit Trust and Treatt SIP Trust
As announced previously, during the year the Group set up an HMRC-
approved Share Incentive Plan (SIP) for its uK employees, and as far as
practicable, offered a similar scheme to its uS staff. All uK staff with a
year’s service were awarded £500 of ‘Free Shares’ as part of the Group’s
employee incentive and engagement programme as the Board are firmly
of the view that increased employee share ownership is an important
tool for driving positive employee engagement in the business. A similar
scheme for uS staff, who were awarded $800 of Restricted Stock units,
was also put in place. These shares are forfeited by employees who leave
within three years from the date of grant.
under the SIP uK employees could also purchase £1,800 of Treatt shares
out of gross income at no cost to the company.
During the year, 90,000 shares were issued to the SIP at par (2 pence
per share). The SIP currently holds 88,000 shares (2014: Nil), of which
12,000 are beneficially owned by the company. It is anticipated that going
forward the obligations under the SIP will be satisfied through the issue
of further shares.
In addition, 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.
Following approval of the Long Term Incentive Plans at the 2014 Annual
General Meeting, Executive Directors and certain key employees were
granted 538,000 nil cost share options which will vest after three years on
a sliding scale, subject to performance conditions. In total, options were
I TREATT PLC
granted over 783,000 (2014: 468,000) shares during the year, whilst
220,000 (2014: 127,000) were exercised from options awarded in prior
years which have now vested.
The Employee Benefit Trust (EBT) currently holds 736,000 shares (2014:
956,000) acquired in the market in order to satisfy future option schemes.
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.
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 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 is expected to protect the Group
against the worst of any short-term swings in currencies.
Summary
As we move into the next phase of the Group’s strategy, we can reflect on a
successful year both in terms of sales growth and profitability, but equally
importantly in terms of cash performance. As we look ahead to the new
financial year, which has got off to a solid start, the Group is well-placed
to make the long-term strategic investments which are needed in order
to meet its strategic objective of growing its profitability on a long term,
sustainable, basis.
RICHARD HOPE
Finance Director
7 December 2015
Final Salary Pension Scheme
The three-year actuarial review of the R C Treatt final salary pension scheme
was carried out during the year as at 1 january 2015, the result of which
was that the scheme had an actuarial surplus of £314,000. Consequently,
the company was able to agree with the trustees that with effect from 1
October 2015 it did not need to make any further contributions to the
scheme. It was further agreed that if the annual actuarial funding updates,
before the next full actuarial review in 2018, reveal that the funding level
has fallen to below 95% of the scheme liabilities, then the company will
voluntarily resume contributions.
As required by The Pension Regulator, the actuarial review was updated
on a consistent basis as at 30 September 2015 which revealed that the
actuarial surplus had increased to £561,000.
Despite this, the IAS 19, “Employee Benefits” pension liability in the
balance sheet, net of deferred tax, increased in the year from £2.0m
to £2.4m. This is the largest gap between the actuarial and accounting
positions since the introduction of IFRS in 2005. The principal cause of
this difference is that IAS 19 requires that investment returns must reflect
a 100% corporate bond return of 4%, whereas the actuarial calculations
are based on the actual investment strategy for which a return of 5.2%
was assumed.
The scheme has not been subject to any further accruals since 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. This means that the defined benefit scheme has now
been de-risked as far as it is practicable and reasonable to do so.
Financial Risk Management
The Group operates conservative treasury policies to ensure that no
unnecessary risks are taken with the Group’s assets.
No investments other than cash and other short-term deposits are
currently permitted. Where appropriate these balances are held in foreign
currencies, but only as part of the Group’s overall hedging activity as
explained below.
The nature of Treatt’s activities is such that the Group could be affected
by movements in certain exchange rates, principally between Sterling and
the uS Dollar, but other currencies such as the Euro can have a material
effect as well. This risk manifests itself in a number of ways.
Firstly, the value of the foreign currency net assets of Treatt uSA and the
overseas Earthoil companies can fluctuate with Sterling. Currently these
are not hedged as the risks are considered insufficient to justify the cost of
putting the hedge in place.
17
Annual Report & Financial Statements 2015OverviewTREATT PLC I Directors’ Report
Financial statements
The Directors present their report and the audited financial statements for
the Group for the year ended 30 September 2015.
Results and dividends
The results of the Group for the year are set out on page 49. Profit before
tax for the year excluding exceptional items was £7,950,000 (2014:
£6,904,000).
The Directors recommend a final dividend of 2.76p (2014: 2.60p) per
ordinary share. This, when taken with the interim dividend of 1.28p
(2014: 1.24p) per share paid on 16 October 2015, gives a total dividend
of 4.04p (2014: 3.84p) per share for the year ended 30 September 2015.
Corporate governance
The Corporate Governance Statement on pages 30 to 34 forms part of this
Directors’ Report.
Directors
The Directors of the Parent Company are shown on page 92.
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 31.
Details of the Executive Directors’ contracts and notice periods are given in
the Directors’ Remuneration Report on page 41. 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 31, in
recognition of Provision B.7.1 of the 2014 uK Corporate Governance
Code Tim jones and Daemmon Reeve 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 44.
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
2015 (the latest practicable reporting date prior to publication of this
document).
Schroder Investment Management
Discretionary unit Fund Managers
Miton Capital Partners
james Sharp Stockbrokers
Barclayshare Stockbrokers
Number
%
9,016,345
7,700,000
2,071,150
1,895,480
1,779,366
17.45
14.90
4.01
3.67
3.44
18
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.
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 22 to 29. 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 29 of the financial statements.
Going concern and viability statement
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 8 to
17. Information on the principal risks and uncertainties and how they are
managed can be found in the Strategic Report on pages 23 to 26.
In accordance with provision C.2.2 of the 2014 uK Corporate Governance
Code, the Directors have assessed the prospect of the Company over
a longer period than the 12 months required by the ‘Going Concern’
provision, C.1.3 of the 2014 uK Corporate Governance Code. The Board
conducted this review for a period of five years, which is consistent with
the longer term financial plans for the Group.
In determining the longer term viability of the Group 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 within the
five year review were:
•
the implications of the challenging economic environment and future
uncertainties on the Group revenues and profits;
the implication of the proposed site relocation in the UK;
the impact of the competitive environment within which the Group’s
businesses operate;
•
•
I TREATT PLC
•
•
•
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;
the Group’s access to short, medium and long-term borrowing
facilities to meet day-to-day working capital requirements as well as
long-term investment requirements; and
a sensitivity analysis which involves flexing a number of the main
assumptions underlying the five year plan.
As at the date of this report, the Directors have not identified any material
uncertainties which would affect the Group and Parent Company’s ability
to continue as a going concern for a period of twelve months from the
date of this annual report. Furthermore, the Directors have a reasonable
expectation that the Group has adequate resources to continue in
business and meet its liabilities over the five year period of their viability
assessment.
Accordingly, the Directors continue to adopt the going concern basis in
preparing these financial statements.
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 over-arching
policies and procedures, and a range of key indicators are maintained
and reported at every Board meeting.
The uK headquarters is designated as a top tier site under the Control of
Major Accident Hazards Regulations 1999 (‘COMAH’), which is enforced
by the Competent Authority, being the Health and Safety Executive and the
Environment Agency. The main aim of the regulations is to prevent and
mitigate the effects of major accidents involving substances, which can
cause damage/harm to people and/or the environment. Accordingly, Treatt
is regulated under the stringent COMAH regulations and works closely with
the Health and Safety Executive and the Environment Agency, ensuring that
the safety and environmental security of the site is paramount.
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, bespoke,
support is provided where necessary.
Greenhouse gas emissions
The Group’s disclosures on greenhouse gas emissions have been included
within the Strategic Report on pages 27 and 28.
Employees
The Group’s disclosures on employees have been included in the Strategic
Report on page 28.
Structure of share capital
The Parent Company’s share capital comprises 52,495,170 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 24 of the financial
statements. During the current period the Parent Company issued 90,000
shares to Treatt SIP Trustees Limited (2014: nil).
Restrictions on transfer of securities
There are no restrictions on the transfer of ordinary shares or on the
exercise of voting rights attached to them, except (i) where the Parent
Company has exercised its right to suspend their voting rights or to prohibit
their transfer following the omission of their holder or any person interested
in them to provide the Parent Company with information requested by it
in accordance with Part 22 of the Companies Act 2006 or (ii) where their
holder is precluded from exercising voting rights by the Financial Services
Authority’s Listing Rules or the City Code on Takeovers and Mergers.
Rights and obligations of ordinary shares
On a show of hands at a general meeting every holder of ordinary shares
present in person or by proxy and entitled to vote shall have one vote and on
a poll, every member present in person or by proxy and entitled to vote shall
have one vote for every ordinary share held. Subject to the relevant statutory
provisions and the Articles, holders of ordinary shares are entitled to a
dividend where declared or paid out of profits available for such purposes.
Articles of Association
The powers of the Directors are conferred on them by uK legislation and
the Articles of Association. Changes to the Articles must be approved by
shareholders passing a special resolution at a general meeting.
Powers of the directors and purchase of own shares
At the forthcoming Annual General Meeting in 2016, 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 2016 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.
It is the Parent Company’s intention to seek renewal of the general
authorities annually.
In order to provide the Parent Company with greater flexibility in view of its
intention for a full site relocation of its uK operation, a further resolution
will also be proposed at the Annual General Meeting seeking authority to
disapply pre-emption rights on a further 5% of the existing issued share
capital for use in connection with a specified capital investment, being
the site relocation. The request for such authority is in accordance with
19
Annual Report & Financial Statements 2015OverviewTREATT PLC I Directors’ Report continued
the 2015 guidelines issued by the Pre-emption Group and further details
are set out in the notice of Annual General Meeting. These authorities, if
granted by shareholders at the Annual General Meeting, will expire at the
conclusion of the Annual General Meeting in 2017.
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.
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 (2014: Nil) were purchased by the EBT
during the year ended 30 September 2015. The trustees have waived
their voting rights and their right to receive dividends in respect of the
ordinary shares held by the trust.
Treatt SIP Trustees Limited (the ‘SIP Trust’)
The SIP Trust holds ordinary shares in the Parent Company in order to meet
the obligations under the Group’s Share Incentive Plan in the uK which was
approved at the 2014 Annual General Meeting. During the year 90,000
(2014: Nil) shares were issued under a block listing application. voting rights
are waived on all shares held in the SIP Trust, whether or not allocated to
participants under the rules of the Share Incentive Plan. Dividends are only
waived in respect of shares which have not been allocated to participants;
dividends received by the SIP Trust on behalf of participants are reinvested
in shares at market value on the date of reinvestment.
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 29 january
2016. The Notice of Meeting and explanatory notes are given on pages
87 to 91. 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
RSM uK Audit LLP (formerly 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 RSM 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 2015 is 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.
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.
b.
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
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 7 December 2015.
The Group financial statements are required by law, and IFRS adopted by
the Eu, to present fairly the financial position of the Group and the Parent
ANITA STEER
Secretary
20
I TREATT PLC
6
3
2
1
d
r
a
o
b
e
h
t
7
5
1 Nomination Committee
2 Remuneration Committee
3 Audit Committee
4
EXECUTIVE DIRECTORS
1 Daemmon Reeve 1
Chief Executive Officer, first appointed 2012
Daemmon joined R C Treatt & Co Ltd, the Group’s UK operating
subsidiary, in 1991 and has extensive industry experience and
knowledge gained from his widespread understanding in technical,
operational, sales and purchasing disciplines. He was appointed CEO
of Treatt USA in July 2010 and became Group CEO in August 2012.
2 Richard Hope
Group Finance Director, first appointed 2003
Richard 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.
NON-EXECUTIVE DIRECTORS
3 Tim Jones 1 Chairman 2 3
Non-executive Chairman, first appointed 2012
Tim is Non-executive Chairman of Treatt. He also runs the charitable
organisation, Allia, is a Non-executive Director of Retail Charity
Bonds plc, a Trustee of SkillsBridge and serves on the Advisory
Board of the Business School at Anglia Ruskin University. He has
worked across the US, Middle East and Europe with particular
experience in the financial services and the water bottling and
distribution sectors.
4 Jeff Iliffe 1 2 Chairman 3
Non-executive Director, first appointed 2013
Jeff, a qualified Chartered Accountant, 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.
5 Anita Haines 1
Non-executive Director, first appointed 2002
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.
6 Ian Neil 1 2 Chairman 3 Senior Independent Director
Non-executive Director, first appointed 2009
Ian 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.
7 David Johnston 1 2 3
Non-executive Director, first appointed 2011
David 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 from May 2007 to
December 2009. David also serves as a Non-executive Director on
the board of James Finlay Ltd.
21
Annual Report & Financial Statements 2015OverviewTREATT PLC I
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’).
An overview of the Group’s strategy and business model is set out on
page 3, and together with the Chairman’s Statement, CEO’s Report and
Financial Review on pages 8 to 17, 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 an updated Group strategy in july 2015 and this was
presented to all employees with management responsibility in the uK and
uS by the Executive Directors at strategy days held during September and
October 2015. These managers will ensure that the strategy is thoroughly
communicated throughout the business and that each member of their
teams understands how they can have a positive impact on the overall
Group strategy. The main objective of the strategy remains as reported in
the 2014 report and accounts and as outlined on page 3; the focus is on
the delivery of long-term and consistent growth in profitability by focusing
on those customers and products which can bring Treatt long-term
sustainable value. The strategy places a strong focus on building close,
long-term relationships with customers in the beverage sector, providing
them with solutions for differential advantage in the marketplace.
Our business model is designed to deliver consistent, quality ingredient
solutions to our customers driven by anticipating and listening to their
needs. 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.
We are clear about what we do and this is outlined on page 4. In serving the
flavour, fragrance and FMCG industries, we place a particular emphasis
on the beverage market, including alcoholic beverages, where many of
our innovative ingredient solutions are used.
In order to deliver long-term sustainable profit growth, the following key
pillars to our strategy will support a focused sales approach:
• MEETING CUSTOMER NEEDS – we have an excellent reputation for
delivering quality products, which meet the needs of the customer.
We regularly challenge and improve our quality control and
assurance processes to ensure that our customers receive quality
products, right first time. Our market place is increasingly dynamic
and our customers continually seek innovative ways to differentiate
their offering in the consumer space through various means with
differential flavour advantage. Treatt’s expertise in flavour innovation
and solutions that provide authenticity bring significant value to the
customer.
• SOLUTIONS IN MANy FORMS – At Treatt we recognise that an
ingredient solution may take many different forms. Some will be more
closely aligned with our traditional ingredients business, which we
continue to operate but with a more focused approach; others will
involve greater innovation and the use of new and exciting ingredients
and blends crafted by our experienced and skilled employees, many
of whom are regarded as experts in their respective fields, from sugar
reduction to brewing, from citrus to tea. It is by building trust with
customers through offering our experts to assist our customers’ need
that we reach a high level of customer engagement and relationship
with customers on many fronts. This trust increases the likelihood
of customers increasingly turning to Treatt as opposed to ‘shopping’
opportunities in the market.
• DIFFERENTIAL ADVANTAGE – Treatt has many skilled, qualified and
experienced staff in all areas of the business and investment in the
Group’s technical capabilities continues. We recognise that these staff
bring added-value to our products and our customers’ businesses
and therefore they often accompany the sales team on visits and
at exhibitions, working closely with customers to meet their needs.
Sales is the responsibility of all employees and culturally at Treatt all
departments are aligned behind the need of the customer.
• CUSTOMER INTIMACy – Building close relationships with our
customers is essential; by providing them with value propositions,
which meet or exceed their needs, we aim to build a level of intimacy
with our customers where Treatt is their first choice supplier for
ingredients solutions, without the need to brief other suppliers.
• CULTURE – At Treatt our culture within the business is critically
important to our success. We recognise that a happy, well-motivated
and engaged workforce is a more successful one and we drive
relentlessly at reinforcing our culture to enable our talented colleagues
to thrive in a great cultural environment. As part of the previous
strategy implementation, we moved to ‘One Treatt’ and now operate
the business on a progressively global platform. We encourage
staff to get to know each other, share experiences, communicate
and work as a team. A business is only as good as its people – we
attract and promote the most talented people to drive our business,
and importantly our culture, forward and foster an environment of
creativity, responsibility, accountability and enjoyment.
Health & Safety will always remain a key 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.
22
I TREATT PLC
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
2015
2014
2013
2012
2011
15.2%
20.0%
10.1%
22.1%
0.78
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
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 7.
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
2015
5
3.66
2014
3
3.39
2013
3
3.45
The increase in reportable accidents is a result of one additional accident
at both the uK and uS sites. Although reportable, none of the accidents
resulted in serious injury to staff and appropriate actions were taken in
response to reduce the likelihood of further occurrences.
the detailed risk registers twice a year and upon any material change in the
business, with any amendments, control issues, accidents or commercial,
financial or reputational issues being reported to the Board in the meantime.
The average number of sick days per employee has increased marginally. New
absence policies, introduced in 2014, have had the desired effect of reducing
the number of incidences of short term absence, however there has been an
increase in long-term absence caused by serious illness. It is anticipated that,
due to the demographic of our workforce, this pattern will continue.
The health and safety of our workforce continues to be a priority; accident
and sickness levels are reported to the Board at each meeting and a
process of continuous improvement ensures that action is taken to
improve the safety of the working environment at every opportunity.
Principal risks and uncertainties
Whilst the Board has overall responsibility for setting the risk appetite within
the business and for Group risk management, day to day risk management
responsibility is delegated to the Executive Directors who work closely with
the senior management teams in reviewing and monitoring risk across
the business. Effective risk management is inherent in the culture of the
Group and the way in which we do business. An understanding of the
risks within our business and their strategic, commercial, financial and
legal implications encourages clear decision-making in respect of the risks
that we will and will not take.
As well as being inherent in the way we work, our risk management
framework provides a consistent, and structured, process for identifying,
assessing, responding to and monitoring risk. The senior management
teams compile Group risk registers considering the effects of risks on the
business and determining appropriate and proportionate risk mitigation
strategies. Risks are rated on their probability and impact and re-rated
after mitigation. Any risks that remain classified as high or medium post
mitigation form the Board risk register, providing details of those risks that
may impact upon the strategic direction of the Group. The Board reviews
The Board has conducted a review of the effectiveness of the Group’s
system of internal controls and risk management procedures. The Board
receives an annual paper detailing the effectiveness of the Group’s internal
controls, which is reviewed and discussed by the Board. This paper
covers all material controls including financial, operating and compliance
controls. The Board has also monitored and reviewed the effectiveness
of the Group’s approach to risk management and has solicited the views
of a number of senior managers relating to IT security, health and safety
and legal and insurance matters and the management of those risks. The
Board has concluded that the current risk management procedures for
identifying risks and considering risk mitigation are appropriate.
During the course of the year and in light of the increased emphasis on
risk in the 2014 Corporate Governance Code, the Board has reviewed the
process of risk management and whether risk should fall within the remit
of the Audit Committee, with the Board retaining overall responsibility. It
was decided that due to the size of the Group, risk management should
remain with the full Board but as the Group continues to grow, this will
remain under review.
How we manage risks
The management of risk is embedded within the framework of the Group,
which includes:
the process of strategy setting;
•
a clear understanding of market conditions and commodity prices;
•
the quality of our people and culture;
•
•
established policies, procedures and internal controls;
• processes for identification, review and monitoring of risk;
•
regular dissemination of both financial and non-financial information
and KPIs; and
oversight of risk by the Board.
•
23
Annual Report & Financial Statements 2015OverviewTREATT PLC I
Strategic Report continued
The Board has carried out a robust assessment of the principal risks and uncertainties facing the business, including those that would threaten the
business model, future performance, solvency or liquidity. The following list of risks is not exhaustive and may change as our business continues to evolve.
The risks are not prioritised but contain those that will directly affect the progress of our updated strategic priorities.
Strategic Priorities
4 Meeting customer needs [ Solutions in many forms 9 Differential advantage v Customer intimacy h Culture
Effect
Strategic impact
Risk climate
Mitigation
Action during year
Risk
People
Poaching of key
staff
9
v
h
As our highly skilled
and experienced staff
become increasingly
customer facing the
risk of them being
headhunted increases
Financial
Movements in
commodity raw
material prices
Impact on contribution,
possible stock
shortages
4
[
Operational
Pressure on
infrastructure from
strategic business
wins
Loss of revenue,
damage to reputation,
loss of key strategic
customer
4
[
v
Structural damage
to production
facilities,
particularly at
Treatt uSA, which
is in a location
which suffers from
major storms
4
[
Loss of use of
buildings, danger to
staff, loss of equipment
and product; Major
incident due to type of
products stored
Inadequate
documentation of
processes and/
or adherence to
required processes
4
Failure of third party
audits and damage to
reputation as problem-
free supplier
24
r
Increase
p
No change
p
No change
p
No change
p
No change
Secure an emotional
attachment to the business;
Salary and benefits to be
appropriate to the position;
Ensure staff are empowered
and have opportunities
within the business
Review and implementation
of retention strategies;
Increased focus on training
and investment in staff;
Introduction of the share
incentive plan
Regular stock meetings
and inventory control with
experienced members of
staff;
Monitoring and
communication of market
conditions;
Long-term commodity
contracts
Maintaining close
contact with suppliers
and continuing to gather
and disseminate market
intelligence on key
commodities, assisting our
customers to manage price
volatility as part of the Treatt
service
Ensure appropriate
investment in infrastructure;
Close communication
between sales and
operations to determine
likelihood of large order
and capacity restraints
to manage customer
expectations;
Manage sub-contractor
relationships
Regularly inspect and
maintain building
components;
Implement hurricane action
plan when necessary;
Sufficient spread of
inventory between
production facilities in uK
and uS;
Appropriate insurance cover
in place
Strong commitment
Group-wide to disciplined
compliance to internal
quality programs;
Commitment to permit third
party auditing
Continued investment in
current site;
Purchase of new technical
equipment and increase in
headcount in appropriate
areas
Continued maintenance and
upkeep of buildings
Facilitation of audits by
regulatory bodies and
clients and any action points
undertaken
I TREATT PLC Risk
Effect
Strategic impact
Risk climate
Mitigation
Action during year
Operational (continued)
Network hardware
issues and IT
security
4
Loss of IT systems
impacting on the ability
of the business to
function
p
No change
Commercial
Product failure
Potential product recall
causing financial and
reputational loss
4
v
p
No change
Commoditisation of
established Treatt
products
Effect on revenues and
margin attrition
[
Shortening
value Chain and
new entrants in
specialty still-
based aqueous
distillates
Customers
demonstrating
increased competence
to fold, fractionate,
break bulk;
Increased competition
Consolidation
within the flavour
industry
Fewer flavour
customers
9
v
p
No change
p
No change
p
No change
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;
very strong network change
control
Continued review of network
resilience and failover
procedures;
Replacement uninterruptible
power source batteries
installed in network and
server rooms;
SonicWall Analyzer to collate
firewall logs;
Engagement of professional
hackers to identify gaps in
security
Strong supplier qualification
process;
Intake testing/analysis;
Regular review of risk
matrix for every raw material
handled;
use of barcode scanners on
all orders to avoid mispicks;
Range of testing to detect
contamination;
Obtain up-to-date
information for all suppliers
via supplier questionnaires
and visits;
Supplier risk assessment
to determine in-house test
schedule
Innovation and development
of new products;
Broaden into other
associated sectors
Continued value-added
in-house innovation;
Rationalisation of product
portfolio to eradicate low
margin commoditised
products;
Strengthen product
knowledge/sourcing
Review and renewal of recall
insurance;
Testing of product recall
procedure;
Testing of products prior to
dispatch
Focusing innovation in
beverage sector
Further review and
rationalisation of product
portfolio;
Eradicating low volume and
low margin products
Innovate and develop
appealing ingredients;
Broaden into beverage and
other associated sectors -
Earthoil;
Customer diversity
Increased direct approaches
to FMCG companies with
innovative ready-to-use
products;
Reducing reliance on flavour
companies
25
Annual Report & Financial Statements 2015OverviewTREATT PLC I Strategic Report continued
Strategic Priorities
4 Meeting customer needs [ Solutions in many forms 9 Differential advantage v Customer intimacy h Culture
Risk
Effect
Strategic impact
Risk climate
Mitigation
Action during year
4
[
4
[
4
4
[
Commercial (continued)
Single sourced for
synthetic specialty
chemicals, many
Treattarome raw
materials and
materials for
applications work
Potential loss of
primary supply source;
The nature of the
materials concerned
would indicate
individual company IP
is involved
Natural products
Legal/Regulatory
Failure to comply
with relevant
uK and uS
environmental,
H&S and other
applicable
legislation
Failure to comply
with HMRC
approval for Duty-
Free Ethanol
Loss of supply,
increase in market
price or impact on
quality resulting from
fluctuations in yields
caused by weather,
disease etc;
Squeeze on margins
HSE / EA investigation;
Probable enforcement
action involving fines,
enforcement notices;
Risk of site closure
Fines;
Loss of approval
resulting in inability
to receive duty-free
ethanol;
Ethanol would have
to be purchased duty
paid which would
result in an inability
to compete in the
flavoured alcoholic
beverage sector
p
No change
p
No change
p
No change
p
No change
Closer collaboration with
existing suppliers;
Identifying alternative
suppliers where possible;
Investigate alternate sources
of supply of, if not identical,
similar materials;
Creation of alternate blends
using substitutes;
Long-term supply
agreements put in place
utilised alternate routes
to contact the supplier
(networking with other
departments, not just
procurement);
Leveraging Treatt’s market
and product position to gain
preferential supply;
Product matching underway
to enable alternative
sourcing
Enhancing relationships with
competitors/brokers and
other supply channels;
Forward purchasing
contracts for medium to
longer term supply
Quicker reaction to feedback
to pass consequences down
the supply chain and keep
Sales team better informed;
Allow mitigation work to start
on contracts
Working closely with the
Environment Agency and
relevant authorities in
respect of COMAH
Systems put in place to
recognise ethanol on receipt
and track it through Treatt in
its original and blended form
to dispatch
Detailed understanding of
legislative requirements
with internal involvement,
consultative support and
capital investment;
Pro-active role in ensuring
the Group’s systems and
procedures are adapted to
ensure compliance
Notification processes in
place to ensure correct
monthly notification to
HMRC and entry on the
Excise Movement and
Control System;
Monitor effectiveness of
system and close any
gaps in the system as they
become apparent
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.
put in place a clear action plan as to how the Group would continue to
operate successfully in such an event. In order to ensure that the business
continuity plan is sufficiently robust, external consultants have been
reviewing and advising upon the plans.
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
26
I TREATT PLC
SUSTAINABILITy REPORT
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 2015
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, achieved zero carbon emissions.
• Reduction of methanol procurement by 33% reducing fugitive Volatile
Organic Compound emissions.
• 67% of hazardous waste recycled.
• 86% of used drums recycled; and reduced laboratory waste collected
by 75%.
• 6% reduction in trade effluent content.
Treatt uSA
•
•
Instituted a site wide cardboard recycling program including tons of
Treattarome raw material (fruit) cardboard containers.
Increased Treattarome Still throughput and reduced still cleaning
time saving water and reducing energy costs per kilo produced.
• Decreased water consumption used to de-foam spent tea by adding
a simple decant tank with de-foaming agent.
• Obsolete equipment sent to the recycling centre.
•
Installed energy saving LED lights in the parking lot that are activated
via motion detectors.
Installation of insulation on hot pipes in the Distillation plant.
•
• Reduction of waste orange residues.
• Reduced aldehyde waste via new QC laboratory aldehyde instrument.
• Reduction in hazardous waste from laboratories.
Earthoil
• The manufacturing site in Kenya sends waste from the processing of
Macadamia to its growing project to be used as compost on the tea
tree farm.
• Biomass waste from the distillation process is converted into biochar
for application in the tea tree farm. Biochar improves the soil structure
and texture, allowing increased water and mineral retention.
Introduction of energy efficient gasifier stoves for farmers, which
create reusable charcoal from wood, thereby reducing deforestation
and smoke emissions.
•
Additionally, we have maintained the reduction in 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.
The Environmental Working Group meets quarterly to discuss the various
elements of the business which impact on the environment, such as
energy use, waste and environmental regulations. Minutes of the meetings
are 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.
During the year Treatt announced its intention for a full site relocation of
its uK operation; this will provide an opportunity to modernise facilities
and build in appropriate and cost effective infrastructure to reduce the
environmental impact of the building as far as possible.
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 2015 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 three 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.
2015
2014
Scope 1 – Direct CO2 emissions (tonnes CO2e)
1,370
1,645
Scope 2 – Indirect CO2 emissions (tonnes CO2e)
1,842
1,881*
Total tonnes CO2e emissions
3,212
3,526*
gCO2e emissions per kg of product shipped
378
367*
*Restated
GHG emissions detailed in this table have been calculated using the
appropriate 2015 DEFRA conversion factors.
There has been an overall decrease in emissions of 314 tonnes of CO2e.
Electricity usage across the Group is marginally down with the largest
decrease coming in Scope 1 emissions, being primarily driven by a
27
Annual Report & Financial Statements 2015OverviewTREATT PLC I
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.
A particular focus in 2015 has been to improve the skills of our employees
through increased investment in ongoing training and coaching – provided
both internally and externally. We have introduced a ‘Beyond the Basics’
management development programme in both the uK and uS, providing
tailored training to managers and team leaders to fill gaps identified within
their skill base. The Group supports ongoing qualifications by providing
funding and study time to employees across the business from NvQs
for manufacturing, warehousing, IT and HR to Nebosh and Company
Secretarial qualifications.
Additionally, the Group has made a commitment to students and
apprentices in both the uK and uS in providing internships in sales
and technical departments. This provides valuable work experience to
students in their placement year, whilst strengthening the Group’s links
with universities and developing relationships with a future generation
of employees. The uK site currently has two apprentices, one within
technical and one in HR, providing a structured training and qualification
programme. A third apprentice is being sought in Engineering.
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 and the Share
Incentive Plan (see note 25). 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
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 received free shares (or their uS
equivalent) in December 2014 and will do so in December 2015; uK staff
will also be able to buy additional partnership shares from their December
salary payment, which Treatt will match on a 1:1 basis 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.
Strategic Report continued
reduction in gas usage across the Group and there being no repeat of the
relatively high one-off emissions in 2014 in respect of the decommissioning
and installation of chillers. Electric consumption decreased at R C Treatt
and Earthoil Kenya, but increased at Treatt uSA due to an increase in
Treattarome production. Conversely, gas consumption decreased at Treatt
uSA due to a reduction in other distillation.
The overall decrease in emissions is consistent with a decrease of 1.1m
kgs of product shipped during the year, although the emissions per kg
have increased. This results from the continued strategic emphasis on
manufactured value-added 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. A consistent
theme in the environmental improvements made during the year, noted
above, is the reduction of waste streams.
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.
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. Despite the increase in Treattarome production
resulting in increased electricity consumption, water usage has decreased
significantly, by 7,000m³, due to the improvement in cleaning processes,
noted above. Water consumption in Kenya remains consistent with 2014,
whilst usage at R C Treatt has increased by 3,000m³ due to a delay in
discovery of two underground water leaks.
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.
Total water used (m³)
2015
2014
34,455
38,515
Water efficiency (litres per Kg of product shipped)
4.06
4.01
28
I TREATT PLC
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.
Groups of staff have been released on working days to undertake
community projects; a litter pick in the local area around the Bury St
Edmunds head office resulted in the collection of enough rubbish to fill
two platform trucks (a local resident, a semi-retired teacher, phoned to
thank us and tell us that he and others in the area were very grateful); and
a gardening project for the East Anglia Children’s Hospice, which provides
care and support to terminally ill children and their families.
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% (2014: 33%) of the Group workforce
and 37% of Group senior management positions (2014: 31%).
Earthoil is committed to purchasing oils directly from source at a fair and
sustainable price and works closely with growers in under-developed
countries through Fair for Life – Social and Fair Trade certification.
Long-term and trusted support and co-operation has also been a driver for
positive change which has led to Earthoil’s Kenyan Organic Oil Farmers
Association (KOOFA) increasing from its initial 90 members to now
well over 500 producers. In addition, community funds provide further
benefits to the farmers and their families, such as scholarships, and a
project is currently underway to build a social hall for community activities.
Additionally, an all-female co-operative in the Souss valley region of
Morocco has gained better access to healthcare thanks to its partnership
with Earthoil to produce the only fair trade argan oil in the world. The
women benefit from the security of a regular income and healthcare
knowledge and overall literacy has improved. The most recent fair trade
premiums have been used to make working conditions more comfortable
as well as giving access to medical professionals.
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 7 December 2015.
ANITA STEER
Secretary
Position
Group Directors
Senior Managers
Other Employees
Total Employees
Male
Female
Total
6
25
185
216
1
15
92
108
7
40
277
324
Social, community and human rights issues
The Group endeavours to impact positively on the communities in
which it operates. During the year the Group made charitable donations
of £18,000 (2014: £16,000) to local and national causes. Support is
provided through donations directly to charities and through a matching
scheme, whereby the Group donates a percentage of funds raised by
staff in sponsored events. This year staff have undertaken a number of
sponsored and fundraising events including a long distance cycle ride,
head shaving and walking.
Additionally, Group employees entered into the spirit of Movember with a
competition to grow the best moustache, raising £2,700 for the Movember
Foundation. As part of raising the profile of men’s health, sessions were
organised on site for staff, dealing with various health issues, which were
well supported. Wear it Pink was also supported with staff, in both the
uK and uS, donning their pink clothing for the day and raising money. A
staff team was also entered into the local ‘It’s a knockout’, helping to raise
£1,215 for the West Suffolk Hospital. In September, a MacMillan coffee
morning raised over £700, with many staff donating homemade cakes. As
well as raising funds it provided an excellent opportunity for staff and the
Board to get together.
The uK site operates Payroll Giving enabling staff to donate regularly to
their chosen charities directly from their gross pay; staff currently donate
£1,464 per annum to charity through Payroll Giving.
During the year staff voted on the sponsorship of local clubs and funds
have been provided to four local sports clubs to assist with running costs.
Additionally, Treatt has sponsored local events in the community providing
support and prize money to the Bury in Bloom young and Senior Green
Fingers initiatives, encouraging gardening activities at both ends of the
age spectrum.
As a means of rewarding staff, whilst supporting a charitable initiative,
boxed cream teas were provided to all uK staff during Wimbledon
fortnight, bought from Action Medical Research.
29
Annual Report & Financial Statements 2015OverviewTREATT PLC I 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.
Introduction from the Chairman
As Chairman, I am responsible for ensuring that the Board upholds high standards of corporate governance and that it operates
effectively and efficiently. Good governance is about the quality of the processes for making and implementing decisions, ensuring
that there is an appropriate level of oversight and challenge, a focus on risks, a commitment to transparency and ensuring a culture of
continuous improvement. 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.
By virtue of its premium listing on the London Stock Exchange, Treatt measures its corporate governance compliance against the requirements of the
2014 uK Corporate Governance Code published by the uK Financial Reporting Council (FRC). The FCA requires each company with a premium listing
to ‘comply or explain’ its non-compliance against the Code. The Group monitors its compliance with the Code, and in this corporate governance section
and throughout this Annual Report, areas of corporate governance compliance and non-compliance are explained by reference to the 2014 Code.
TIM JONES Chairman
Compliance with the 2014 UK Corporate Governance Code
The Board confirms that throughout the year ended 30 September 2015 the
Group has complied with the provisions set out in the 2014 uK Corporate
Governance Code1, except for clause D2.2 as explained in the Directors’
Remuneration Report. The Board does not fully comply with clause 2.2
since 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 2014 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 21.
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 Group. 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.
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. This year a Board
meeting was held at the Group’s uS subsidiary, Treatt uSA, to enable closer
interaction of the Non-executive Directors with the senior management and
staff in the uS; it is a commitment of the Board to hold a meeting in the uS
on a biennial basis.
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
1 A copy of the 2014 uK Corporate Governance Code can be obtained from www.frc.org.uk
30
I TREATT PLC 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.
If necessary, there is an agreed procedure for Directors to take independent
professional advice 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 board diversity, including gender diversity which has been
the subject of recent debate in respect of board composition, is recognised
and supported by the Directors of Treatt plc. The Board is conscious of the
benefits of diversity in the boardroom and within management positions
within the Group. Our policy is to recruit the best possible candidate for each
individual role having regard to qualifications, experience and personality,
without prejudice to a candidate’s characteristics.
The Board considers that, 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 2014 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
Role and responsibilities
The main responsibilities of the Nomination Committee are:
•
to review regularly the structure, size and composition (including the
skills, knowledge, experience and diversity) of the Board and make
recommendations to the Board with regard to any changes that are
deemed necessary;
to identify and nominate candidates for the approval of the Board to fill
Board vacancies as and when they arise;
succession planning for Directors, in particular the Chairman and CEO,
taking into account the challenges and opportunities facing the Group
and the skills and expertise needed on the Board for the future; and
review the results of the Board performance evaluation process that
relate to the composition of the Board and to assess whether the Non-
executive Directors are dedicating sufficient time to fulfilment of their
duties.
•
•
•
Activities since the last report
•
review of the results of the Board evaluation process and consideration
of training needs;
review of the performance of the Directors;
consideration of voluntary compliance with the 2014 UK Corporate
Governance Code in respect of the annual re-election of all directors; and
commencement of the implementation of more structured succession
planning.
•
•
•
Membership and meetings
Members of the Nomination Committee throughout the year are shown
on page 92. In the absence of any current vacancies on the Board, the
Nomination Committee has met once during the course of the year.
Appointments 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.
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.
Board evaluation
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.
31
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I Corporate Governance Statement continued
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 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 2015 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;
consideration was given to delegating the review and approval of the
adequacy and effectiveness of the Group’s risk management to the
Committee, following which it was decided that due to the size and structure
of the Group these activities should remain the responsibility of the Board.
As the Group grows this arrangement will be kept under review; and
review of the level of non-audit related services provided by RSM UK
Audit LLP (formerly Baker Tilly uK Audit LLP) 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 2015
annual report and financial statements relating to:
•
the presentation of the financial statements and including the
treatment of exceptional items in respect of legal and professional
fees relating to the Earthoil contract dispute;
the treatment of the contingent consideration included within the
investment of the Earthoil Group;
the level of provisions made against the carrying value of inventories;
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.
•
•
•
•
Throughout the year the Committee and the Board monitors the integrity
of the Group’s financial statements and any other formal announcement
relating to the Group’s financial performance. The Committee requests
reports from management on particular matters, especially where a
significant element of management judgement is required; this year the
Committee has reviewed the procedure for dealing with inventory provisions
and onerous contracts. Additionally, the Chairman of the Committee has
regular contact with the audit partner and the Committee meets with the
audit partner without the presence of the Executive Directors.
In respect of the annual report, the Chairman of the Committee reviews
early drafts to keep appraised of its key themes and to raise any issues
early in the process. The Committee reviewed the 2015 annual report at
a Committee meeting in November 2015; 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 disclosure requirements
on Directors’ remuneration, the strategic report, reports on greenhouse
gas emissions, gender diversity and additional disclosure required by the
2014 uK Corporate Governance Code, including the new requirement for
a viability statement.
The Board evaluation process involved the generation of a profile for each
Board member, which is designed, from a psychometric foundation, to
evaluate a persons preferred way of thinking and how they communicate,
develop relationships and work in teams. An external facilitator, who also
provides management training to Group employees, evaluated the profiles
of each Board member and provided feedback in a workshop. Evaluating
these as a group provides useful insight on the diversity of the team, its
strengths in particular circumstances and how members interact together.
It helps Board members understand themselves and others, and builds
interpersonal strategies that drive the performance of the Board as a
whole, and assist in its evaluation. In addition the skills matrix of each of
the Directors were reviewed and the skills and experience mix discussed
in relation to performance of the Board.
The performance of individual Directors is evaluated by the Chairman,
in conjunction with the Chief Executive Officer in the case of other
Executive Directors. The Chairman is evaluated by the Chief Executive
Officer and Senior Independent Director. The process includes individual
performance meetings, at which past performance is discussed and
evaluated and future objectives established. In the event that training
and development needs are identified during the evaluation process,
suitable resources or training are provided. During the course of the year,
the Board has undertaken a workshop run by a futurologist specifically
considering future trends in food and drink and how that might affect the
business in the longer term. The Board also held a strategy away day,
giving time for it to discuss the strategic direction of the business and the
opportunities that exist for Treatt; the outcomes from the day fed into the
updated Group strategy, subsequently approved by the Board. The Board
has also approved its objectives for the forthcoming year which includes
further work in respect of risk management, succession planning and
improved visibility of the Board around the Group.
Audit Committee
Role and responsibilities
The main responsibilities of the Audit 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
•
review of the requirement for an internal audit function. Given the
size and structure of the Group, and the level of control exercised by
the management team, the establishment of a formal internal audit
32
I TREATT PLC The Committee advised the Board that the annual report and financial
statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess the
Company’s position and performance, business model and strategy.
Membership and meetings
Members of the Audit Committee throughout the year are shown on page
92. jeff Iliffe joined the Audit Committee as Chairman in February 2013.
jeff is deemed by the Board to have significant, recent and relevant
financial experience. He is a Chartered Accountant with over 20 years
experience in the financing and management of companies, both in the
City and in industry.
The Committee has met twice during the year. The auditor attended
these meetings other than when their appointment or performance was
being reviewed. The Chief Executive Officer, Finance Director and other
senior finance staff attend as and when appropriate. The Committee has
discussions at least once a year with the auditor without management
being present. Furthermore the Committee Chairman meets informally
with, and has access to, the Finance Director to discuss matters
considered relevant to the Committee’s duties.
External auditor
The Committee has oversight of the relationship with the external auditor
and is responsible for monitoring the auditor’s independence, objectivity
and compliance with professional and regulatory requirements. The
incumbent auditors, RSM uK Audit LLP (formerly Baker Tilly uK Audit
LLP), were appointed in 2009 following an audit tender process. They are
appointed on an annual rolling contract but with a long-term agreement on
fees, which was renegotiated during the 2014 financial year. During the year
the Committee has monitored RSM’s effectiveness and performance and
were satisfied that they were providing a sufficiently robust and objective
audit process. 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 current audit partner will be subject to rotation
prior to the 2017 audit. The Committee has therefore recommended to the
Board that RSM uK Audit LLP be reappointed in 2016.
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. During the year, RSM also provided
financial modelling software services for a one-off project. 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 35 to 46. Members of the Remuneration Committee
throughout the year are shown on page 92. 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.
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.
The level of non-audit fees and their effect on the auditor’s independence
or objectivity is also considered on a regular basis. The split between audit
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
6
2
N/A
N/A
1
1
N/A
Non-executive Director and Chairman
Chairman 6
2
Chairman 1
Tim jones
jeff Iliffe
Non-executive Director
David johnston
Non-executive Director
Ian Neil
Senior Independent Non-executive Director
Anita Haines
Non-executive Director
6
6
6
6
Chairman 2
2
2
N/A
1
1
1
1
4
N/A
N/A
4
4
4
Chairman 4
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.
33
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I
Corporate Governance Statement continued
Financial and internal control
The Board confirms that a process for the on-going identification,
evaluation and management of significant risks faced by the Group
has been in place throughout the year and to the date of approval of
this report, which complies with the “Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting” 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 a 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.
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.
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 24 to 26.
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 half yearly statements and other financial
announcements, is also available on the Group’s website and, upon
request, to other parties who have an interest in the Group’s performance.
There is regular dialogue with individual institutional and other major
shareholders as well as presentations after the half and full year results. The
views of major shareholders are communicated and discussed at Board
meetings and Non-executive Directors may request meetings with major
shareholders should they wish to do so and vice versa. All shareholders
have the opportunity to put questions at the Parent Company’s Annual
General Meeting.
This report was approved by the Board on 7 December 2015.
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
accounting policies is reviewed where necessary by external auditors.
ANITA STEER
Secretary
34
I TREATT PLC Directors’ Remuneration Report
ANNUAL STATEMENT
Introduction
As Chairman of the Remuneration Committee, I am pleased to present our
report on Directors’ remuneration for 2015.
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 2014 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 Implementation Report will be put to an advisory
vote at the Annual General Meeting of the Parent Company on 29 january
2016. The Remuneration Policy was approved by shareholders at the
2015 Annual General Meeting and accordingly is not required to be put to
shareholders until the 2018 Annual General Meeting, subject to changes
in the meantime requiring shareholder approval. Although not required
to be included in the annual report where approval is not being sought, a
summary of the policy approved by shareholders is set out below.
2015 performance
As detailed elsewhere in this report, the Group performed well in 2015,
meeting expectations for adjusted pre-tax profit and earnings per share.
The Group’s strategic plan was updated and rolled out across the business.
Evolutionary in nature, the updated strategy builds on the successes of the
2012 version and provides clarity and enhanced focus on the strategic
priorities. The base salaries of the Executive Directors were increased with
effect from 1 October 2015. Richard Hope’s salary was increased by 1.5%,
in line with the basic increase of staff across the Group. In accordance with
the frequency set out in the Remuneration Policy, the salary of Daemmon
Reeve was benchmarked and increased by 21.2% in order to address a
misalignment with data at the median level.
The Company Secretary, at the request of the Remuneration Committee,
engaged Aon Hewitt Global Executive Compensation and Corporate
Governance, to provide targeted data of CEOs of uS manufacturing
companies with a similar turnover to Treatt. Aon Hewitt, who do not
provide any other services to the Group, were selected on the basis of
their reputation as a global provider of compensation solutions and were
paid a fee of uS$750. Data provided by Aon Hewitt compared the salaries
of CEO’s of twenty-six uS manufacturing companies with a turnover in
the region of that of the Treatt Group (approximately $133m). The base
salary of Daemmon Reeve was found to be below the 25th market centile
of this comparator group. The Committee reviewed other data, available
free online from various sources, which was consistent with the data
provided by Aon Hewitt, and therefore the Committee was satisfied that
the information provided was objective and independent. Accordingly, the
base salary of Daemmon Reeve has been realigned to the 50th centile.
The fees of the Chairman were also benchmarked against a number of
comparator companies with similar turnover within the Fledgling Index and
Small Cap of the FTSE, which showed a misalignment. In order to bridge
the gap, the Chairman’s fee has been increased with effect from 1 October
2015 by 15.3% to £60,675, although it remains below the 25th centile level.
Remuneration policy
The aim of our remuneration policy is to attract and retain appropriately skilled
and experienced Directors with the ability to deliver the Group’s strategic
objectives and obtain good returns for shareholders in accordance with the
Group’s values. This may be achieved through an appropriate combination
of salary, benefits and performance-related longer term incentives, which
align the interests of Directors with shareholders. Following consultation
with the Group’s major shareholders, a share retention policy was adopted
by the Board in 2014, which imposes a shareholding requirement of 200%
of salary on the Chief Executive Officer and 150% of salary on the Finance
Director. The Directors are not permitted to sell any shares, except to pay
an exercise price and all applicable taxes due in respect of an award, until
the shareholding requirement is met. Whilst Daemmon Reeve is not at
this level currently, he has continued throughout the year to add to his
shareholding in line with the policy, details of which are on page 42 of
the Implementation Report. Richard Hope has achieved the shareholding
requirement.
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, the grant of appropriate
awards of share-based incentives, with stretching performance conditions,
are considered annually by the Remuneration Committee. As a result of
consultation last year with major shareholders, awards made under the
Long Term Incentive Plan are 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. A
thorough review of performance conditions was undertaken during the year
and an assessment made of the appropriateness of alternative measures.
It was agreed that EPS remains the most appropriate measure in driving
positive behaviour that is consistent with the strategy and business model.
The Committee believes that this policy is aligned with our business
strategy, outlined elsewhere in this report, in driving the sustainable growth
in profits for the long-term benefit of the business and its stakeholders.
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 2014 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 2014 Directors’ Remuneration Report;
agreement of the bonuses payable for the 2014 financial year;
grant of options to Directors under the Treatt LTIP and the setting of
performance conditions;
grant of options to senior management and key employees and the
setting of performance conditions;
•
35
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I Directors’ Remuneration Report continued
•
•
•
•
review of LTIP performance conditions and consideration of a range of
alternative options;
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 2016 financial year; and
to consider the award of free and matching shares to UK employees
under the Share Incentive Plan and equivalent awards of restricted
stock units to uS employees under the Long Term Incentive Plan.
During the year all elements of the packages of the Executive Directors were
reviewed and no significant changes have been made, other than to the
base salary of the CEO as stated above.
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
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.
Members of the Committee are shown on page 92 and for full biographies
of the Committee members see page 21. The terms of reference of the
Committee can be found on the Treatt website at www.treatt.com.
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 2016 financial year:
Element – Purpose
and link to strategy
Operation
Maximum opportunity
Performance metrics
Individual and
company performance
are considered
Base salary
Help recruit and retain
high calibre Executive
Directors
Reviewed annually by the Committee with
changes taking effect from 1 October unless
a change in responsibility requires an interim
review
To provide a competitive
salary relative to the size
of the Group
Influenced by personal performance and
by the increase in salaries of other Group
employees
Reflects individual
experience and the role
Normally benchmarked at intervals of 3
years against similar companies and targeted
broadly at the median level
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
Discretion may be exercised for the purpose
of retention
Changes for 2016
financial year
No changes have
been made to
the salary review
process
Base salary
increase for
Richard Hope
is consistent
with the basic
increase of Group
employees at
1.5%
Base salary
increase for
Daemmon Reeve
addresses the
misalignment
with
benchmarking
36
I TREATT PLC
Element – Purpose
and link to strategy
Operation
Maximum opportunity
Performance metrics
Changes for 2016
financial year
Not applicable
None
Except as otherwise
stated these are on
the same terms as the
benefits received by
other employees in the
country in which the
Director is resident
Benefits
Help recruit and retain
high calibre Executive
Directors
Entitlement to the following benefits on the
same terms as employees in the country in
which the 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
Life Assurance for uK tax resident Directors
will be provided by means of a Lifetime Plus
Policy
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
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
The rules of the Executive Directors Bonus
Scheme and the performance targets are
reviewed every three years
100% of salary
Annual bonuses are calculated by reference
to the achievement of performance targets
for the financial year and each Director is
entitled to a percentage of salary based
upon this calculation, subject to the
maximum opportunity
Bonuses are subject to determination by
the Committee in accordance with scheme
rules 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 bonuses
None
Bonuses are 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
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
37
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I
Changes for 2016
financial year
None
Directors’ Remuneration Report continued
Element – Purpose
and link to strategy
Operation
Maximum opportunity
Performance metrics
Long Term Incentive
Plan
(Note 2)
Incentivises Directors
to achieve returns for
shareholders over a
longer time frame
Aligns Directors
interests with
shareholders
The LTIP was approved by shareholders at
the AGM in February 2014
100% of salary based on
market value of shares at
date of grant
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
Awards will be subject to a one year
holding period following vesting net of
any tax liability arising on either vesting
or exercise. The Committee may also
exercise the specific discretions contained
within the rules of the scheme, as
approved by shareholders
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
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 lapse if
performance criteria
are not met at the
end of the three year
performance period
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
Pension
Help recruit and retain
high calibre Executive
Directors and to provide
a competitive package
relative to the size of the
Group
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)
38
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)
I TREATT PLC
Maximum Opportunity
Performance Metrics
Recruitment awards are
subject to the maximum
value of any outstanding
awards forgone by the
recruit
Based on existing
Treatt performance
conditions
Changes for 2016
financial year
None
Element – Purpose
and link to strategy
Operation
Recruitment of
Executive Directors
Enable recruitment of
high calibre Executive
Directors able to
contribute to the
success of the Group
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 a maximum
of between 12% and 60% 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.
39
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I
Directors’ Remuneration Report continued
Non-executive Directors’ remuneration
Element – Purpose
and link to strategy
Operation
Fees
To recruit high
calibre Non-
executive Directors
To reward
additional
responsibility by
virtue of position
as Chairman of the
Board or Chairman
of a Committee
Subject to an aggregate limit within the Articles of
Association, which was last approved by shareholders at
the AGM in February 2014
Reviewed annually for each Non-executive Director with
changes taking effect from 1 October
The Chairman’s fees are reviewed by the Committee
and the other Non-executives’ fees are reviewed by the
Board (excluding the Non-executives)
Influenced by the increase in salaries of other Group
employees and by personal performance
Benchmarked against similar companies and targeted
broadly at the median level
Additional fees may be paid in respect of increased
responsibility or time commitment required by the
role or in respect of invoiced consultancy fees, where
relevant
Maximum
opportunity
Excluding a review
required by a
change in role
or responsibility
or to align with
benchmarking the
annual increase
should not exceed
the average
increase of
employees within
the Group
Changes for 2016 financial year
A fee increase of 15.3% for Tim jones
addresses the misalignment with
benchmarking
Fee increases for the other Non-executive
directors are consistent with the average
increases of Group employees at 1.95%
In addition, the fee in respect of the
position of Chairman of the Audit
Committee was increased from a
nominal £1,200pa to £3,023 to reflect
the increased responsibility and time
commitment of the role
David johnston also received an
additional £1,500pa in respect of the
additional time he commits to the
business in providing support and advice
to the technical team in particular
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.
Only those share options which potentially vest in 2016 have been
included and have been calculated as the difference in market value at
30 September 2015, being £1.615, and the option price.
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. 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.
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 35 to 42 and base salaries as at 1 October 2015.
Although Daemmon Reeve is paid in uS Dollars, the figures below are in
Pounds Sterling at an exchange rate of £1=$1.55, being the average rate
over the preceding twelve months.
Remuneration policy illustration
600
(£’000)
1
1
282
141
1
24
2
24
2
24
2
182
16
16
91
16
16
16
16
282
282
282
182
182
182
Minimum
On target
Maximum
Minimum
On target
Maximum
Chief Executive Officer - Daemmon Reeve
Finance Director - Richard Hope
Salary
Benefits
Pension
Bonus
Share Options
500
400
300
200
100
0
40
I TREATT PLC
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:
•
•
•
•
• market segment.
size in terms of turnover, profits and number of people employed;
a ranking within the FTSE Fledgling Index or FTSE Small Cap Index;
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.
Summary of Director’s service contracts as at 30 September 2015:
Daemmon Reeve
Richard Hope
Summary of the key elements of Directors’ service contracts:
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.
Date of contract
30 October 2012
1 October 2013
Notice period
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 Parent
Company’s registered office during normal business hours.
Payments for loss of office
In accordance with the 2014 uK Corporate Governance Code notice
periods shall not exceed a maximum of twelve months.
Future contracts are to provide for remuneration obligations comparable
to those set out above taking into consideration role and responsibility,
except in exceptional circumstances where additional incentive is required
in order to secure the services of an outstanding candidate.
Non-executive directors
All Non-executive Directors are subject to the same terms and conditions
of appointment which provide for the payment of fees for their services
in connection with Board and Board Committee meetings. In their Non-
executive capacities they do not qualify for participation in any of the
Group’s bonus, share option or other incentive schemes, and they are not
eligible for pension scheme membership.
The terms and conditions of appointment of Non-executive Directors are
available for inspection at the Parent Company’s registered office during
normal business hours.
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.
41
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I
Directors’ Remuneration Report continued
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.
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 engaged pro-actively with the Group’s major
shareholders in respect of the details of this policy and welcomed feedback
received from them. The views of these shareholders were taken into
consideration in adopting the share retention policy, clawback and the one
year holding period for LTIPs. The Committee will also consult with major
shareholders prior to any material changes to the remuneration policy.
This Remuneration Policy, which was approved at the 2015 Annual
General Meeting, shall remain in effect until it is next required to be
approved by shareholders.
IMPLEMENTATION REPORT
The following section of this report provides details of the implementation
of the policy for the year ended 30 September 2015.
Directors’ remuneration (audited)
The tables below report a single figure for total remuneration for each
individual Executive and Non-executive Director respectively.
Daemmon Reeve
Richard Hope
Executive Directors:
Salary
Taxable benefits (Note 1)
Annual bonus (Note 2)
Share options vesting in the financial year
Pension (Note 3)
Non-executive Directors:
Tim jones
Anita Haines
jeff Iliffe
David johnston
Ian Neil
2015
£’000
233
3
214
—
20
470
2014
£’000
212
2
203
2
17
436
2015
£’000
179
—
165
6
19
369
Fees
2015
£’000
53
32
35
33
35
2014
£’000
175
—
135
4
16
330
2014
£’000
51
87*
31
30
31
* Remuneration shown for Anita Haines in 2014 includes remuneration as an Executive Director until 24 February 2014 of £69,000 and fees of £18,000
as a Non-executive Director thereafter.
Note 1: Taxable benefits provided to Executive Directors only relate to private medical insurance.
Note 2: Details relating to the annual bonus are as follows:
The annual bonus for Executive Directors is calculated based on the annual growth in profit before tax, adjusted for exceptional and other items at
the discretion of the Remuneration Committee. The annual bonus is capped at a maximum of 100% of annual basic salary. The annual bonus, as a
percentage of the maximum achievable, is displayed in the table opposite.
188
230
42
I TREATT PLC
Daemmon Reeve
Richard Hope
2015
92%
92%
2014
95%
77%
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
2015
52%
52%
2014
51%
56%
2015
48%
48%
2014
49%
44%
Note 3: Richard Hope’s pension contributions include pay in lieu of pension after deduction of employers’ NI.
Performance graph
This performance graph shows Treatt Plc’s performance, measured by
total shareholder return, compared with that of the FTSE All Share Index,
which has been selected by the Board as being the most appropriate
measure against which to benchmark its performance.
0
1
/
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
-50.00
Total shareholder return 2010-2015
Sep 10
Sep 11
Sep 12
Sep 13
Sep 14
Sep 15
Treatt Plc
FTSE All Share
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
2015
470
92%
100%
2014
436
95%
100%
2013
405
85%
100%
20122
274
11%3
100%
2011
447
104%
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
Salaries2
2.4%
2.3%
Bonus
-1.2%
-19.0%
1 The employees used for comparison are those uK and uS employees who, for the salary comparison, were employed for the whole of the 2015
financial year, and for bonuses, for the whole of both the 2014 and 2015 financial years.
2 The changes in salaries and bonuses have been calculated on a constant currency basis for uSD payments, using the average exchange rate for 2015.
43
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I
Directors’ Remuneration Report continued
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
2015
2014
Movement
10, 674
1,978
1,909
10,587
1,899
1,458
+1%
+4%
+31%
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.
Directors’ interests (audited)
The Directors who held office at 30 September 2015 had the following interests in the shares of the Parent Company:
Shares held outright
or vested
Unvested share options
with performance conditions
2014
2015
Unvested all-employee
share options
2015
2014
Executive Directors
Daemmon Reeve
Richard Hope
Non-executive Directors
Tim jones
Anita Haines
2015
2014
131,462
176,400
75,877
50,680
92,485
148,025
62,495
50,680
284,586
148,010
119,770
19,610
5,710
11,874
5,158
13,439
—
—
—
—
—
—
—
—
Between 1 October 2015 and 4 December 2015, the latest date practicable to obtain the information prior to publication of this document the following
changes occurred:
Daemmon Reeve purchased 1,014 shares under a Dividend Reinvestment Plan
Richard Hope purchased 1,321 shares under a Dividend Reinvestment Plan
The table below shows the value of Executive Directors’ interests in shares as at 30 September 2015 as a percentage of their base salary:
Value of shares held
outright or vested
Base salary1
Value of interest as %
of base salary
Target % of
base salary
2015
£’000
212
285
2014
£’000
130
208
2015
£’000
233
179
2014
£’000
212
175
2015
%
91%
159%
2014
%
61%
119%
200%
150%
Daemmon Reeve
Richard Hope
1 Base salary is the average basic gross pay for the corresponding year.
44
I TREATT PLC Share option schemes (audited)
The following share options were granted to Executive Directors during the financial year:
Daemmon Reeve
Richard Hope
Scheme
Basis
Date of
grant
Share price at
date of grant
Face value
£’000
Min
performance
award
Performance
end date
ESPP 20151
LTIP 20142
All-staff
Executive
27 jul 15
15 Dec 14
SAyE 20153
LTIP 20142
All-staff
Executive
27 jul 15
15 Dec 14
£1.650
£1.397
£1.650
£1.397
9
230
7
179
N/A
30%
N/A
30%
N/A
30/9/17
N/A
30/9/17
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 Executive LTIPs are granted at Nil cost, 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.
The performance conditions for Executive LTIP options are as follows:
Average annual growth in adjusted basic earnings per share for the three financial years ending on the performance end date shown above. The options
shall vest on a linear sliding scale: 30% where average annual growth equals or exceeds 3%, increasing to 100% where average annual growth equals
or exceeds 10%. If the average annual growth in adjusted EPS is less than 3%, the options will lapse.
The share options of the Directors in office during the year are as set out below:
Daemmon Reeve
Richard Hope
Exercise
dates
jul 2015
jul 2016
Dec 2017 – Dec 2022
Dec 2018 – Dec 2023
Dec 2017 – Dec 2024
Sep 2015 – Feb 2016
Sep 2016 – Feb 2017
Sep 2017 – Feb 2018
Sep 2018 – Feb 2019
Dec 2015 – Dec 2022
Dec 2016 – Dec 2023
Dec 2017 – Dec 2024
Exercise
price
147.0p
137.0p
79.0p
147.2p
Nil
53.4p
97.8p
138.0p
132.0p
78.0p
147.2p
Nil
At 1 Oct
2014
Granted
during the year
Exercised
during the year
Expired
during the year
At 30 Sept
2015
5,158
—
78,195
41,575
—
—
5,710
—
—
164,816
(5,158)
—
—
—
—
124,928
170,526
(5,158)
6,065
2,940
4,434
—
12,820
6,790
—
—
—
—
4,500
—
—
128,400
(6,065)
—
—
—
—
—
—
33,049
132,900
(6,065)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5,710
78,195
41,575
164,816
290,296
—
2,940
4,434
4,500
12,820
6,790
128,400
159,884
The aggregate amount of gains made by the Directors on the exercise of share options in the year was £6,000 (2014: £6,000).
There have been no further changes in the interests of the Directors to subscribe for or acquire shares between 1 October 2015 and 4 December 2015,
the latest date practicable to obtain the information prior to publication of this document.
The market price of the shares at 30 September 2015 was £1.615 and the range during the financial year was £1.325 to £1.695. All market price figures
are derived from the Daily Official List of the London Stock Exchange.
45
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I
Directors’ Remuneration Report continued
Pensions (audited)
The Chief Executive Officer is a deferred member 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.
The pension entitlement is as follows:
Normal
retirement date
Accrued total
pension at
2015
£
2014
£
Daemmon Reeve
24 Sep 2036
20,985
20,719
The transfer values have been calculated on the basis of actuarial advice in accordance with Statutory Instrument 2013 No 1981 – The Large and
Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. Further details of the scheme are included in note 26.
In addition, contributions to defined money purchase pension plans were made as follows:
Daemmon Reeve
Richard Hope*
2014
£’000
20
19
2013
£’000
17
16
* Richard Hope’s pension contributions include pay in lieu of pension after deduction of employers’ NI in order to be cost neutral to the Group.
Statement of voting
At the Annual General Meeting held on 30 january 2015, 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: 20,470
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 7 December 2015.
ANITA STEER
Secretary
46
I TREATT PLC 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 49 to 86. 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 20, 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 2015
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 30 to 34 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.
•
•
•
•
• Under the Listing Rules we are required to review:
•
•
the Directors’ statement, set out on pages 18 and 19, in relation to
going concern and longer-term viability; and
the part of the Corporate Governance Statement on page 30
relating to the Parent Company’s compliance with the provisions
of the 2014 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:
•
inventory provisions
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.
47
Annual Report & Financial Statements 2015Corporate GovernanceTREATT PLC I Independent Auditor’s Report to the Members of Treatt plc continued
•
onerous contract provisions
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 and
consistently applied. We tested a sample of the contract provisions,
reviewed
the
appropriateness of the supporting calculations. We also reviewed
post year end transactions to consider whether these were consistent
with the provisions made and considered whether there were further
contracts against which provision ought to have been made.
the supporting documentation and considered
• dispute with the vendors of the Earthoil subsidiaries
With regards to the 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 during the year. We
considered the independent professional advice received and the
submissions made by both parties to the expert engaged to determine
the largest element of the claim. This formed our view of 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 also reviewed the accounting treatment and disclosures regarding
the costs incurred in defending the claim and reviewed post year end
transactions for omitted liabilities in this regard.
We undertook specific post balance sheet enquiries to confirm that
events to the date of signing the audit report were appropriately
reflected and disclosed.
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds
which help us to determine the nature, timing and extent of our audit
procedures and to evaluate the effects of misstatements, both individually
and on the financial statements as a whole. During planning we
determined a magnitude of uncorrected misstatements that we judge
would be material for the financial statements as a whole (FSM). During
planning FSM was calculated as £450,000, 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, 97% of Group profit before
tax, and 98% of Group total assets.
CHARLES FRAy (Senior Statutory Auditor)
For and on behalf of RSM uK AuDIT LLP (formerly Baker Tilly uK Audit
LLP), Statutory Auditor
Chartered Accountants
Abbotsgate House
Hollow Road
Bury St Edmunds
Suffolk IP32 7FA
7 December 2015
48
I TREATT PLC Group Income Statement
for the year ended 30 September 2015
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit1
Net finance costs
Profit before taxation and exceptional items
Exceptional items
Profit before taxation
Taxation
Profit for the period attributable to owners of the Parent Company
Earnings per share
Basic
Diluted
Adjusted basic2
Adjusted diluted
1 Operating profit is calculated as profit before net finance costs, exceptional items and taxation.
2 All adjusted measures exclude exceptional items, details of which are given in note 8.
All amounts relate to continuing operations
Notes 1 – 30 form part of these financial statements
Notes
4
5
7
8
9
11
11
11
11
2015
£’000
85,934
(66,955)
18,979
2014
£’000
79,189
(61,218)
17,971
(10,289)
(10,343)
8,690
(740)
7,950
(174)
7,776
(1,786)
5,990
11.64p
11.55p
11.94p
11.85p
7,628
(724)
6,904
(1,402)
5,502
(1,553)
3,949
7.69p
7.66p
9.95p
9.91p
49
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Group Statement of Comprehensive Income
for the year ended 30 September 2015
Profit for the year 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 investments
Current tax on foreign currency translation differences
Fair value movement on cash flow hedges
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
Other comprehensive expense for the year
Total comprehensive income for the year attributable to owners of the Parent Company
Notes 1 – 30 form part of these financial statements
2015
£’000
5,990
830
(2)
(404)
81
505
(638)
43
86
(509)
(4)
5,986
2014
£’000
3,949
20
(11)
16
(8)
17
(1,170)
51
188
(931)
(914)
3,035
50
I TREATT PLC Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2015
Group
1 October 2013
Net profit for the year
Other comprehensive income:
Exchange differences
Fair value movement on cash
flow hedges
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
Share
capital
£’000
1,048
Share
premium
£’000
Own shares
in share
trusts
£’000
Hedging
reserve
£’000
Foreign
exchange
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
2,757
(622)
(487)
455
24,292
27,443
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
16
—
102
(8)
—
20
—
—
(173)
(11)
3,949
3,949
—
—
20
16
(1,170)
71
239
(1,170)
—
220
—
—
110
(164)
3,089
3,035
—
—
—
—
—
—
—
73
—
—
—
—
—
—
—
—
—
—
—
(1,899)
47
(1,899)
47
—
18
43
73
18
43
1 October 2014
1,048
2,757
(549)
(377)
291
25,590
28,760
Net profit for the year
Exchange differences
Fair value movement on cash
flow hedges
Actuarial loss on defined benefit
pension scheme
Taxation relating to items above
Total comprehensive income
Transactions with owners:
Dividends
Share-based payments
Movement in own shares
in share trusts
Gain on release of shares
in share trusts
Issue of share capital
Taxation relating to items recognised
directly in equity
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
128
—
(2)
—
—
—
(404)
—
81
—
830
—
—
(2)
5,990
—
—
(638)
129
5,990
830
(404)
(638)
208
(323)
828
5,481
5,986
—
—
—
—
—
—
—
—
—
—
—
—
(1,978)
201
(1,978)
201
—
52
—
36
128
52
—
36
30 September 2015
1,050
2,757
(423)
(700)
1,119
29,382
33,185
Notes 1 – 30 form part of these financial statements
51
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2015
Parent Company
1 October 2013
Net profit for the year
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 trusts
1 October 2014
Net profit for the year
Total comprehensive income
Transactions with owners:
Dividends
Movement in own shares in share trusts
Capital contribution to subsidiary undertakings
Gain on release of shares in share trusts
Issue of share capital
Share
capital
£’000
1,048
Share
premium
£’000
Own shares
in share
trusts
£’000
2,757
(622)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
73
—
—
1,048
2,757
(549)
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
128
—
—
(2)
Retained
earnings
£’000
1,828
1,742
1,742
(1,899)
—
47
18
1,736
4,066
4,066
(1,978)
—
201
52
—
Total
equity
£’000
5,011
1,742
1,742
(1,899)
73
47
18
4,992
4,066
4,066
(1,978)
128
201
52
—
30 September 2015
1,050
2,757
(423)
4,077
7,461
Notes 1 – 30 form part of these financial statements
52
I TREATT PLC Group and Parent Company Balance Sheets
as at 30 September 2015
Registered Number: 1568937
Group
Parent Company
2015
£’000
2014
£’000
2015
£’000
2014
£’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
Redeemable loan notes receivable
Current tax assets
Derivative financial instruments
Cash and bank balances
Total assets
LIABILITIES
Current liabilities
Borrowings
Provisions
Trade and other payables
Current tax liabilities
Derivative financial instruments
Redeemable loan notes payable
Net current assets/(liabilities)
Non-current liabilities
Borrowings
Trade and other payables
Post-employment benefits
Deferred tax liabilities
Derivative financial instruments
Redeemable loan notes payable
Total liabilities
Net assets
EQUITY
Share capital
Share premium account
Own shares in share trusts
Hedging reserve
Foreign exchange reserve
Retained earnings
Total equity attributable to owners of the Parent Company
Notes 1 – 30 form part of these financial statements
12
13
14
15
16
18
29
17
18
29
23
19
20
21
22
23
29
20
22
26
16
23
29
24
1,075
661
10,998
—
647
—
—
13,381
25,799
17,635
—
134
—
1,477
45,045
58,426
(567)
(239)
(10,885)
(810)
(305)
(675)
(13,481)
31,564
(7,065)
—
(2,959)
(1,037)
(699)
—
(11,760)
(25,241)
33,185
1,050
2,757
(423)
(700)
1,119
29,382
33,185
1,075
726
10,994
396
586
—
13,777
28,020
14,509
—
340
92
629
43,590
57,367
(2,356)
(920)
(12,053)
(676)
—
—
(16,005)
27,585
(7,857)
(23)
(2,529)
(1,007)
(511)
(675)
(12,602)
(28,607)
28,760
1,048
2,757
(549)
(377)
291
25,590
28,760
—
—
—
5,485
—
—
—
5,485
—
708
1,350
—
—
686
2,744
8,229
—
—
(93)
—
—
(675)
(768)
1,976
—
—
—
—
—
—
—
(768)
7,461
1,050
2,757
(423)
—
—
4,077
7,461
—
—
—
5,285
—
586
1,350
7,221
—
45
—
—
—
—
45
7,266
(1,556)
—
(20)
—
—
—
(1,576)
(1,531)
—
(23)
—
—
—
(675)
(698)
(2,274)
4,992
1,048
2,757
(549)
—
—
1,736
4,992
The financial statements were approved by the Board of Directors and authorised for issue on 7 December 2015 and were signed on its behalf by:
TIM JONES
Chairman
RICHARD HOPE
Finance Director
53
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Group and Parent Company Statements of Cash Flows
for the year ended 30 September 2015
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
Net finance costs
Share-based payments
Decrease in fair value of derivatives
Decrease in post-employment benefit obligations
Operating cash flow before movements in working capital
Movements in working capital:
Decrease/(increase) in inventories
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables, and provisions
Cash generated from operations
Taxation (paid)/received
Net cash from operating activities
Cash flow from investing activities
Proceeds on disposal of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Cash flow from financing activities
(Decrease)/increase in bank loans
Interest paid
Dividends paid
Net sale of own shares by share trusts
Group
Parent Company
2015
£’000
2014
£’000
2015
£’000
2014
£’000
Notes
7,776
5,502
4,060
1,715
14
13
5
5
7
25
29
14
13
7
7
10
1,244
175
46
—
740
198
143
(208)
10,114
2,907
(2,282)
(2,072)
8,667
(1,469)
1,222
172
17
(2)
724
46
115
(230)
7,566
(4,322)
(1,331)
1,615
3,528
(1,552)
7,198
1,976
5
(924)
(108)
1
(1,026)
(2,145)
(741)
(1,978)
180
4
(538)
(212)
1
(745)
215
(725)
(1,899)
91
—
—
—
—
19
—
—
—
—
—
—
—
36
—
—
—
4,079
1,751
—
(77)
50
4,052
7
4,059
—
—
—
20
20
-—
410
16
2,177
26
2,203
—
—
—
20
20
—
(39)
(1,978)
180
—
(56)
(1,899)
91
(4,684)
(2,318)
(1,837)
(1,864)
Net increase/(decrease) in cash and cash equivalents
1,488
(1,087)
2,242
Effect of foreign exchange rates
(33)
13
—
Movement in cash and cash equivalents in the year
1,455
(1,074)
2,242
359
—
359
Cash and cash equivalents at beginning of year
21
1,095
(1,556)
(1,915)
Cash and cash equivalents at end of year
1,476
21
686
(1,556)
Cash and cash equivalents comprise:
Cash and bank balances
Bank borrowings
Notes 1 – 30 form part of these financial statements
19
20
1,477
(1)
1,476
629
(608)
21
686
—
686
—
(1,556)
(1,556)
54
I TREATT PLC Group Reconciliation of Net Cash Flow to Movement in Net Debt
for the year ended 30 September 2015
Movement in cash and cash equivalents in the year
Repayment/(increase) in bank loans
Cash inflow/(outflow) from changes in net debt in the year
Effect of foreign exchange rates
Movement in net debt in the year
Net debt at beginning of year
Net debt at end of year
Notes 1 – 30 form part of these financial statements
2015
£’000
1,455
2,145
3,600
(171)
3,429
(9,584)
(6,155)
2014
£’000
(1,074)
(215)
(1,289)
(1)
(1,290)
(8,294)
(9,584)
55
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015
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, £4.1m (2014: £1.7m) has been dealt
with in the accounts of the Parent Company. The Parent Company has
taken advantage of the exemption under Section 408 of the Companies Act
2006 and has not presented its own income statement in these financial
statements.
Basis of consolidation
The Group accounts consolidate the accounts of Treatt plc and all of its
subsidiaries (entities controlled by the Parent Company) made up to
30 September each year. Control is achieved where the Parent Company
has the power to govern the financial and operating policies of an investee
entity so as to obtain benefits from its activities. All intra-group transactions,
balances and unrealised gains on transactions between Group companies
are eliminated on consolidation. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset transferred.
Going concern
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Parent Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future. Thus they continue to adopt the going concern basis of accounting
in preparing the financial statements. Further detail is contained in the
Directors’ Report on pages 18 and 19.
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.
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 92.
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 2015:
• Annual improvements 2010-2012 – published December 2013
• Annual improvements 2011-2013 – published December 2013
•
IAS 19 Employee benefits (amendments) – published November
2013 – clarification regarding allocation of contributions
IAS 32 Financial instruments: Presentation (amendments) – published
December 2011 – offsetting of assets and liabilities
IAS 36 Impairment of assets (amendments) – published May 2013 –
recoverable amount disclosures for non-financial assets
IAS 39 Financial Instruments: Recognition and measurement
(amendments) – published June 2013 – novations of derivatives
•
•
•
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 2012-2014
•
•
IFRS 7 Financial instruments: Disclosures (amendments)
IFRS 7 Financial instruments: Additional hedge accounting disclosures
(and consequential amendments)
instruments: Classification, measurement,
IFRS 9 Financial
impairment, general hedge accounting and derecognition of assets
and liabilities
IFRS 10 Consolidated financial statements (amendments)
IFRS 11 Joint arrangements (amendments)
IFRS 12 Disclosure of interests in other entities (amendments)
IFRS 15 Revenue from contracts with customers
IAS 1 Presentation of financial statements (amendments)
IAS 16 Property, plant and equipment (amendments)
IAS 19 Employee benefits (amendments)
IAS 27 Separate financial statements (amendments)
IAS 28 Investments in associates and joint ventures (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.
56
I TREATT PLC 3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Business combinations (continued)
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, as the Directors believe that this is the point at which the
significant risks and rewards of ownership are transferred to the customer
in accordance with IAS 18, “Revenue Recognition”.
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.
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.
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”.
57
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxation (continued)
Deferred tax (continued)
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: 4-10 years
• Buildings:
50 years
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.
58
I TREATT PLC 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 29, “Financial Instruments”.
Hedge accounting
At the inception of the hedge relationship, the Group 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.
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.
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.
Share options, the Employee Benefit Trust and Share Incentive Plan 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.
During the year, the Group set up an HMRC-approved share incentive
plan (“SIP”). The Group established a wholly-owned UK Trust, Treatt SIP
Trustees Limited (“Trust”), to whom shares were issued at nominal value
for the purpose of fulfilling obligations under the SIP. The treatment of the
Trust in the Group and Parent financial statements is consistent with that
of the EBT as explained above.
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
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.
59
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-based payments (continued)
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 retained earnings 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.
During the year the Group established an HMRC-approved share incentive
plan (“SIP”) for its UK-based employees under which employees can be
awarded Free and Matching Shares. The fair value of shares awarded
under the SIP is the market value of those shares at the date of grant,
which is then recognised on a straight-line basis over the vesting period.
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.
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 26 ‘Post-employment benefits’;
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 25 ‘Share-based payments’. Changes in
these assumptions could lead to changes in the income statement expense
in future periods;
Goodwill – determining whether goodwill is impaired requires an estimation
of the value in use of the cash-generating units to which goodwill has been
allocated. The value in use calculation requires the Group to estimate the
future cash flows expected to arise from the cash-generating unit and a
suitable discount rate in order to calculate present value. Goodwill can also
include an estimate of deferred consideration payable using assumptions
which are consistent with those used to determine the carrying value of
goodwill. Future changes in performance or disposals could also impact
the value of goodwill. Details of the assumptions made in respect of
goodwill and deferred consideration are disclosed in note 12. These
estimates could change materially in future years in line with actual and
expected future performance.
Taxation – the Group operates in a number of tax jurisdictions and estimation
is required of taxable profit in order to determine the Group’s current tax
liability. There are transactions and calculations for which the ultimate
tax determination can be uncertain. The Group periodically evaluates
situations in which applicable tax regulation is subject to interpretation and
establishes provisions where appropriate based on amounts expected to
be paid to the tax authorities.
Critical accounting judgements
Deferred tax assets – deferred tax assets are recognised for all unused tax
losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilised. Management judgement is
required to determine the amount of deferred tax assets that can be
recognised, based upon the likely timing and level of future taxable profits
together with future tax planning strategies.
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 trusts – own shares in share trusts relate to shares
held in the Treatt Employee Benefit Trust (the ‘EBT’) and Treatt SIP
Trustees Limited (“SIP”). The shares held in the EBT and SIP are all held
to meet options to be exercised by employees, and share awards and
tax-approved purchases by employees under the SIP. Dividends on those
shares not beneficially held on behalf of employees have been waived. At
30 September 2015 the market value of the shares held by the EBT was
£1,189,000 (2014: £1,343,000), and the market value of shares held by
the SIP was £142,000 (2014: £Nil) of which £122,000 (2014: £Nil) relates
to shares beneficially held by employees.
60
I TREATT PLC 3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Description of the nature and purpose of each reserve within equity (continued)
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 FMCG
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:
Revenue by destination
United Kingdom
Rest of Europe
The Americas
Rest of the World
– Germany
– Ireland
– Other
– USA
– Other
– China
– Other
2015
£’000
10,878
4,576
7,903
10,834
27,447
6,721
4,840
12,735
85,934
2014
£’000
9,974
4,777
5,577
11,212
22,772
6,866
4,804
13,207
79,189
All Group revenue is in respect of the sale of goods, other than property rental income of £17,000 (2014: £17,000). No country included within ‘Other’
contributes more than 5% of the Group’s total revenue. The Group’s largest customer, together with its affiliates and agents, represented 12.1% (2014:
8.2%) of Group revenue. There were no other customers which 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
2015
£’000
6,353
6,041
340
2014
£’000
7,274
5,893
214
12,734
13,381
61
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
5. PROFIT FOR THE YEAR
Profit for the year is stated after charging/(crediting):
Group
Depreciation of property, plant & equipment
Amortisation of intangible assets1
Loss on disposal of property, plant & equipment
Gain on disposal of intangible assets
Research and development costs
Operating leases
– plant & machinery
– land & buildings
Net foreign exchange loss2
Rent receivable
Cost of inventories recognised as expense3
Write downs of inventories recognised as an expense
Shipping costs
IT & telephony costs
Insurance costs
Energy & utility costs
1 Included in administrative expenses.
2 Excludes foreign exchange gains or losses on financial instruments disclosed in note 23.
3 Included in cost of sales.
The analysis of auditor’s remuneration is as follows:
Fees payable to the Parent Company’s auditors and their associates for the audit of:
– the Parent Company and Group accounts
– the Group’s subsidiaries pursuant to legislation
Total audit fees
Fees payable to the Parent Company’s auditors and their associates for other services to the Group:
– tax compliance services
– tax advisory services
– business advisory services
– financial software modelling services*
Total non-audit fees
* The financial modelling software services have been included in Other Intangible Assets.
2015
£’000
1,244
175
46
—
807
11
84
273
(17)
56,375
1,174
1,781
578
531
427
33
67
100
13
5
2
40
60
2014
£’000
1,222
172
17
(2)
672
14
69
267
(17)
49,562
734
1,426
545
534
560
33
66
99
13
—
—
—
13
62
I TREATT PLC 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 26)
Share-based payments (see note 25)
2015
Number
186
124
310
2015
£’000
9,955
943
721
198
2014
Number
184
114
298
2014
£’000
9,918
957
669
46
11,817
11,590
Directors
The information on Directors’ emoluments and share options set out on pages 42 to 46 form part of these financial statements.
7. NET FINANCE COSTS
Group
Finance costs
Bank overdraft interest paid
Other bank finance costs
Loan interest paid
Loan note interest paid
Pension finance cost (see note 26)
Finance revenue
Bank interest received
Net finance costs
8. ExCEPTIONAL ITEMS
The exceptional items referred to in the income statement can be categorised as follows:
Group
Legal and professional fees
Agency termination
Less: tax effect of exceptional items
2015
£’000
2014
£’000
483
116
34
10
98
741
1
740
2015
£’000
174
—
174
(18)
156
494
94
60
10
67
725
1
724
2014
£’000
292
1,110
1,402
(244)
1,158
The exceptional items in the year all relate to non-recurring items. The legal and professional fees relate to the earn-out dispute in relation to the
acquisition of the Earthoil Group, which remains on-going (see note 28). The agency termination costs in the prior year related to statutory compensation
due upon giving contractual notice in respect of the strategic termination of a longstanding agency arrangement.
63
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
9. TAxATION
Group
Analysis of tax charge in income statement:
Current tax:
UK corporation tax on profits for the year
Adjustments to UK tax in respect of previous periods
Overseas corporation tax on profits for the year
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
2015
£’000
2014
£’000
956
(11)
931
33
732
(111)
909
(72)
1,909
1,458
(59)
—
(64)
(123)
1,786
(2)
43
41
81
86
167
208
38
(2)
36
20
(13)
88
95
1,553
(11)
51
40
(8)
188
180
220
17
26
43
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 20.5% (2014: 22%). The differences
are explained below:
Profit before tax multiplied by standard rate of UK corporation tax at 20.5% (2014: 22%)
Effects of:
Expenses not deductible in determining taxable profit and other items
Research and development tax credits
Difference in tax rates on overseas earnings
Adjustments to tax charge in respect of prior years
2015
£’000
1,594
(80)
(125)
439
(42)
2014
£’000
1,210
188
(104)
354
(95)
Total tax charge for the year
1,786
1,553
The main rate of UK corporation tax was reduced from 21% to 20% with effect from 1 April 2015. The Group’s effective UK corporation tax rate for the
year was therefore 20.5% (2014: 22%). The adjustments in respect of prior years relate to the finalisation of previous year’s tax computations.
64
I TREATT PLC 10. DIvIDENDS
Equity dividends on ordinary shares:
Parent Company and Group
Interim dividend
Final dividend
Dividend per share for years
ended 30 September
20152
Pence
20141
Pence
20131
Pence
1.28p
2.76p
4.04p
1.24p
2.60p
3.84p
1.10p
2.60p
3.70p
2015
£’000
638
1,340
1,978
2014
£’000
565
1,334
1,899
1 Accounted for in the subsequent year in accordance with IFRS.
2 The declared interim dividend for the year ended 30 September 2015 of 1.28 pence was approved by the Board on 15 May 2015 and was paid on 16
October 2015. Accordingly it has not been included as a deduction from equity at 30 September 2015. The proposed final dividend for the year ended
30 September 2015 of 2.76 pence will be voted on at the Annual General Meeting on 29 January 2016. Both dividends will therefore be accounted
for in the financial statements for the year ending 30 September 2016.
11. EARNINGS PER SHARE
Group
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 Treatt Employee Benefit Trust (EBT), together with shares held by the Treatt SIP Trust (SIP) which
do not rank for dividend.
Earnings (£’000)
Weighted average number of ordinary shares in issue (No: ‘000)
Basic earnings per share (pence)
2015
5,990
51,464
11.64p
2014
3,949
51,335
7.69p
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 and SIP
Weighted average number of shares used for calculating basic EPS
Executive share option schemes
All-employee share options
Weighted average number of shares used for calculating diluted EPS
Diluted earnings per share (pence)
2015
No (‘000)
52,450
(986)
51,464
262
152
51,878
11.55p
2014
No (‘000)
52,405
(1,070)
51,335
40
177
51,552
7.66p
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)
2015
£‘000
5,990
174
(18)
6,146
11.94p
11.85p
2014
£‘000
3,949
1,402
(244)
5,107
9.95p
9.91p
65
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
12. GOODwILL
Group
Carrying amount
30 September 2015
30 September 2014
£‘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 ended 30 September 2008 the remaining 50% of Earthoil was acquired. The consideration for the second 50% is entirely based upon
an earn-out formula in relation to the profits of Earthoil in the calendar years 2010 and 2011. Deferred consideration of £23,000 (2014: £23,000) has been
included in goodwill in relation to the earn-out notice which has been issued but not yet settled as it is the subject of an on-going dispute (see note 28).
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 2015, 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 2020. Thereafter, a growth rate
for pre-tax profit of 2% (2014: 2%) per annum is assumed into perpetuity. A rate of 12.5% (2014: 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 £9.1m (2014: £7.5m). 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.
13. OTHER INTANGIBLE ASSETS
Group
Cost
1 October 2013
Exchange Adjustment
Additions
Disposals
1 October 2014
Exchange adjustment
Additions
Disposals
30 September 2015
Amortisation
1 October 2013
Exchange adjustment
Charge for year
Disposals
1 October 2014
Exchange adjustment
Charge for year
Disposals
30 September 2015
Net book value
30 September 2015
30 September 2014
Lease
premium
£’000
Software
licenses
£’000
343
—
—
—
343
—
—
—
343
13
—
4
—
17
—
4
—
21
322
326
838
1
212
(105)
946
5
108
(171)
888
484
1
168
(107)
546
3
171
(171)
549
339
400
Total
£‘000
1,181
1
212
(105)
1,289
5
108
(171)
1,231
497
1
172
(107)
563
3
175
(171)
570
661
726
Intangible assets with a net book value of £52,000 (2014: £27,000) have been pledged as security in relation to the Industrial Development Loan detailed in note 20.
66
I TREATT PLC
14. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
1 October 2013
Exchange Adjustment
Additions
Disposals
1 October 2014
Exchange adjustment
Additions
Disposals
30 September 2015
Depreciation
1 October 2013
Exchange adjustment
Charge for year
Disposals
1 October 2014
Exchange adjustment
Charge for year
Impairment adjustment
Disposals
30 September 2015
Net book value
30 September 2015
30 September 2014
Analysis of land & buildings
Net book value
Freehold
Long Leasehold
Land &
buildings
£’000
Plant &
machinery
£’000
6,261
(5)
—
—
6,256
230
43
(162)
12,433
(54)
538
(2,291)
10,626
328
881
(1,071)
Total
£‘000
18,694
(59)
538
(2,291)
16,882
558
924
(1,233)
6,367
10,764
17,131
958
—
132
—
1,090
53
135
—
(143)
1,135
5,232
5,166
6,018
(39)
1,090
(2,271)
4,798
129
1,109
27
(1,065)
4,998
5,766
5,828
2015
£’000
4,510
722
5,232
6,976
(39)
1,222
(2,271)
5,888
182
1,244
27
(1,208)
6,133
10,998
10,994
2014
£‘000
4,427
739
5,166
Included in plant and machinery are assets in the course of construction totalling £305,000 (2014: £352,000) which are not depreciated.
Property, plant and equipment with a net book value of £5.7m (2014: £5.6m) has been pledged as security in relation to the Industrial Development Loan
and Equipment Financing Loans detailed in note 20.
Capital commitments
Contracted but not provided for
2015
£’000
163
2014
£‘000
350
67
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
15. INvESTMENTS IN SUBSIDIARIES
Parent Company
Cost
1 October 2013
Capital contribution to subsidiaries
1 October 2014
Capital contribution to subsidiaries
Rounding adjustment
30 September 2015
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
5,238
47
5,285
201
(1)
5,485
2014
£‘000
2015
£’000
2,467
2,350
1,943
1,860
923
923
152
5,485
152
5,285
During the year the Parent Company had the following subsidiary undertakings:
Subsidiary
Country
Holding
Principal activity
Wholly owned by Treatt Plc:
R C Treatt & Co Limited
Treatt USA Inc
Earthoil Plantations Limited
Earthoil Kenya Pty Limited
Treatt SIP Trustees Limited
Wholly owned by Earthoil Kenya Pty Limited:
Earthoil Africa EPZ Limited
Earthoil Extracts Limited
England
USA
England
Kenya
England
Kenya
Kenya
100%
100%
100%
100%
100%
100%
100%
Supply of flavour and fragrance ingredients
Supply of flavour and fragrance ingredients
Supply of natural cosmetic ingredients
Intermediate holding company
Employee share trust
Supply of organic & fair trade vegetable oils
Supply of organic & fair trade essential oils
68
I TREATT PLC 16. DEFERRED TAxATION
Group
UK deferred tax asset
Overseas deferred tax liability
Net deferred tax liability
A reconciliation of the net deferred liability is shown below:
2015
£’000
647
(1,037)
(390)
2014
£‘000
396
(1,007)
(611)
Group
1 October 2013
Exchange differences
(Charge)/credit to income statement
Credit/(charge) to OCI
Credit direct to equity
1 October 2014
Exchange differences
(Charge)/credit to income statement
Credit/(charge) to OCI
Credit direct to equity
30 September 2015
UK Deferred Tax
Overseas Deferred Tax
Total
Post-
employment
benefits
£’000
Fixed
assets
£’000
Cash flow
hedge
£’000
Other
temporary
differences
£’000
333
—
(16)
188
—
505
—
—
86
—
591
(166)
—
(52)
—
—
(218)
—
20
—
—
(198)
76
—
17
(8)
—
85
—
36
81
—
202
35
—
(37)
—
26
24
—
30
—
(2)
52
Fixed
assets
£’000
(1,104)
(1)
(69)
—
—
(1,174)
(80)
56
—
—
(1,198)
Other
temporary
differences
£’000
103
2
62
—
—
167
13
(19)
—
—
161
£’000
(723)
1
(95)
180
26
(611)
(67)
123
167
(2)
(390)
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% (2014: 20%) 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.
On 8 July 2015 it was announced that the UK rate of corporation tax will further reduce the standard rate of UK corporation tax from 20% to 19% from
1 April 2017, and 18% from 1 April 2020. These proposed changes had not been substantively enacted at the balance sheet date and consequently their
effects are not included in these financial statements. The effect of these announced reductions is not likely to be material.
17. INvENTORIES
Group
Raw materials
Work in progress and intermediate products
Finished goods
2015
£’000
10,830
12,504
2,465
25,799
2014
£‘000
11,463
12,267
4,290
28,020
Inventory with a carrying value of £10.2m (2014: £10.6m) has been pledged as security in relation to the Industrial Development Loan detailed in note 20.
69
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
18. TRADE AND OTHER RECEIvABLES
Current
Trade receivables
Amounts owed by subsidiaries
Other receivables
Prepayments
Non-current
Other receivables
Group
Parent Company
2015
£’000
15,634
—
1,090
911
17,635
2014
£’000
13,203
—
470
836
14,509
2015
£’000
—
116
592
—
708
2014
£’000
—
45
—
—
45
Group
Parent Company
2015
£’000
—
2014
£’000
586
2015
£’000
—
2014
£’000
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
determine 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 as follows:
Group
Average debtor days
2015
£’000
61
2014
£’000
57
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 as follows:
Group
Impairment provision
At start of year
Released in year
Provided in year
Foreign exchange
2015
£’000
309
(108)
100
6
307
2014
£’000
133
(124)
299
1
309
The impairment of trade receivables has been carried out by the Group’s management based on prior experience and their assessment of the current
economic environment.
The Group’s top five customers represent 30% (2014: 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
Number of days past the due date:
1–30
31–60
Over 60
70
2015
£’000
2,213
507
501
2014
£’000
1,541
507
180
I TREATT PLC 18. TRADE AND OTHER RECEIvABLES (continued)
The ageing profile of impaired trade receivables is as follows:
Group
Number of days past the due date:
Current
1–30
31–60
Over 60
2015
£’000
24
—
—
283
2014
£’000
10
—
5
294
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 29 and the Financial Review on pages 14 to 17. The currency exposure within trade receivables, analysed by
currency, was as follows:
Group
GB Pound
US Dollar
Euro
2015
£’000
3,267
10,924
1,383
2014
£’000
3,338
8,503
1,385
Trade receivables with a carrying value of £3.7m (2014: £3.4m) have been pledged as security in relation to the Industrial Development Loan detailed
in note 20.
There is no credit risk associated with other receivables of £0.6m (2014: Non-current other receivables of £0.6m) as these amounts are contractually
fully recoverable against loan notes payable of £0.7m (2014: £0.7m) when they fall due, and are recoverable at an earlier date if deferred consideration
in respect of Earthoil becomes payable. This is now expected to be settled within one year and is therefore included within current assets.
19. CASH AND BANK BALANCES
Group
Cash and bank balances of £1,477,000 (2014: £629,000) 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 net cash balances by currency is shown in note 29. 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
US line of credit
Group
Parent Company
2015
£’000
—
—
—
—
2014
£’000
—
—
1,556
1,556
2015
£’000
566
—
1
567
Group
2015
£’000
1,124
5,941
—
7,065
2014
£’000
514
1,234
608
2,356
2014
£’000
1,579
5,551
727
7,857
71
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements
Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
20. BORROwINGS (continued)
US loans and borrowings
US term loans comprise the following:
Group
Industrial development loan
Equipment financing loans
2015
£’000
1,030
660
1,690
2014
£’000
1,120
973
2,093
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 £91,000 (2014: £102,000) 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 £491,000 (2014: £748,000) and £169,000 (2014: £225,000) are repayable by fixed monthly instalments over five
years ending on 30 March and 31 December 2017, with fixed interest rates of 4.36% and 2.89% respectively.
The US Dollar overdraft facility (‘line of credit’) of $4 million is a four year facility expiring in 2017. The US term loans and line of credit, both held by Treatt
USA Inc, are secured by a fixed and floating charge over Treatt USA’s current and non-current assets.
Other borrowings
The Group’s UK facilities are unsecured. UK borrowings of $9m are held on a four year revolving credit facility (RCF) which expires in 2019. 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 ending on 29 December
2020. Hedge accounting has been applied to the fair value of this swap, details of which are provided in note 29.
Borrowings are repayable as follows:
Group
– 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
2015
£’000
567
412
6,465
188
7,632
2014
£’000
2,356
6,080
1,444
333
10,213
Further information on Group borrowing facilities is given in notes 28 and 29, including a detailed analysis of cash balances by currency.
Borrowing facilities
At 30 September 2015, the Group had total borrowing facilities of £20.7m (2014: £20.3m) of which £8.5m (2014: £10.2m) expire in one year or less
and £14.5m (2014: £10.7m) were undrawn.
21. PROvISIONS
Group
Onerous contract provision:
At start of year
Utilised in year
Additional provision in year
Foreign exchange
Balance at end of year
2015
£’000
920
(887)
195
11
239
2014
£’000
49
(49)
920
—
920
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.
72
I TREATT PLC 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
Parent Company
2015
£’000
7,432
—
508
2,945
2014
£’000
7,326
—
514
4,213
10,885
12,053
2015
£’000
—
61
8
24
93
2014
£’000
—
13
6
1
20
Group
Parent Company
2015
£’000
—
2014
£’000
23
2015
£’000
—
2014
£’000
23
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.
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 29 and the Financial Review on pages 14 to 17. The currency exposure within trade payables, analysed by currency,
was as follows:
Group
GB Pound
US Dollar
Euro
2015
£’000
1,529
4,446
533
2014
£’000
1,368
4,972
393
Non-current other creditors and accruals in the prior year related to the deferred consideration payable to the vendors in relation to the acquisition of
Earthoil. This is now expected to be settled within one year and is therefore included within current liabilities. See note 12 for further information.
23. DERIvATIvE FINANCIAL INSTRUMENTS
Group
Derivative financial assets:
Foreign exchange contracts
Derivative financial liabilities:
Current:
Foreign exchange contracts
Non-current:
Interest rate swaps
The gains/(losses) on derivative financial instruments were as follows:
Group
Income statement:
Foreign exchange contracts
Other comprehensive income:
Interest rate swaps
Foreign exchange contracts
Further details on the Group’s hedging policies and derivative financial instruments are disclosed in note 29.
2015
£’000
—
305
699
1,004
2015
£’000
243
(188)
(216)
(404)
2014
£’000
92
—
511
511
2014
£’000
361
66
(50)
16
73
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
24. SHARE CAPITAL
Parent Company and Group
Called up, allotted and fully paid
At start of year
Issued in year
At end of year
2015
£’000
1,048
2
2015
Number
52,405,170
90,000
1,050
52,495,170
2014
£’000
1,048
—
1,048
2014
Number
52,405,170
—
52,405,170
During the year the Parent Company issued 90,000 ordinary shares of 2p each to the Treatt UK SIP Trust for the purpose of meeting its obligations under
an HMRC-approved share incentive plan in the UK.
The Parent Company has one class of ordinary shares, now with a nominal value of 2p each, which carry no right to fixed income.
25. SHARE-BASED PAYMENTS
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.
The Group also operates an HMRC-approved share incentive plan in the UK, and operates an equivalent scheme for its US employees.
The share-based payments charge was as follows:
Group
Share option schemes – see (a) below
Share incentive plans – see (b) below
2015
£’000
178
20
198
2014
£’000
47
—
47
74
I TREATT PLC 25. SHARE-BASED PAYMENTS (continued)
(a) Share option schemes
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 equity-settled options which existed during the year were as follows:
UK SAYE1 Scheme 2012
UK SAYE Scheme 2013
UK SAYE Scheme 2014
UK SAYE Scheme 2015
US ESPP2 Scheme 2014
US ESPP Scheme 2015
UK LTIP3 Scheme 2014
US LTIP Scheme 2014
UK LTIP Scheme 2015
US LTIP Scheme 2015
UK Executive4 Options 2012
US Executive Options 2012
UK Executive Options 2013
US Executive Options 2013
UK Executive Options 2014
US Executive Options 2014
Number of shares
outstanding
Number exercised
in year
Exercise price
per share
—
117,420
196,765
200,828
—
43,762
100,282
75,061
130,863
113,993
12,820
97,740
6,790
51,965
128,400
164,816
190,815
1,795
—
—
27,192
—
—
—
—
—
—
—
—
—
—
—
53.4p
97.8p
138.0p
132.0p
147.0p
137.0p
Nil
Nil
Nil
Nil
78.0p
79.0p
147.2p
147.2p
Nil
Nil
Date option exercisable
Sep 2015 – Feb 2016
Sep 2016 – Feb 2017
Sep 2017 – Feb 2018
Sep 2018 – Feb 2019
July 2015
July 2016
June 2017 – June 2024
June 2017
June 2018 – June 2025
June 2018
Dec 2015 – Dec 2022
Dec 2017 – Dec 2022
Dec 2016 – Dec 2023
Dec 2018 – Dec 2023
Dec 2017 – Dec 2024
Dec 2017 – Dec 2024
1 The SAYE schemes are HMRC-approved Save As You Earn share option plans, which vest after three years. Options are forfeited where employees
choose to leave the Group before the end of the three year period.
2 The ESPP schemes are IRS-approved Employee Stock Purchase Plans, which vest after one year. Options are forfeited where employees choose to
leave the Group before the end of the three year period.
3 Share options are awarded to certain key employees in the UK and US under a Long Term Incentive Plan. All awards are nil-cost options which
vest, subject to achievement of the relevant performance conditions, after three years and can be exercised over the following seven years. Save as
permitted in the LTIP rules, awards lapse on an employee leaving the Group.
4 Details of the Executive options are provided in the Directors’ Remuneration Report.
75
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
25. 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
SAYE 2015 US ESPP 2014
US ESPP 2015
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%
12.7%*
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
165.0p
3.5 years
3 years
23.3%
1.52%
2.4%
10.0%
10.0%
35.6p
172.5p
1 year
1 year
19.1%
2.02%
2.2%
10.0%
0%*
25.2p
165.0p
1 year
1 year
23.1%
1.52%
2.4%
10.0%
10.0%
27.5p
Key employee share schemes:
UK LTIP 2014
US LTIP 2014
UK LTIP 2015
US LTIP 2015
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
174.0p
10 years
3 years
23.4%
2.02%
2.2%
0.0%
35.0%
139.5p
174.0p
3.2 years
3 years
23.3%
2.02%
2.2%
0.0%
35.0%
162.1p
158.0p
10 years
3 years
23.3%
1.44%
2.5%
0.0%
35.0%
123.6p
158.0p
3.2 years
3 years
23.3%
1.44%
2.5%
0.0%
35.0%
146.0p
Executive share schemes:
UK Exec 2012 US Exec 2012 UK Exec 2013 US Exec 2013 UK Exec 2014
US Exec 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
* Actual forfeiture experienced.
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
139.7p
10 years
3 years
23.4%
1.26%
2.7%
0.0%
35.0%
106.1p
139.7p
10 years
3 years
23.4%
1.26%
2.7%
0.0%
35.0%
106.1p
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.
76
I TREATT PLC 25. SHARE-BASED PAYMENTS (continued)
Details of movements in share options during the year were as follows:
Outstanding at start of year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Cancelled during the year
Outstanding at end of year
Exercisable at end of year
2015
weighted
average
exercise price
£0.81
£0.42
£1.02
£0.65
£1.28
£1.47
£0.61
—
2015
No of options
897,910
782,662
(8,809)
(219,802)
(9,425)
(1,031)
1,441,505
—
2014
No of options
570,890
467,865
(14,175)
(126,670)
—
—
897,910
265
2014
Weighted
average
exercise price
£0.73
£0.88
£0.64
£0.73
—
—
£0.81
£0.68
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 6.4 years (2014: 5.2 years). The weighted average actual market share
price on date of exercise for share options exercised during the year was 158.6 pence (2014: 159.4 pence) and the weighted average fair value of options
granted during the year was 92.4 pence (2014: 78.1 pence).
(b) Share incentive plans
All UK-based employees are eligible to participate in an HMRC-approved SIP once they have been with the Group for a qualifying period of up to twelve
months. US employees participate in a similar scheme through the use of nil cost Restricted Stock Units (RSUs). During the year UK employees were
awarded £500 (2014: £Nil) of ‘Free Shares’, and US employees $800 (2014: Nil) of RSUs, in Treatt plc. There are no vesting conditions attached to the
Free Shares or RSUs, other than being continuously employed by the Group for three years from the date of grant. UK employees can also buy shares in
Treatt Plc out of pre-tax income, subject to an annual HMRC limit, currently £1,800. These shares are called Partnership Shares and are held in trust on
behalf of the employee. The employees must take their shares out of the plan on leaving the Group.
Details of the movements in the share incentive plans (SIPs) were as follows:
Outstanding at start of year
Granted during the year
Forfeited during the year
Released during the year
Outstanding at end of year
Exercisable at end of year
No of free shares
No of nil cost RSUs
2015
—
55,421
(1,059)
(1,059)
53,303
—
2014
—
—
—
—
—
—
2015
—
23,058
(1,830)
—
21,228
—
2014
—
—
—
—
—
—
In accordance with IFRS 2, no valuation model is required to calculate the fair value of awards under the SIPs. The fair value of an equity-based payment
under the SIPs is the face value of the award on the date of grant because the participants are entitled to receive the full value of the shares and there are
no market-based performance conditions attached to the awards.
26. POST-EMPLOYMENT BENEFITS
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 was made up as follows:
Current
Defined contribution schemes
Other pension costs
2015
697
24
721
2014
644
24
668
77
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
26. POST-EMPLOYMENT BENEFITS (continued)
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 2015 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 2015. 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.
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
2015
£’000
2014
£’000
4.00%
3.10%
2.10%
2.10%
2.00%
1.85%
2.10%
100% of S2PxA table with CMI_2014
projections with a long term average
rate of improvement of 1.25% pa
20%
N/A
24.1
26.3
22.4
24.4
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
78
I TREATT PLC 26. POST-EMPLOYMENT BENEFITS (continued)
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 latest valuation of the scheme took place as at 1 January 2015. The valuation revealed that there was a funding surplus in the scheme as
at that date of £314,000, being a funding level of 102%. It was agreed with the trustees that, consequently, the Group could cease making contributions
to the scheme for the foreseeable future. It was further agreed that if the annual actuarial funding update revealed that the scheme funding level had fallen
to below 95%, then contributions would be resumed. The actuarial funding update as at 30 September 2015 revealed an increased actuarial surplus of
£561,000, being a funding level of 103%. The Group therefore does not expect to make on-going contributions to its defined benefit pension scheme in 2016
(2015: £306,000). The weighted average duration of the defined benefit obligation is approximately 18 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 year
Current service cost
Interest cost
Benefits paid
Remeasurement losses:
Experience loss on liabilities
Actuarial loss arising from changes to demographic assumptions
Actuarial loss arising from changes in financial assumptions
Balance at end of year
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 year
2015
£’000
8,908
3,658
5,652
74
18,292
(21,251)
(2,959)
592
2014
£’000
9,143
5,544
3,454
36
18,177
(20,706)
(2,529)
505
(2,367)
(2,024)
(20,706)
—
(839)
493
(113)
(85)
(1)
(18,760)
—
(858)
622
—
—
(1,710)
(21,251)
(20,706)
18,177
741
306
(493)
17,171
791
297
(622)
(439)
540
18,292
18,177
79
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
26. POST-EMPLOYMENT BENEFITS (continued)
Amount charged to finance costs
Interest on scheme assets
Interest on scheme liabilities
Net finance expense
Net expense recognised in income statement
Amount recognised in statement of comprehensive income
(Loss)/gain on scheme assets in excess of interest
Experience losses on liabilities
Loss from changes to demographic assumptions
Loss from changes to financial assumptions
Remeasurement loss recognised in statement of comprehensive income
Actual return on scheme assets
2015
£’000
2014
£’000
741
(839)
(98)
(98)
(439)
(113)
(85)
(1)
(638)
302
791
(858)
(67)
(67)
540
—
—
(1,710)
(1,170)
1,331
Cumulative remeasurement loss recognised in statement of comprehensive income
(4,151)
(3,513)
Approximate effect of change of assumptions on liability values at 30 September 2015:
Reduce discount rate by 0.25% pa
Increase inflation and all related assumptions by 0.1% pa
Increase life expectancy by one year
Increase liability by:
£’000
985
243
705
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.
27. COMMITMENTS UNDER OPERATING LEASES
The Group as lessee
As at 30 September 2015, 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
2015
£’000
53
35
44
—
132
The Group as lessor
As at 30 September 2015, the Group had contracted with tenants for the following future minimum lease payments which fall due as follows:
Within one year
Details of lease payments under operating leases recognised as an expense in the year are disclosed in note 5.
2015
£’000
8
2014
£’000
38
38
83
14
173
2014
£’000
8
80
I TREATT PLC 28. CONTINGENT LIABILITIES
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$1,560,000 (£1,030,000) (2014: US$1,815,000 (£1,120,000)).
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 £5,430,000 (2014: £5,419,000).
Parent Company and Group
As previously reported, the sellers of the Earthoil Group, which was wholly acquired in April 2008 (see note 12), filed a claim in the Chancery Division of
the High Court against the Parent Company for £1.8m which they subsequently extended. The claim relates to various matters in respect of the earn-out,
being the deferred consideration payable to the sellers in respect of the acquisition of the Earthoil Group.
Following rulings by the High Court and Court of Appeal on issues of contractual interpretation, £1,486,000 of the substantive claim, being the quantum
of the earn-out, has been referred to chartered accountants for expert determination (the ‘expert’). Following the outcome of the expert determination
process, which is expected in the first half of 2016, the outstanding issues in the claim (totalling a further £694,000) may be heard when the matter
returns to the High Court. The costs of resolving the dispute currently total £1,113,000, of which the current year’s costs of £174,000 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; apportionment of costs between the parties will be determined by the Court following conclusion of the entire claim.
The amount included in these financial statements as a liability in respect of the earn-out is based on the earn-out notice issued to the vendors in 2012,
as subsequently supported by our submission to the expert. This is the only appropriate estimate which can be made until the outcome of the expert
determination process is known and as with any litigation there can be no certainty of the eventual outcome.
29. 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. The Group has a mix of facilities, including a £2m three year revolving credit facility with Lloyds Banking Group and a $9m four year
revolving credit facility with HSBC in the UK, together with a $4m four year line of credit facility with Bank of America in the US. 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 8 to 17.
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).
•
81
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
29. FINANCIAL INSTRUMENTS (continued)
Capital risk management (continued)
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 – forward currency contracts (level 2)
Derivative financial instruments – interest rate swap (level 2)
Group
Parent Company
2015
£’000
—
15,634
1,477
—
17,111
2014
£’000
—
13,203
629
92
13,924
2015
£’000
1,350
—
686
—
2,036
2014
£’000
1,350
—
—
—
1,350
Group
Parent Company
2015
£’000
675
7,432
1
5,941
1,690
305
699
2014
£’000
675
7,326
608
6,785
2,093
—
511
16,743
17,998
2015
£’000
675
—
—
—
—
—
—
675
2014
£’000
675
—
1,556
—
—
—
—
2,231
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:
Parent Company
Variable Rate Unsecured Loan Notes 2015 (A)
Variable Rate Unsecured Loan Notes 2015 (B)
2015
£’000
950
400
1,350
2014
£’000
950
400
1,350
82
I TREATT PLC 29. FINANCIAL INSTRUMENTS (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 30, the loan notes are receivable by the Parent Company from two of its wholly-owned subsidiaries, comprising the Earthoil
Group. Although the Earthoil Group has access to the Group’s banking facilities, on a standalone basis there is technically a credit risk attaching to the
loan notes. However, given that the Earthoil Group is now trading profitably and the Parent Company has control over when the loan notes are redeemed,
this credit risk is not considered to be significant.
Further details of the Group’s credit risk management are given in notes 18 and 19.
Liquidity risk management
Liquidity risk refers to the risk that the Group may not be able to fund the day to day running of the Group. Liquidity risk is reviewed by the Board at all
Board meetings. The Group manages liquidity risk by monitoring actual and forecast cash flows and matching the maturity profiles of financial assets
and liabilities. The Group also monitors the drawdown of debt against the available banking facilities and reviews the level of reserves. Liquidity risk
management ensures sufficient debt funding is available for the Group’s day to day needs. Board policy is to maintain a reasonable headroom of unused
committed bank facilities.
The Group has a number of debt facilities, details of which, including their terms and maturity profile, are given in note 20.
The Board also monitors the Group’s banking covenants which are calculated under IFRS. There were no breaches during the year or prior period.
Interest rate risk management
The Group is exposed to interest rate risk on short to medium term borrowings primarily with three major institutions being HSBC, Lloyds Banking Group
and Bank of America. The risk is managed by maintaining borrowings with several institutions across a number of currencies, principally US Dollar and
Sterling. Long term financing is primarily used to finance long term capital investment.
The Group hedges a portion of its interest rate risk through an interest rate swap which has the effect of fixing the interest rate on a notional principal of
US$9 million of borrowings. The interest rate swap is for a period of ten years ending in 2020 and swaps variable 3 month US LIBOR for a fixed rate of
5.68%. The Group has complied with the requirements of IAS39, ‘Financial Instruments: Recognition and Measurement’ and designated this interest
rate swap as a cash flow hedge. The hedge was 100% effective during the period and is expected to be going forward, and consequently the carrying
value (which is the same as the fair value) of the interest rate swap has been taken to the hedging reserve, and the corresponding liability was as follows:
Derivative financial instruments
Non-current liabilities
Interest rate swaps
2015
£’000
699
2014
£’000
511
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/(loss) on interest rate swaps was as follows:
Group
Other comprehensive income
2015
£’000
(188)
2014
£’000
66
The derivative financial instrument for the interest rate swap described above is classified as level 2.
83
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
29. FINANCIAL INSTRUMENTS (continued)
Interest rate risk management (continued)
Interest rate risk is further diversified by having a mix of fixed and floating rate borrowings, as well as holding borrowings in a range of currencies as follows:
Group
Bank borrowings:
US Dollars
Sterling*
Other*
Total Net Debt
Loan notes payable:
Sterling
Floating rate financial
liabilities
Fixed rate financial
liabilities
2015
£’000
455
(1,709)
(222)
(1,476)
675
(801)
2014
£’000
472
1,422
45
1,939
675
2,614
2015
£’000
7,631
—
—
7,631
—
7,631
2014
£’000
7,644
—
—
7,644
—
7,644
Total
2015
£’000
8,086
(1,709)
(222)
6,155
675
6,830
2014
£’000
8,116
1,422
45
9,583
675
10,258
* Bank borrowings are shown net of positive cash balances as rights of set-off exist.
The Parent Company bank balances 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$1,560,000 (2014: US$1,815,000), equipment financing term loans of
$1,000,000 (2014: $1,578,000) 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:
Parent Company
Series A Variable Rate Unsecured Loan Notes 2015
Series B Variable Rate Unsecured Loan Notes 2015
2015
£’000
475
200
675
2014
£’000
475
200
675
Subject to the outcome of the Earthoil earn-out legal dispute (see note 28), 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 2015 would have decreased or increased as follows:
Impact on profit before tax of 1% interest rate movement
Group
Parent Company
2015
£’000
83
2014
£’000
102
2015
£’000
(7)
2014
£’000
9
It has been assumed that all other variables remained the same when preparing the interest rate sensitivity analysis and that floating rate short term bank
borrowings in the same currency are netted against each other for the purpose of interest rate calculation.
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 8 to 17.
84
I TREATT PLC
29. FINANCIAL INSTRUMENTS (continued)
Foreign currency risk management (continued)
The following table details the forward and option contracts outstanding at the year end:
As at 30 September 2015
US Dollars:
Put option to sell US Dollars in 3 to 6 months
Call option to sell US Dollars in 3 to 6 months
Euros:
Forward contract to sell Euros in 3 to 6 months
As at 30 September 2014
US Dollars:
Call option to sell US Dollars in 3 to 6 months
Euros:
Forward contract to sell Euros in 3 to 6 months
Average
Rate
1.585
1.585
1.403
Nominal
currency
‘000
$13,500
$13,500
€3,000
Contract
GBP
£’000
Fair value
gain/(loss)
£’000
8,517
8,517
2,139
(262)
37
(80)
(305)
Average
Rate
Nominal
currency
‘000
Contract
GBP
£’000
Fair value gain
£’000
1.659
$10,000
1.255
€3,000
6,028
2,391
—
53
53
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 at the year end equate to the mark-to-market valuation of the contracts and options
provided by HSBC and Lloyds Banking Group and represent 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:
Group
Income statement
Other comprehensive income
2015
£’000
243
(216)
27
2014
£’000
361
(50)
311
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:
US Dollar
Other
2015
£’000
4,762
1,161
5,923
2014
£’000
1,948
1,074
3,022
85
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notes to the Financial Statements
for the year ended 30 September 2015 (continued)
29. FINANCIAL INSTRUMENTS (continued)
Foreign currency risk management (continued)
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/(loss) on net monetary assets or liabilities as follows:
Group
Impact of 10% strengthening of US Dollar against GB Pound
2015
£’000
529
2014
£’000
216
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.
30. 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 35 to 46.
Salaries and other short-term employee benefits
Employers’ social security costs
Pension contributions to money purchase schemes
Share-based payments
2015
£’000
982
90
39
85
2014
£’000
950
91
41
6
1,196
1, 088
During the year no Directors (2014: nil) 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 payable at age 65 as at 30 September 2015 was £21,000 (2014: £66,000) per annum.
Parent Company
Transactions with subsidiaries:
Interest received from:
Earthoil Plantations Limited
Earthoil Kenya PTY EPZ Limited
Dividends received from:
R C Treatt & Co Limited
Treatt USA Inc
Balances with subsidiaries:
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
2015
£’000
14
6
3,072
1,021
2015
£’000
950
400
(61)
116
2014
£’000
14
6
936
902
2014
£’000
950
400
45
(13)
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.
86
I TREATT PLC 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 29 January 2016 at 10.30 am at Treatt plc, Northern Way, Bury St Edmunds, Suffolk,
IP32 6NL is set out below.
To be valid, forms of proxy must be completed and returned in accordance with the instructions printed thereon so as to be received by the Company’s
registrars, Capita Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent, BR3 4ZF 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 29 January 2016, at 10.30 am for the
transaction of the following business:
Special business
To consider and, if thought fit, to pass the following resolutions, of which
Resolution 8 will be proposed as an Ordinary Resolution and Resolutions
9 to 11 will be proposed as Special Resolutions.
Ordinary business
1. To receive the audited accounts and related reports of the Directors and
Auditors for the year ended 30 September 2015.
2. To approve the Directors’ Remuneration Report.
3. To approve a final dividend of 2.76p per share on the ordinary shares of
the Company for the year ended 30 September 2015.
4. To re-elect Tim Jones as a Director of the Company.
5. To re-elect Daemmon Reeve as a Director of the Company.
6. To re-appoint RSM UK Audit LLP (formerly 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.
8. 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 29 April 2017; and
(ii) this authority shall be limited to the allotment of shares and
the granting of Rights up to an aggregate nominal amount
of £346,468 (representing approximately 33 per cent of the
existing issued share capital of the Company).
(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.
87
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notice of Annual General Meeting continued
9. Disapplication of pre-emption rights for up to 5% of existing share capital
THAT:
(a) Conditionally upon the passing of Resolution 8 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 8 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
(bb) to the allotment (otherwise than pursuant to sub-
paragraph (i)(aa) of this proviso) of equity securities up to
an aggregate nominal amount of £52,495 (representing
approximately 5 per cent of the existing issued share
capital of the Company);
(ii) 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 29 April 2017;
(b) (i) 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.
10. Disapplication of pre-emption rights for a further 5% of existing share
capital for a specified capital investment
THAT:
(a) Conditionally upon the passing of Resolutions 8 and 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 8 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 pursuant to paragraph
(a)(i)(aa) of resolution 9 up to an aggregate nominal amount of
£52,495 (representing a further 5 per cent of the existing issued
share capital of the Company);
(ii) 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 29 April 2017;
By order of the Board
ANITA STEER
Secretary
14 December 2015
(b) (i) 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.
11. 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 5,249,517 (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 2017,
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.
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 89 to 91 form part of this notice.
88
I TREATT PLC 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 27 January 2016 (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 12p per minute plus your phone company’s access charge.
Lines are open between 09:00 - 17:30, Monday to Friday excluding public
holidays in England and Wales). 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 29 January 2016 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.
89
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements Notice of Annual General Meeting continued
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 2015 the Company’s issued share capital consists
of 52,495,170 ordinary shares. The total number of voting rights in the
Company as at 4 December 2015 (the latest practicable reporting date
prior to publication of this document) is 51,671,820.
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.
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 Remuneration Policy is only required to be approved by
shareholders every three years or in the intervening period if amendments
are proposed. The Company’s Remuneration Policy was approved at the
2015 Annual General Meeting and accordingly, since no amendments
are proposed, it will not be put before shareholders at the Annual
General Meeting in 2016. Resolution 2 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 2015. You can find the Implementation Section of
the Directors’ Remuneration Report on pages 42 to 46.
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 2.76p 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 4 March 2016. If
approved, the date of payment of the final dividend will be 8 April 2016.
An interim dividend of 1.28 pence per ordinary share was paid on 16
October 2015. This represents an increase of 0.20 pence per share, or
5.2 per cent, on the total 2014 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, Tim Jones and Daemmon Reeve will retire and stand for
re-election as Directors. Short biographies of these Directors are given
on page 21. 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 RSM UK Audit LLP
(formerly Baker Tilly UK Audit LLP) as Auditors of the Company and
authorise the Directors to set their remuneration.
90
I TREATT PLC has taken place in the preceding six month period and is disclosed in the
announcement of the issue. As at 4 December 2015 the only specified
capital investment proposed is the potential site relocation in the UK.
Authority to purchase own shares (Resolution 11)
In certain circumstances, it may be advantageous for the Company to
purchase its own shares and resolution 11 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 2015) 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 2015 (the latest practicable reporting date
prior to publication of this document) was 1,441,505. The proportion of
issued share capital that they represented at that time was 2.75 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
3.05 per cent.
Resolution 11 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
2017 or, if earlier, 29 April 2017 (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.
Directors’ authority to allot securities (Resolution 8)
The Company 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 2017 or, if earlier, on 29 April 2017
(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 £346,468 approximately 33 per cent of the Company’s issued
ordinary share capital as at 4 December 2015.
Disapplication of pre-emption rights (Resolution 9)
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 9 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 £52,495 (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 2015. 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 2017 or, if earlier, 29 April 2017 (the date which is 15
months after the date of passing of the resolution).
Disapplication of pre-emption rights for a further 5% of existing share capital
for a specified capital investment (Resolution 10)
The Directors are seeking this year a further power from shareholders to
allot equity securities or sell treasury shares for cash otherwise than to
existing shareholders pro rata to their holdings, to reflect the Pre-emption
Group 2015 Statement of Principles for the disapplication of pre-emption
rights (the “Statement of Principles”). Accordingly, Resolution 10 will be
proposed as a special resolution to grant such a power. The power will be
limited to the allotment of equity securities and sales of treasury shares for
cash up to an aggregate nominal value of £52,495 (being five per cent
of the Company’s issued ordinary share capital at 4 December 2015, the
latest practicable date prior to publication of this notice). This is in addition
to the five per cent referred to in Resolution 9. If given, this power will expire
on 29 April 2017 or at the conclusion of the AGM in 2017, whichever is the
earlier. The Directors will have due regard to the Statement of Principles
in relation to any exercise of this power and in particular they confirm that
they intend to use this power only in connection with a specified capital
investment (within the meaning of the Statement of Principles from time
to time) which is announced contemporaneously with the issue, or which
91
Annual Report & Financial Statements 2015TREATT PLC IFinancial Statements 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)
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
Jeff Iliffe
David Johnston
Ian Neil
Investec Investment Banking
2 Gresham Street, London, EC2V 7QP
RSM UK Audit LLP (formerly Baker Tilly UK Audit LLP)
Abbotsgate House, Hollow Road, Bury St Edmunds, Suffolk, IP32 7FA
Eversheds LLP
One Wood Street, London, EC2V 7WS.
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)
Brokers
Auditors
Solicitors
Bankers
Registrars
Share Price
92
I TREATT PLC Financial calendar
2014/15
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2015 goes ‘ex-dividend’
Record date for 2015 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2015 paid
2015/16
Interim results to 31 March 2016 announced
Interim dividend for 2016 goes ‘ex-dividend’
Record date for 2016 interim dividend
Last day for dividend reinvestment plan election
Financial year ended
Interim dividend for 2016 paid
Results for year to 30 September 2016 announced
Final dividend for 2016 paid
* These dates are provisional and may be subject to change
Annual Report & Financial Statements 2015
30 September 2015
8 December 2015
14 December 2015
29 January 2016
2 February 2016
4 February 2016
14 March 2016
8 April 2016
17 May 2016*
7 September 2016*
9 September 2016*
19 September 2016*
30 September 2016
14 October 2016*
29 November 2016*
23 March 2017*
p
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TREATT IS A WORLD LEADER IN
PROVIDING INNOVATIVE INGREDIENT
SOLUTIONS TO THE FLAVOUR,
FRAGRANCE AND FMCG INDUSTRIES,
SUPPLyING CUSTOMERS GLOBALLy
FROM BASES IN THE UK, USA, CHINA
AND AFRICA.
Treatt’s reputation and in-depth knowledge of flavour and fragrance ingredients and their
sources is recognised as a trusted resource by its customers worldwide. We offer our
customers exceptional service along with cutting-edge solutions so that they can create
unique and innovative products to help drive their own commercial success.
Our business
Our products and solutions range from ingredients for the flavour and fragrance industry
such as essential oils – especially citrus, aroma chemicals, and specialty products developed
by Treatt, to functional ingredient ranges such as wellness and beverage specialties. We
supply a diverse client portfolio including many leading flavour & fragrance manufacturers,
as well as FMCG companies. Our products are found in a myriad of consumer goods
worldwide, from beverages and food products to perfumery and household goods.
Designed and produced by corporateprm, Edinburgh and London. www.corporateprm.co.uk
TREATT PLC I
93
Annual Report & Financial Statements 2015
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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