Treatt plc
Northern Way,
Bury St Edmunds,
Suffolk, IP32 6NL UK
01284 702500
01284 703809
Tel:
Fax:
Email: enquiries@treatt.com
www.treatt.com
www.earthoil.com
Annual Report & Financial Statements 2016
MAKING THE WORLD
TASTE BETTER
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CPRM 00001 Treatt_AR_accounts_Cover_AW.indd 1
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Financial Calendar
2015/16
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2016 goes ‘ex-dividend’
Record date for 2016 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2016 paid
2016/17
Interim results to 31 March 2017 announced
Interim dividend for 2017 goes ‘ex-dividend’
Record date for 2017 interim dividend
Last day for dividend reinvestment plan election
Interim dividend for 2017 paid
Financial year ended
Results for year to 30 September 2017 announced
Final dividend for 2017 paid
* These dates are provisional and may be subject to change
Annual Report & Financial Statements 2016
30 September 2016
29 November 2016
9 December 2016
27 January 2017
16 February 2017
17 February 2017
26 February 2017
23 March 2017
9 May 2017*
13 July 2017*
14 July 2017*
23 July 2017*
17 August 2017*
30 September 2017
28 November 2017*
22 March 2018*
THE GROUP
WE ARE A TRUSTED INGREDIENTS
MANUFACTURER AND SOLUTIONS
PROVIDER TO THE GLOBAL
FLAVOUR, FRAGRANCE AND
CONSUMER GOODS MARKETS FROM
OUR BASES IN THE UK, THE US,
CHINA AND KENYA.
We have been making the world taste better since our
foundation in 1886, but this is just the beginning.
Committed to continuous improvement, we have deep
roots and a clear strategic path that drives us forward.
Our people are creative, technically excellent and
dedicated – allowing us to develop and supply a range of
ready-made and bespoke systems to suit even the most
adventurous needs.
Everyone from logistics, HR, finance, operations and
research and development to sales, purchasing, marketing,
planning, IT and procurement work together to ensure
we’re the sustainable partner of choice for our international
customer base.
The passion and expertise for our industry is visible in every
interaction with Treatt, which is why our customers rely
on our specialists to deliver innovative ingredient solutions
that will drive commercial results.
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TREATT PLC I
97
THE REPORT
Discover how our global family of experts work together to deliver
unique solutions that exceed our customers’ expectations.
Learn more about how we’re building on our 130 years of expertise
and taking our company to exciting new areas across the globe.
Explore our growing product range and understand how our expertise
drives global trends across a number of food and beverage categories.
‘‘
The passion and expertise for
our industry is visible in every
interaction with Treatt
‘‘
OVERVIEW
01 The Report
02 What Makes Treatt Special
04 Where We’re Heading
06 Our Product Innovations
08 2016 Review
09 Group Five Year Trading Record
10 Chairman’s Statement
12 Chief Executive’s Report
16 Financial Review
20 Directors’ Report
24 The Board
26 Strategic Report
CORPORATE GOVERNANCE
34 Corporate Governance Statement
Statement of Directors’
Responsibilities
39 Directors’ Remuneration Report
51 Independent Auditor’s Report to
the Members of Treatt plc
FINANCIAL STATEMENTS
53 Group Income Statement
54 Group Statement of
Comprehensive Income
55 Group and Parent Company
Statements of Changes in Equity
57 Group and Parent Company
Balance Sheets
58 Group and Parent Company
Statements of Cash Flows
59 Group Reconciliation of Net Cash
Flow to Movement in Net Debt
60 Notes to the Financial Statements
91 Notice of Annual General Meeting
96 Parent Company Information
and Advisers
97 Financial Calendar
01
WHAT MAKES TREATT SPECIALWHERE WE’RE HEADINGOUR PRODUCT INNOVATIONS020406 Annual Report & Financial Statements 2016TREATT PLC I
WHAT MAKES
TREATT SPECIAL
CUSTOMERS FROM
OVER 90 COUNTRIES
CHOOSE TO WORK
WITH TREATT AS WE
STAND APART FROM
THE COMPETITION
FOR ALL OF THE
RIGHT REASONS.
PEOPLE
The success of our business is built on the skills, knowledge
and personalities of our people – the central pillar to our
future development. We collectively believe in the company’s
vision and bring our absolute best to the industry-leading work
we do every day. This commitment shines through in every
interaction with the business.
Our brightest technical minds take pride in developing
the ingredient solutions of the future and are supported
by a global operational infrastructure that delivers results.
internal training and
Strategic recruitment,
innovative
personal staff development have meant our people are
best-placed to take Treatt to the next level. With over
370 experts working across the globe, we deliver an integrated
service with all departments pulling together towards a
common goal.
By embodying effective teamwork, our customers feel the
benefit of partnering with a company that works as one,
with momentum and enthusiasm.
PASSION
As shareholders, as well as employees, we have a vested
interest in the success of the company which has a palpable
impact on the way we operate.
The care we take in our work is evident everywhere you
look at Treatt. We collectively strive for excellence with
an energy and dedication our customers appreciate.
By working in partnership, we’re able to fulfil needs in a
multitude of ways, whether we’re developing a new flavour
concept, providing 24/7 regulatory support or new product
development marketing consultancy.
Our ingredient solutions
are the result of over a
century of knowledge
and innovation ‘‘
‘‘
02
I TREATT PLC
developing the ingredient solutions of the future ‘‘
Our brightest technical minds take pride in
O
V
E
R
V
I
E
W
‘‘
PRODUCTS
Our ingredient solutions are the result of over a century of
knowledge and innovation. We have a diverse product portfolio
that enables us to meet any customer specification.
PROCESSES
Our reputation has been built over years of consistent
results. Integrity cannot be imitated or bought, which is why
our robust processes are paramount.
With a strong and established background in citrus, our
capabilities, knowledge and techniques are internationally
recognised and valued by those who need the best quality
products at every level.
With everything from 100% natural ingredients made from the
named fruit, bespoke blends, price-stable synthetics to impactful
aroma chemicals, we manufacture and supply a range of
solutions to our customers across the globe.
Dedicated global product managers lead the development
and promotion of their categories, sharing their expertise with
colleagues and customers alike. By collaborating internally with
everyone from sales and purchasing to marketing and R&D,
our technical staff have developed a roadmap for the evolution of
each category to ensure its future growth and success.
By bringing this internal structure to our portfolio, we can work
quickly and effectively, ensuring we’re best placed to serve our
growing customer base.
We are governed by the highest set of industry standards
which gives our customers peace of mind that they’re
working with people and products they can trust.
Travelling the world and building personal relationships with
our processors and farmers, gives us first-hand detailed
knowledge of our supply chain which is invaluable to our
customers.
They have confidence in our rigorous quality assurance,
composition and containment analysis, together with
appropriate labelling for smooth, safe transportation across
the globe.
Expert planning, operations and shipping staff work
together
that meets
every regulatory requirement, enabling us to get things right
first time.
to deliver a seamless service
03
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I WHERE WE’RE HEADING
THE COMPANY CONTINUES TO SEE
SUSTAINABLE LONG TERM GROWTH
AS A RESULT OF THE FOCUSED
STRATEGY AND THE DEDICATION OF
EVERY EMPLOYEE ACROSS THE GLOBE.
‘‘
There’s never
been a more
exciting time to
work for Treatt ‘‘
04
I TREATT PLC OUR BUSINESS
We are on track with plans to relocate our UK manufacturing
operations to a purpose-built site, just four miles from our existing
location. This will be one of the most significant developments
for the company in the last 50 years and will revolutionise
almost every aspect of our business. It will enable us to excite
our customers even more, improve efficiency and, we believe,
accelerate our growth.
This year we have also improved our internal structures to make
best use of the wealth of knowledge throughout the business.
Dedicated product category managers, customer
insight
groups, project teams and department champions are just a few
examples of how we’re collaborating, sharing knowledge and
improving our service.
As our biggest strategic asset, we continue to invest in our people.
Our vibrant culture attracts the very best people in the industry
and once part of our growing team, we further cultivate talent
with a tailored training and development program that will help
them to reach their potential.
Finally, we are also investing more heavily in our marketing
operations. Responsible for all external communication,
our marketing team work closely with our R&D, technical
and sales teams to ensure our efforts are strategic, integrated
and effective.
OUR INDUSTRY
Ours is an exciting and ever-evolving industry that will continue
to grow. Not ones to rest on our laurels, we are committed to
continuous improvement and have a clear roadmap that
will enable us to take advantage of the significant market
opportunities ahead.
The global beverage market is valued at approximately $1300 bn.
As this diverse and challenging market continues to grow, we
look to increase our market share by working with organisations
and markets where we can add real value. In addition to growing
our notable presence in the citrus market, we seek out new
avenues for strategic growth.
‘‘
The global RTD tea
market was worth
£50.1bn last year,
up from £39bn the
year before ‘‘
O
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SUGAR REDUCTION
Sugar reduction has been a key focus for us on a global level and
will continue to be for the foreseeable future. The tax announced
in the UK’s 2016 Budget has truly intensified the need for
beverage companies to reduce sugar levels by 2018. This is
part of a global story where all major brands look to improve the
health credentials of their portfolio.
■■ Sugar intake from soft drinks has been reduced by
16.2% since 2012 and 17% from carbonates
■■ 45% of carbonated drinks in the UK are labelled
as low/no calorie
We continue to invest in this area of our business working in
partnership with our customers to ensure we’re supporting their
strategic, long term objectives when it comes to sugar reduction.
TEA
Our in-house tea capabilities are going from strength to
strength as more members of the team progress through their
sommelier training and we look to launch new and innovative
products. A cross-functional global team collaborate with
customers to develop their future presence in tea, whether
they’re looking for a re-formulated ready to drink iced tea or
a bespoke blend for a new product launch.
05
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I OUR PRODUCT
INNOVATIONS
WE OFFER
CUTTING-EDGE
PRODUCTS
THAT HELP OUR
CUSTOMERS
TO STAND OUT
IN INCREASINGLY
CHALLENGING
AND DYNAMIC
MARKETPLACES.
Our solutions range from citrus, essential and vegetable oils
to aroma chemicals and speciality ingredients which are
used by flavour houses and consumer goods companies
across the world.
Our business is designed to deliver consistent, quality
ingredient solutions to our customers, and is driven by
anticipating and listening to their needs. In doing so,
we leverage 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 the future.
Our business is designed
to deliver consistent,
‘‘
quality ingredient solutions‘‘
06 I TREATT PLC
SECURE SOURCING
Our global purchasing team have unrivalled market knowledge
which our customers recognise and trust. This enables us to offer
stable, sustainable and transparent supply chains that can be
traced back to the source.
We travel a lot and invest in our supplier relationships to ensure
our fingers are always on the pulse of what’s going on in the
markets and the wider industry. Visiting growers and processors
across the globe means we have the latest information from those
in the know.
Working directly with growers and
processors across
the world
guarantees the finest quality raw
standards of
materials and
production.
these
By sharing
invaluable
insights with our customers
directly, via our market intelligence
report or on our website, we help
our customers to make the best
choices to suit their business
today, and in the future.
Confident in our rigorous quality assurance, composition and
contaminant analysis, customers trust our products and people
to deliver every time.
O
V
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R
V
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RESPONSIBLE MANUFACTURING
From our facilities in the UK, US and Kenya, we create consistently
high quality products that are sold in over 90 countries. With an
unrelenting focus on health and safety, we manufacture as well
as process sourced material, which gives us flexibility that is truly
valued by our customers. We are certified against the British
Retail Consortium’s (BRC) Global Standard for Food Safety which
further illustrates our ongoing commitment to maintaining the
highest standards.
Through the fractional distillation of our essential oils, we can
isolate a range of key natural volatiles that allows us to produce
a range of solutions in a variety of pack sizes. We have inventory
across four continents, which allows us to readily supply our
products from various locations.
PROFESSIONAL PARTNERS
Working in collaboration with our customers results in the most
exciting and profitable product innovations. By sharing expertise,
live on the workbench, we create partnerships that are mutually
beneficial and long-lasting.
Our regulatory specialists’ knowledge is invaluable to our
customers, who rely on Treatt for quality information they
can trust.
The global salesforce act as customer champions at all times,
ensuring that wider business decisions are made reflecting the
interests of those we serve.
FUTURE FOCUS
We have an established heritage that grounds us but also gives
us the foundations from which we can confidently launch
ourselves into what’s ahead. We are committed to identifying and
understanding market trends driven by complex global socio-
economic factors which have an impact on our industry.
Experts across our business development, R&D, applications
and marketing departments work together to drive effective new
product development, ensuring we stay relevant to our customers.
Our strategic approach to global new product development results
in a portfolio of appealing products which give customers a true
commercial advantage.
07
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I W
E
I
V
E
R
6
1
0
2
Financial Performance
Revenue
Adjusted Profit Before Tax*
Dividends Per Share** (pence)
.
m
0
4
7
£
.
m
1
4
7
£
.
m
2
9
7
£
m
9
.
5
8
£
m
0
.
8
8
£
m
1
5
£
.
m
2
6
£
.
m
9
6
£
.
m
0
.
8
£
m
8
.
8
£
p
0
1
3
.
p
0
7
3
.
p
4
8
3
.
p
4
0
4
.
p
5
3
.
4
2012
2013 2014
2015 2016
2012
2013 2014 2015 2015
2012
2013 2014 2015 2016
£88.0m
£8.8m
4.35p
Revenue represents the total sales
of all businesses in the Group, and
reflects both underlying business
growth as well as being impacted by
movements in raw material prices.
Adjusted profit before tax shows
the trend in profits before tax (but
ignoring exceptional items).
Dividends per share shows the total
dividend (interim plus final) per
share relating to each financial year.
Key Performance Indicators
Net Operating Margin
Return on Capital Employed
Average Net Debt to EBITDA***
%
6
7
.
%
4
9
.
%
6
9
.
%
1
0
1
.
%
8
.
0
1
%
4
4
1
.
%
4
9
1
.
%
9
9
1
.
%
1
2
2
.
%
6
.
4
2
2
5
1
.
8
2
1
.
9
9
0
.
8
7
0
.
5
3
.
0
2012
2013 2014 2015 2016
2012
2013 2014 2015 2016
2012
2013 2014 2015
2016
10.8%
24.6%
0.35
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.
* All adjusted figures exclude exceptional items, details of which are given in note 8.
** 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.
*** EBITDA is calculated as profit before interest tax depreciation, amortisation and exceptional items.
08
I TREATT PLC
Group Five Year Trading Record
INCOME STATEMENT
Revenue
EBITDA1
Operating profit
Adjusted2 profit before taxation
Growth in adjusted2profit before taxation
2012
£’000
2013
£’000
2014
£’000
2015
£’000
2016
£’000
74,009
74,097
79,189
85,934
88,040
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%
11,038
9,549
8,846
11.3%
Exceptional items
(598)
(1,093)
(1,402)
(174)
(553)
PROFIT BEFORE TAXATION
4,462
5,134
5,502
7,776
8,293
Taxation
(1,390)
(1,655)
(1,553)
(1,786)
(2,144)
Profit for the year attributable to owners of the Parent Company
3,072
3,479
3,949
5,990
6,149
BALANCE SHEET
Goodwill
Other intangible assets
Property, plant and equipment
Net deferred tax (liability)/asset
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)
1,080
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)
—
2,727
637
11,361
325
—
54,435
(16,388)
—
(7,755)
(7,401)
(754)
—
Total equity
26,003
27,443
28,760
33,185
37,187
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/(purchase) of own shares by share trust
Other
Movement in net debt
Total net debt
RATIOS
Net operating margin3
Return on capital employed4
Average net debt to EBITDA5
Adjusted2 basic earnings per share
Growth in adjusted2 basic earnings per share
Dividend per share6
Dividend cover (adjusted to exclude exceptionals)6
Net assets per share
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)
11,728
(2,022)
(703)
(2,095)
(788)
(1,676)
265
(208)
(4,955)
4,655
(1,290)
3,429
4,501
(12,949)
(8,294)
(9,584)
(6,155)
(1,654)
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
10.8%
24.6%
0.35
12.84p
7.5%
4.35p
2.94
71.0p
09
Notes on calculations:
1 EBITDA is calculated as profit before interest, tax, depreciation,
amortisation and exceptional items.
2 All adjusted measures exclude exceptional items – see note 8.
3 Operating profit divided by revenue.
4 Operating profit divided by total equity plus net debt.
5 Average of net debt at start and end of financial year divided
by EBITDA.1
6 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.
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I
CHAIRMAN’S
STATEMENT
TIM JONES
CHAIRMAN
10 I TREATT PLC
AN EXCELLENT YEAR WITH
ADJUSTED* PROFIT BEFORE
TAX UP 11% TO £8.8M AND
STRONG CASH CONVERSION
ALLOWING NET DEBT TO FALL
TO £1.7M FROM £6.2M
RESULTS
It is particularly pleasing to report that the Group results this year have
seen meaningful progress not only in respect of our financial performance
but on non-financial objectives too. Revenue has grown by 2.5% to
£88.0m (2015: £85.9m) resulting in an increase in adjusted* profit before
taxation of 11% to £8.8m compared with £8.0m last year. At 12.84p,
adjusted basic earnings per share have improved 7.5%.
Strong cash performance this year has seen the Group’s net debt
continue to fall to £1.7m (2015: £6.2m). This has been achieved despite
the marked increases in key raw material costs, such as orange oil, and
the depreciation of Sterling against the US Dollar. In the last 2 years net
debt has fallen by £7.9m (82%) (2014: £9.6m).
The Group’s strategy to manage foreign exchange risk has prevented
currency fluctuations during the year from having a more material
impact on the net results. The overall net impact of movements in foreign
exchange rates was a reduction in profit before tax of approximately
£0.5m, more details on which can be found in the Financial Review
on page 17.
DIVIDENDS
It is proposed to pay a final dividend of 3.00p (2015: 2.76p), increasing
the total dividend for the year by 7.7% to 4.35p (2015: 4.04p). I am
also pleased to say that following a review of our dividend timetable we
have brought forward the payment dates each year for interim and final
dividends to March and August respectively (having previously been
April and October). If approved by shareholders at the forthcoming AGM,
the final dividend will therefore be payable on 23 March 2017 to all
shareholders on the register at close of business on 17 February 2017.
Shareholders who wish to participate in the dividend re-investment plan
for this and future dividends should elect to do so by 26 February 2017.
STRATEGIC OVERVIEW
In recent years our efforts have been focused on driving the business
to deliver sustainable growth of profits over the long term. We have
prioritised investment in those areas which will reap the greatest benefits
for the Group, investing greater resources on innovation, marketing, staff
development, management training and more recently on growing our
activities in China.
The developments we have implemented will help us service our
customers with more innovative products and improve our market
positioning to better serve the rapidly evolving desires of consumers.
Sales have grown by 2.5% but the proportion of higher value-added
products has helped further improve gross margins, resulting in another
record year for the Group; we will continue to develop and refine our
product mix by bringing ever greater focus to the market segments to
which they are offered. It is important that we continue to grow revenue
in the right way by increasing the proportion of value-added products in
our sales mix and I believe these results demonstrate strong continuing
progress in this area.
7.7% Increase in dividends
UK SITE RELOCATION
In the UK we have been on our existing site at Bury St Edmunds, Suffolk,
since 1971 and although we have continuously adapted the site over the
years, it is no longer fit for purpose. The site is fragmented as we operate
out of six buildings; this neither provides us with the right environment to
maximise our efficiencies and communication with each other nor with the
evolving regulatory environment in which we operate. At the same time
our growing business needs to have a site which is fit for purpose for the
future where we can quickly adapt to an ever changing environment and
help us attract the right talent into the business in order to drive innovation
in our markets. I can therefore confirm that we continue to progress our
plans to relocate our UK business, more details of which can be found in
the Financial Review on page 18, and hope to be in a position to make a
further announcement on this in the near future.
The success of our US operation has meant that it has also outgrown its
existing premises and will need to invest in its site in the coming year to
build on the many opportunities we see. Plans are therefore well under
way in both the UK and US and, as our Chief Executive comments in his
report, have involved detailed consultation with our employees to ensure
that our new site in the UK and our expanded site in the US will serve the
needs of the business in the long term.
CORPORATE GOVERNANCE
Ian Neil left us as a Non-executive Director in January of this year and I
would like to take this opportunity to thank Ian for all the hard work and
support he gave the business over the years and we wish him the very
best for the future. In June I was very pleased to welcome Richard Illek to
the Board as a Non-executive Director. Richard has recently retired from
PepsiCo where he worked for 28 years. During Richard’s time at PepsiCo
he undertook a number of operational, technical and manufacturing roles.
Richard brings a wealth of experience and industry knowledge to us and
we are delighted to have him on our Board.
We regularly review ways to improve the effectiveness of what we do
through thorough and detailed internal evaluations. A key area of the
Board’s focus includes defining and communicating our risk appetite and
conducting a broad assessment in respect of our business risks in the
shorter as well as longer term. 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 Group has had an encouraging start to the new financial year with
both the UK and US expected to be on plan at the end of the first quarter.
Group earnings are being assisted by the present strength of the US Dollar
against Sterling; a significant proportion of our earnings are made by our
US operations and the trading currency of the UK operations is mainly the
US Dollar as well.
THANK YOU
We have fantastic staff at Treatt and I would like to take this opportunity to
thank them for all their hard work and enthusiasm without which I would
not be able to report yet another record year for Treatt.
TIM JONES
Chairman
28 November 2016
* All adjusted measures exclude exceptional items, details of which are given in note 8.
11
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I CHIEF EXECUTIVE
OFFICER’S REPORT
DAEMMON REEVE
CHIEF EXECUTIVE OFFICER
ANOTHER GOOD YEAR
FOR THE GROUP AS WE
CONTINUE TO DELIVER ON
OUR STRATEGIC OBJECTIVES
12
I TREATT PLC £8.8m
Adjusted* Profit Before Tax
Delivering on our strategic objectives
OVERVIEW – MAIN HIGHLIGHTS
This year has been another solid year of progress for the business, both
in terms of financial performance and also our cultural journey which will
provide the platform for further progress. We have come a long way in
the last few years in the migration of the business from that of a pure
supplier to the food and beverage industries to being a trusted and valued
partner in the development of innovative and effective ingredients for
the industry. This is a long term programme that involves not only the
capability upskilling of our people but also a change in the mind-set of
the business as a whole. Our progress on this journey is demonstrated
through our financial performance. Over the last four years we have
increased adjusted* profit before tax by 75% from £5.1m in 2012 to
£8.8m this year, a feat for which our colleagues can be immensely proud.
Similarly our cash generation has been strong such that net debt has
fallen by 87% from £12.9m to £1.7m over the same period as we have
turned our profits into cash.
A key driver of our strategy is our people. We measure progress through
regular staff surveys and are proud to report a further increase in the
level of staff engagement which is critical, not only to motivate and retain
our existing colleagues, but also to ensure that we attract high quality
candidates for future positions as we continue to grow. The energy we
feel around the business every day is directly attributable to our vibrant
culture and a major focus of the business is to drive levels of engagement
even higher. To support this important work we are strengthening our
human resource function across the Group to further enable proactive
staff development, training and promote Treatt as an employer of choice
in the communities we serve. To ensure our talent pipeline flourishes into
the future we are deepening relationships with local schools and colleges,
most notably, but not exclusively, in the technical areas of our business.
Whilst Brexit has created some uncertainty for the UK and could
potentially introduce complexity for our business, the Board does not
currently believe that it will have a material adverse impact on the Group’s
results or financial position, and as such is not considered as a principal
risk. Nevertheless, as set out on page 27, we will be monitoring the
situation closely.
The performance across the Group has been consistently strong
throughout 2016. New business wins have boosted our financial
performance this year with further successes in our core focus areas such
as citrus flavours and sugar reduction. The citrus wins have come from
new and existing customers in territories from China to South America and
the sugar reduction wins have been more specifically concentrated in the
US and European beverage markets.
China represents potentially a very large market for Treatt and we have
made important progress this year where we opened a new enlarged
representative office in the Caohejing High-Tech Industrial Park area of
Shanghai. This has had a positive impact as Treatt China is now able to
serve customers in a much more timely fashion and, importantly, with
products designed by technicians familiar with national flavour nuances.
Customers have visited our applications lab to work on final refinement to
formulations, further strengthening these relationships. Plans are also in
place to further strengthen our team in this important region.
Earthoil recorded its 6th year of consecutive growth in profits. We are
pleased to have settled all claims and litigation in respect of the dispute,
as we announced on 30 September 2016.
* All adjusted measures exclude exceptional items, details of which are given in note 8.
13
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I CLEAR STRATEGIC FOCUS
During the year our efforts on further innovation in sugar reduction
technologies have been enhanced with the addition of further research
and development scientists as well as increased focus on this industry-
wide imperative. We currently have a number of significant active
projects with both existing and potentially new beverage customers
in this area of highest topical interest for the global beverage market.
We are also working on projects to add value to products which would
otherwise be classed as waste produce.
Important beverage customers have been working alongside our
technicians in the laboratories, the partnership model we expect to
greatly expand on at our new UK site. Working as a solutions provider is
enabling deeper relationships with customers; often generating further
opportunities and areas of closer collaboration.
Our progress on improving yields and efficiencies within the
manufacturing part of our business continues to make meaningful
progress and is feeding into the numbers. The cross-functional efforts
being made are particularly gratifying and speak of our collaborative
culture within the business, which is providing the platform for co-
operation at all levels within the organisation. We continue to challenge
our processes to identify improvements and encourage ideas and
suggested improvements to permeate from all of our colleagues. All of
this valuable work is very much in line with our strategy to keep our cost
base under strict control and drive business improvement.
WORKING AS A
SOLUTIONS PROVIDER
IS ENABLING DEEPER
RELATIONSHIPS
WITH CUSTOMERS;
OFTEN GENERATING
FURTHER
OPPORTUNITIES AND
AREAS OF CLOSER
COLLABORATION.
14 I TREATT PLC
UK SITE RELOCATION
The team at Treatt is excited about the relocation to our new headquarters
in the UK. Our experience of moving our Florida facility to new larger
premises several years ago has given us real-life experience of the
challenges involved in such a move as well as an important insight into the
operational and cultural benefits obtainable. Plans for our new site in the
UK are progressing well and our cross-functional teams are focused on
providing future-proofed world-class facilities. The depth of involvement
in the design of the new premises has been extensive, with internal
design teams doing some great work to map out the future look and feel
of Treatt in line with our strategy and, equally importantly, our culture.
Once complete, colleagues will have greater opportunities to engage with
one another, being in one purpose-designed building as opposed to the
six units we currently occupy on our Bury St. Edmunds site in the UK.
The customer experience will be greatly enhanced, correctly showcasing
Treatt as a welcoming, vibrant and technically excellent environment. In
the meantime, we have reduced investment into our current UK site and
delayed a number of long term projects to enhance our manufacturing
capabilities until we move. This has resulted in a short term cash flow gain
which will reverse in due course.
SUMMARY
There is heightened confidence within Treatt and our financial year is off
to a pleasing start given that the first quarter is, seasonally, normally our
quietest period. Nevertheless, we continue to act in a prudent manner.
The teams are driving at new business wins, improved systems and
processes and further efficiency savings in the business. We continue to
challenge much of the established practices of the business to find value
and improvement and we all find this motivational. Our energy is focused
to build upon the successes of the past four years.
DAEMMON REEVE
Chief Executive Officer
28 November 2016
CENTRAL TO OUR STRATEGY IS OUR PEOPLE
Our company ethos is based around people and how we impact their
lives, both our own people and for society at large. Treatt’s people-centric
culture encourages passion, enthusiasm and energy amongst its staff but
it is important that we also contribute to the communities in which we
operate. We look to engage with the people we live and work amongst and
take our responsibility towards the local community seriously; after all,
we are part of it. Our Community Spirit Initiative reflects our commitment
to playing an active role in local society by encouraging our staff to get
involved. We regularly release people from their day-to-day roles to work
with local charities and schools on a variety of important initiatives such as
sponsorship and involvement in events such as “adopt-a-highway” and
gardening projects as well as having recently become involved in helping
at a care farm for people with learning difficulties. Earlier this year our
staff ran a local hospice charity shop for a day, providing the hospice with
much-needed additional funds and giving us a great teambuilding event
and fun day.
I was delighted and proud to learn recently that we had won the British
Chamber of Commerce award for Commitment to People Development
for the East of England as this recognition is testament to the commitment
and engagement of our team of people. I was also honoured to be asked
to speak at the Best Employers Eastern Region event on the topic of our
cultural journey.
REFRESHING OUR COMPANY VALUES
We recently challenged our teams to take a hard look at the business and
refresh our company values in line with our evolving culture. The level
of engagement in the project was very pleasing and as a result we have
now adopted the following as our values: Teamwork, Pride and Passion,
Integrity and Challenge. Various initiatives will be undertaken to embed
these behaviours across the business. Our values are the behaviours
required to deliver excellence within the business and are true to the
cultural DNA of our company.
HEALTH & SAFETY IS OF PRIME IMPORTANCE
Continuous improvement is critically important in health and safety and
our culture promotes open dialogue on possible areas for improvement.
During the year our global health and safety team ran a climate safety
survey across the business to identify areas of strengths and perceived
weaknesses in our processes.
15
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I
FINANCIAL
REVIEW
RICHARD HOPE
FINANCE DIRECTOR
ADJUSTED* PROFIT BEFORE TAX INCREASED
BY 11% – FOUR CONSECUTIVE YEARS OF
CONSISTENT, SUSTAINABLE, GROWTH –
AND NET DEBT REDUCED TO BELOW £2M
16
I TREATT PLC Financial overview
Up
2.5%
Revenue
£88.0m
Up
11.3%
Adjusted profit
before tax*
£8.8m
Up
7.7%
Dividend
4.35p
Up
7.5%
Adjusted earnings
per share*
12.84p
Net operating margin
Return on capital employed
Average net debt to EBITDA
2016
10.8%
24.6%
0.35x
2015
10.1%
22.1%
0.78x
Income Statement
Revenue and profit
Revenue for the year grew by 2.5% to £88.0m (2015: £85.9m) whilst
gross profit grew by a more significant 7.5%, reflecting the success of the
Group’s strategy of moving up the value chain and focusing on added-value
products. The rate of revenue growth was therefore muted by the active
management of certain high priced (but low margin) traded business.
Key areas of growth, which more than replaced the reduction in traded
business, included sugar reduction, tea, natural distillates and citrus.
An important long term KPI for the Group is net operating margin which
increased from 10.1% to 10.8% as the combined strategic benefits of
growing revenue, replacing traded commodity business with bespoke,
innovative products, whilst maintaining a tight control of costs continues
to show through. This resulted in a 10% increase in operating profit to
£9.5m (2015: £8.7m). Return on capital employed increased to 24.6%
(2015: 22.1%).
As explained opposite, the Group mitigates its foreign exchange risk.
The impact of movements in foreign exchange rates on profit before tax
is the net of retranslating overseas profits, retranslating foreign currency
transactions in UK businesses and the gains or losses on foreign exchange
hedging instruments such as forward and option contracts. When taken
together, therefore, the net impact on the profit before tax for the year was
a loss of £0.5m.
Revenue
9.5% pa
Profit before tax
10.4% pa
COMPOUND
10 YEAR
GROWTH*
Earnings per share
10.7% pa
EBITDA
9.7% pa
Exceptional costs in the year of £0.6m (2015: £0.2m) include £0.3m in
relation to the final legal costs concerning the Earthoil earnout 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. A further £0.3m exceptional charge was incurred in relation to
some one-off restructuring costs in Kenya and the US. On an adjusted
basis excluding these costs, earnings before interest, tax, depreciation
and amortisation for the year increased by 9% to £11.0m (2015: £10.1m).
Profit before tax after exceptional items rose by 7% to £8.3m (2015:
£7.8m). Further information on the exceptional items is given in note 8.
Dividends and earnings per share
The proposed final dividend of 3.00p per share (2015: 2.76p) increases
the total dividend per share for the year by 7.7% to 4.35p, representing
dividend cover of 2.9 times pre-exceptional earnings for the year and a
rolling three year cover after exceptional items of 2.5 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. This year’s dividend increase
has resulted in dividend cover at the prudent end of the policy range
which the Board consider to be appropriate given the forthcoming cash
requirements of the business in order to fund the impending UK site
relocation. Nevertheless, this represents an increase in the dividend
of 50% over the last five years. Basic earnings per share (adjusted to
exclude exceptional items – see note 11 to the financial statements) for
the year increased by 7.5% to 12.84p (2015: 11.94p). 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 adjusted 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, the Euro. During the year the US Dollar/Sterling
rate moved materially and the US Dollar ended the year 14% stronger
against GBP at £1=$1.30 (2015: £1 = $1.51). As explained further in this
report under ‘Treasury Policies’, the Group hedges its foreign exchange
risk at R C Treatt by holding and managing US Dollar borrowings and
taking out forward currency contracts and options. This can result in
timing differences in the short term, giving rise to re-translation gains
or losses in the income statement. This has resulted in a small loss on
trading transactions of less than £0.1m in 2016 (2015: £0.3m loss) and
a loss on foreign exchange contracts of £2.2m (2015: £0.2m gain) which
has been netted off the revenue line in the income statement. As part of
the Group’s hedge accounting, a foreign exchange gain of £0.2m was
taken to reserves through the Statement of Other Comprehensive Income
(2015: £0.2m loss).
* All measures are adjusted to exclude exceptional items.
17
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I Financial review continued
There was a substantial currency gain of £2.6m (2015: £0.8m) 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 decreased by 4.0% to £0.71m
(2015: £0.74m) as a result of the combined effect of lower levels of net
debt and marginally lower interest rates. Although debt levels have fallen
considerably, this has not fed through to substantially 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. The Board
continue to be of the view that whilst a significant proportion of current
banking facilities remain unutilised, the current level of these facilities
remains appropriate in order to manage cash flow peaks during the year
and also in the light of significant capital expenditure requirements over
the next few years. Interest cover for the year increased to 13.6 times
(2015: 11.7 times).
As part of the Group’s risk management, in 2011 R C Treatt fixed $9m
of US Dollar borrowings at 5.68% for ten years by way of an interest rate
swap. This swap has been designated as a ‘hedge’ in accordance 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 £0.8m (2015: £0.6m).
Group Tax Charge
The current tax charge of £2.4m (2015: £1.9m) represents an effective
rate (based on profit before tax and exceptional items) of 27.0% (2015:
24.2%). After providing for deferred tax, the overall tax charge has
increased by £0.3m to £2.1m (2015: £1.8m); an overall effective tax
rate (after exceptional items) of 26% (2015: 23%). The increase in the
tax rate applicable for the year reflects 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 17% in 2020, the Group’s overall
effective rate of tax is expected to fall over the next four years assuming the
profit mix between tax jurisdictions remains broadly unchanged.
Balance Sheet
Group shareholders’ funds grew by £4.0m (2015: £4.4m) in the year to
£37.2m (2015: £33.2m), with net assets per share increasing by 13% to
71p (2015: 63p). Over the last five years, net assets per share have grown
by 46%. 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 £0.3m (2015:
£0.4m) 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 the exercise of employee share options.
Cash Flow
The Group has continued to improve its cash performance and in the
year net debt fell by £4.5m to £1.7m (2015: £6.2m) with a corresponding
reduction in the level of gearing from 19% to just 4%. This is the lowest
debt level the Group has had since 2004 (when revenue was £32m and
inventory was £8m for the Group).
The levels of capital expenditure in the year remained very low with a total
spend of just £0.7m compared with £1.0m in 2015. 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 intended relocation. The cash flow benefit of delaying certain
capital projects in the UK in anticipation of the new site will inevitably
reverse (as explained opposite) as both delayed projects, and brought
forward capital expenditure, will occur as part of the site relocation.
The Group has a mix of secured and unsecured borrowing facilities
totalling £22.4m, of which £3.1m expire in one year or less. The Group’s
18
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.
Free cash flow
Cash conversion rate
2016
£8.0m
2016
84%
2015
Movement
£6.2m
+30%
2015
71%
Movement
+13%
There was an increase in cash tied up in inventory for the year of £2.5m.
This was due to a combination of higher order books at year end, the
retranslation of inventory held in the US resulting from a stronger US
Dollar, as well as higher prices for certain key raw materials. 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.
UK Site relocation
As explained in the Chairman’ Statement and CEO Report, we continue to
progress detailed plans for relocating our UK business from its current site
in Bury St. Edmunds, UK, to a brand new purpose-built facility. This is a
project which the Board believes is essential in order to deliver our growth
objectives over the medium to long term.
Although a project such as this is extremely complex, and since the
detailed design briefs have yet to be put out to tender, all costings are
by their nature estimates and have not been contracted for at this stage.
Due to the many stakeholders involved, key elements of the timelines for
the move such as planning approvals are outside our control and are also
potentially subject to change.
Nevertheless we want to keep shareholders appraised of developments
and the following table breaks down the latest cost estimates for
the project. Note that these include costs to upgrade our plant and
machinery and new technologies. As a business we keep abreast of new
technologies which can add value to our operations and the move gives
us the opportunity to incorporate some of these in the design and build of
the new facility. The level of investment in this area is still subject to review
but current estimates are in the order of £3m - £5m.
The overall costs of this move break down into four key elements with the
latest estimated costs as follows:
Land, buildings, and move costs
Capital projects held back over the last three years
Upgraded plant and machinery and new technologies
Less: Disposal of current site
Total estimated cash outflow over 2-3 years
£20m – £26m
£3m – £5m
£3m – £5m
(£5m)
£21m – £31m
We hope to be in a position to commence the planning application process
in early 2017, with construction estimated to begin in early 2018 and the
new site being up and running by late 2019.
Treatt Employee Benefit Trust and Treatt SIP Trust
The Group has an HMRC-approved Share Incentive Plan (SIP) for its UK
employees, and as far as practicable, also offers a similar scheme to its
US staff. All UK staff with a year’s service were awarded £525 (2015:
£500) of ‘Free Shares’ during the year as part of the Group’s employee
incentive and engagement programme as the Board are firmly of the view
I TREATT PLC
that increased employee share ownership is an important tool for driving
positive employee engagement in the business. A similar scheme exists for
US staff who were awarded $825 (2015: $800) of Restricted Stock Units
during the year. 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 which the company
matched on a one for one basis. In the year a total of 52,000 (2015: Nil)
matching shares were granted.
During the year, 160,000 (2015: 90,000) shares were issued to the SIP at
par (2 pence per share). The SIP currently holds 241,000 shares (2015:
88,000), of which 17,000 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.
are based on the actual investment strategy for which returns of 5.35%
and 3.45% for pre and post-retirement returns was assumed.
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.
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 saving plans.
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.
Under the Long Term Incentive Plans which were approved by shareholders
at the 2014 Annual General Meeting, Executive Directors and certain key
employees were granted 520,000 nil cost share options during the year
which will vest after three years on a sliding scale, subject to performance
conditions. In total, options were granted over 806,000 (2015: 783,000)
shares during the year, whilst 159,000 (2015: 220,000) were exercised
from options awarded in prior years which have now vested.
The Employee Benefit Trust (EBT) currently holds 577,000 shares (2015:
736,000) 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.
Final Salary Pension Scheme
The R C Treatt final salary pension scheme (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 been
de-risked as far as it is practicable and reasonable to do so.
The last three-year actuarial review of the scheme was carried out 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 95% or less of the scheme
liabilities, then the company would voluntarily resume contributions.
As required by The Pension Regulator, the actuarial review was updated
on a consistent basis as at 30 September 2016 and, in common with most
other final salary pension schemes, this revealed an actuarial deficit of
£1.7m, being a funding level of 92% (2015: 103%). The reduction in the
funding level largely resulted from a fall in the assumed future investment
returns for the fund. The company has therefore agreed to resume its
previous contributions of £300k per annum on a voluntary basis until such
time as the fund returns to surplus.
Alongside this, the IAS 19, “Employee Benefits” pension liability in the
balance sheet, net of deferred tax, increased in the year from £2.4m
to £6.1m. 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 2.6%, whereas the actuarial calculations
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 two 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 short-term swings in currencies.
Summary
In 2012 we embarked on a clear strategy for the Group to deliver long term,
sustainable, growth in profits. Last year we refreshed our strategy through
to 2020 by setting ourselves new goals whilst continuing with our central
strategic objective of continual, steady, growth in profits which is sustained
through a clear focus on long term thinking.
We can therefore look back on another successful year both in terms of
profitability, but equally importantly in terms of cash performance. As we
look ahead to the new financial year, which has got off to an encouraging
start, the Group’s cash position puts the business in a strong position to
make the very important investments needed to enable the Group to drive
value for all stakeholders.
RICHARD HOPE
Finance Director
28 November 2016
19
OVERVIEW Annual Report & Financial Statements 2016TREATT 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 2016.
Results and dividends
The results of the Group for the year are set out on page 53. Profit before
tax for the year excluding exceptional items was £8,846,000 (2015:
£7,950,000).
The Directors recommend a final dividend of 3.00p (2015: 2.76p) per
ordinary share. This, when taken with the interim dividend of 1.35p (2015:
1.28p) per share paid on 14 October 2016, gives a total dividend of 4.35p
(2015: 4.04p) per share for the year ended 30 September 2016.
Corporate governance
The Corporate Governance Statement on pages 34 to 38 forms part of this
Directors’ Report.
Directors
The Directors of the Parent Company are shown on page 96.
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 35.
Details of the Executive Directors’ contracts and notice periods are given in
the Directors’ Remuneration Report on page 45. 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 35 (in
recognition of Provision B.7.1 of the 2014 UK Corporate Governance
Code) Anita Haines, David Johnston and Jeff Iliffe retire by rotation and
Richard Illek retires, having been appointed during the year. All 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 48.
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 24 November 2016
(the latest practicable reporting date prior to publication of this document).
Discretionary Unit Fund Managers
Schroder Investment Management
Miton Capital Partners
Barclays Wealth
BMO Global Asset Management
Number
7,475,000
6,816,345
2,071,150
1,900,900
1,849,460
%
14.42
13.15
4.00
3.74
3.59
20
I TREATT PLC
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 26 to 33. 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 10
to 19. Information on the principal risks and uncertainties and how they
are managed can be found in the Strategic Report on pages 26 to 30.
In accordance with provision C.2.2 of the 2014 UK Corporate Governance
Code, the Directors have assessed the prospects of the Group 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
available sources of finance.
The process adopted to assess the viability of the Group involved the
modelling a series of theoretical “stress test” scenarios linked to the
Group’s principal risks, which are shown on pages 26 to 30. Consideration
was also given to the impact of mitigating risk, as well as their
interdependencies. In assessing the Group’s prospects and resilience, the
Directors have done so with reference to its current financial position and
prospects, its recent and historical financial performance and forecasts,
the Board’s risk appetite and the principal risks and mitigating factors
described on pages 26 to 30.
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 implications of currently high orange oil prices;
• the implication of the proposed site relocation in the UK;
• the impact of the competitive environment within which the Group’s
businesses operate;
• the potential actions that could be taken in the event that revenues are
worse than expected, to ensure that operating profit and cash flows
are protected;
• 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;
• the Group’s ability to access equity as a source of finance; and
• a sensitivity analysis which involves flexing a number of the main
assumptions underlying the five year plan.
The current expectations regarding the costs of the proposed UK site
relocation are set out in the Financial Review on page 18. Given the levels
of debt finance available to the Group to fund these investments and the
possibility of raising equity finance should that be required, 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 available to it 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 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.
21
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I
Directors’ Report continued
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 page 31.
Employees
The Group’s disclosures on employees have been included in the Strategic
Report on page 32.
Structure of share capital
The Parent Company’s share capital comprises 52,655,170 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
160,000 shares to Treatt SIP Trustees Limited (2015: 90,000).
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.
22
Powers of the Directors and purchase of own shares
At the forthcoming Annual General Meeting in 2017, the Parent Company
will be seeking a renewal of the 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 2017 Annual General Meeting,
to renew the power given to the Directors 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 these 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, as last year 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 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 2018.
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 (2015: Nil) were purchased by the EBT
during the year ended 30 September 2016. The trustees have waived
their voting rights and their right to receive dividends in respect of the
ordinary shares held by the EBT.
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 160,000 (2015: 90,000) 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 27 January
2017. The Notice of Meeting and explanatory notes are given on pages
91 to 95. 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.
I TREATT PLC Auditors
RSM 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 2016 is disclosed in note 5 of
the financial statements.
Directors’ statement pursuant to the Disclosure and Transparency Rules
Each of the Directors, whose names and functions are listed in the
Directors’ Report, confirms that, to the best of their knowledge:
a. the financial statements, prepared in accordance with IFRS as
adopted by the EU, give a true and fair view of the assets, liabilities,
financial position and profit of the Group and Parent Company and the
undertakings included in the consolidation taken as a whole; and
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.
b. the Strategic Report contained in the annual report includes a fair review
of the development and performance of the business and the position
of the Group and the undertakings included in the consolidation
taken as a whole, together with a description of the principal risks and
uncertainties that they face.
Statement as to Disclosure of Information to Auditors
The Directors who were in office on the date of approval of these financial
statements have confirmed, as far as they are aware, that there is no
relevant audit information of which the auditors are unaware. Each of
the Directors have confirmed that they have taken all the steps that they
ought to have taken as Directors in order to make themselves aware of any
relevant audit information and to establish that it has been communicated
to the auditors.
This report was approved by the Board on 28 November 2016.
ANITA STEER
Secretary
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.
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
Company and the financial performance of the Group. The Companies
Act 2006 provides, in relation to such financial statements, that
references in the relevant part of that Act to financial statements giving
a true and fair view are references to their achieving a fair presentation.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and the Parent Company and of the profit
of the Group for that period.
In preparing each of the Group and Parent Company financial statements,
the Directors are required to:
a. select suitable accounting policies and then apply them consistently;
b. make judgements and estimates that are reasonable and prudent;
c. state whether they have been prepared in accordance with IFRSs
adopted by the EU;
d. prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Group and the Parent Company will
continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s and the Parent
Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and the Parent Company and
enable them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS Regulation.
They are also responsible for safeguarding the assets of the Group and the
Parent Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
23
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I
THE BOARD
TREATT PLC is led by an experienced Board
of Directors, which comprises of two Executive
Directors, one Non-executive Chairman and
four Non-executive Directors. Together, the
Executive Directors bring a combined 54 years’
experience to the Group.
During the course of the year Ian Neil
retired and Richard Illek was appointed
as a Non-executive Director.
2
5
24
3
6
1
4
7
I TREATT PLC 1
Daemmon Reeve
Chief Executive Officer, first appointed 2012
Daemmon joined R C Treatt & Co Ltd, the Group’s UK operating subsidiary,
in 1991 and gained extensive industry experience and knowledge from
his time in technical, operational, sales and purchasing disciplines.
In July 2010 he was appointed CEO of Treatt USA and became Group
CEO in August 2012. A key part of his role is to help provide the cultural
environment for the success of Treatt and its fantastic team, making Treatt
a fun place to work along the way. It is the output of our engaged teams
which is driving the success of Treatt. Seeing our excellent team succeed
is what excites Daemmon most about Treatt.
Chairman
Jeff Iliffe
4
Non-executive Director, first appointed 2013
Jeff Iliffe BSc ACA has widespread experience of the City, industry and
internet-based businesses, including acquisitions, business integration and
investor relations.
He was CFO of Abcam plc from 2007 until recently, as the company
delivered huge growth to become a world leading life sciences business.
Previously he was a corporate financier at Panmure Gordon & Co, during
which time he advised Treatt, and has held senior financial positions in
environmental, biotechnology and internet based businesses.
Family, craft beer and travel fill the moments Daemmon is not thinking
about the business.
He is also a trustee of the Cambridge Arts Theatre.
Chairman
Tim Jones
2
Non-executive Chairman, first appointed 2012
Tim has led Treatt’s Board as its Chairman since 2012. He also runs Allia, a
charitable organisation providing resources to the third sector through Stock
Exchange listed Bonds, business mentoring and the provision of workspace.
He began a career in financial services with Royal Insurance in the 1970s
and subsequently held posts in the Middle East, the US and Europe before
entering the beverage/water bottling sector in the early 1990s, including a
joint venture in the Balkans.
The Judge Business School at Cambridge University awarded him its
Certificate in Enterprise in May 2007 and made him Entrepreneur in
Residence in 2012, a Mentor in 2014 and an Honorary Fellow in 2016.
Tim is a non-executive director of Retail Charity Bonds plc and serves on
the advisory board of the Lord Ashcroft International Business School. He
remains actively involved in the City of London where he is a Freeman and
a Liveryman. Tim is a family man, an enthusiastic cook, a patient skier and
a novice sailor.
Richard Hope
3
Finance Director, first appointed 2003
Richard qualified as a Chartered Accountant in 1990 at PWC and was
certified a Fellow of the Institute of Chartered Accountants in England and
Wales in 2010. He held a number of senior finance positions for almost
20 years in value-added manufacturing businesses prior to joining Treatt,
including Hampshire Cosmetics Limited.
Jeff really enjoys working with such a talented, knowledgeable and
committed team at Treatt and has a passion for live music, particularly jazz.
Anita Haines
5
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. What excites
Anita about Treatt is the people. When she joined there were only 66 people
on the payroll, all working out of Northern Way, and while subsequently our
numbers have grown and we have become international, people are still at
the heart of our businesses.
Richard Illek
6
Non-executive Director, first appointed 2016
Richard Illek was appointed to the Board as a Non-executive Director with
effect from 1 June 2016. Richard retired from PepsiCo effective 31 March
2016, following 28 years with the company, during which time he served in
various senior roles around the world including Plant Manager, QA Manager
and Technical Services Director, culminating in his most recent role as
Senior Director Manufacturing and Formulations.
Richard is an enthusiastic golfer, skier and gardener. He is a strong
Liverpool fan and loves rock music.
7
David Johnston
Senior Independent Director
Chairman
Richard is a passionate skier, massive Liverpool fan and is learning to
play golf. He gets a sense of pride walking into a supermarket with the
knowledge that Treatt has ingredients in a large number of well-known
consumer products.
Non-executive Director, first appointed 2011
David started his career working as a biochemist for the UK government
prior to transferring to Switzerland where he worked on an international
program to enhance the resistance of plants to pathogens.
Nomination Committee
Remuneration Committee
Audit Committee
He then joined one of the leading flavour and fragrance companies,
Firmenich SA, in a variety of commercial and technical roles over 13
years. He finished his career at Firmenich SA as head of flavour innovation
globally. He then started his own company, Natural Taste Consulting SARL,
focused on the development and sales of taste modifying compounds.
David also serves as a non-executive director of James Finlay Ltd.
25
OVERVIEW Annual Report & Financial Statements 2016TREATT 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 below
and together with the Chairman’s Statement, CEO’s Report and Financial
Review on pages 10 to 19, 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 ensure that the strategy is thoroughly
communicated throughout the business and that each member of their
team understands how they can have a positive impact on the overall
Group strategy. The main objective of the strategy remains as reported in
the 2015 report and accounts; 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 listening to and anticipating 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 recognise that it is important to be able to respond to customer
requests for samples in a timely manner and with products that meet their
needs and expectations. Accordingly, during the year further investment
has been made in China to establish a local laboratory that is able to work
on, and dispatch, samples to customers without them having to wait for a
sample from the UK to clear customs in China. The product library in China
has been specifically selected to appeal to the Chinese palette, rather than
catering to western tastes. The new laboratory also enables samples to
be modified efficiently to comply with customer specifications, thereby
enabling Treatt to grow its sales into China at a faster pace.
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 through offering our
experts to assist our customers’ needs that we reach a high level of
customer engagement on many fronts. This trust increases the likelihood
26
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 needs 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 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 and 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.
A continued focus on health and safety and encouragement of the reporting
of incidents has resulted in a decrease in the number of accidents, with
only one reportable accident at both Treatt USA and Earthoil Kenya and
none at R C Treatt. Although reportable, neither of the accidents resulted
in serious injury to staff and appropriate actions were taken in response to
reduce the likelihood of further occurrences.
The average number of sick days per employee has again increased
despite new absence policies having been introduced in 2014. Whilst the
incidence of short term sickness remains consistent with last year there has
been a further increase in long-term absence caused by serious illness. It is
anticipated that, due to the demographic of our workforce, this pattern will
continue and may result in further increases in the long term sickness rate.
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. Occupational
Health are involved with employees at an early stage in order to try and
reduce long term absence and reasonable adjustments are made to
working hours and duties to assist employees in returning to work in a
structured and safe manner. The Group has appropriate insurance policies
in place to assist those staff on long term absence, in order to ensure that
they do not suffer financially.
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. Risk appetite is an expression of the type and amount of risk we
are willing to accept to achieve our strategic objectives. The Board sets
the appetite for risk across the business by reviewing and challenging the
risk registers and ensuring that risks are considered and mitigated to an
appropriate degree and that they are consistent with the strategic objectives
of the business. The register inherently defines the level of risk the Board
is content for the business to be subjected to and is a key consideration in
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:
2016
2015
2014
2013
2012
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
11.3%
7.5%
10.8%
24.6%
0.35
15.2%
20.0%
10.1%
22.1%
0.78
10.9%
15.2%
9.6%
19.6%
0.99
23.1%
25.6%
9.4%
19.4%
1.28
(20.6%)
(19.1%)
7.6%
14.4%
1.52
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 9.
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
decision-making across the Group and helps to define the actions required
to mitigate our risks. 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. Responsibility for monitoring and review of each risk is taken
by a designated senior member of staff, ensuring that there is appropriate
accountability. The risk register includes over 80 risks which 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 detailed risk registers twice a
year and upon any material change, with any amendments, control issues,
accidents or commercial, financial or reputational issues being reported to
the Board in the meantime.
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 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.
Whilst foreign exchange is a risk to the business and the underlying impact
of the strengthening US dollar has had an effect on profits in the financial
year, it is not a material risk to the strategy due to its short term effects and
due to the hedging strategies which we have in place. The majority of the
Group’s raw material purchases are made in US dollars, as are the majority
of the Group’s sales. Sharp fluctuations in currency have a short term effect
on the Group’s profits. However, the Group has hedging policies in place
which minimise the impact of movements in the US dollar exchange rate.
Further information on how the Group manages its foreign exchange risk is
given in the Financial Review on pages 16 to 19.
Following the decision of the United Kingdom to leave the European Union
(known as “Brexit”) the Board and management team have continued to
monitor the impact that this may have on the business; and beyond the
impact of currency movements there has been no visible impact on the
2016
2
4.29
2015
5
3.66
2014
3
3.39
2013
3
3.45
business from Brexit. The detail of how the UK intends to exit the EU is yet
to be decided, however, management believe Treatt’s global footprint gives
it significant flexibility to face any challenges that may arise.
As explained in the CEO Review, the immediate impact of Brexit related
to movements in foreign exchange rates. We do not currently foresee any
regulatory changes as a result of Brexit that we would expect to have a
material impact on our business. Nevertheless we will continue to monitor
the situation closely, including the following areas of potential impact on
our business:
• Short-term volatility in exchange rates. The continued weakness of
Sterling against the currencies in which the Group trades, such as that
seen since the UK’s referendum vote to leave the EU, would be positive
for revenues and profitability. With the increasing revenue flows from
our US business, which continues to grow, Treatt has benefited from the
strengthening of the US Dollar in this respect and we regard a stronger,
but stable, Dollar as being beneficial for our business. As Richard Hope
reports in more detail in his Financial Review, our foreign exchange (FX)
hedging model mitigates short term volatilities in FX, which is designed
to unwind over a period of time depending on our prevailing inventory
turn. A large majority of our inventory is US Dollar denominated. Our
policy is to hedge a material proportion of estimated net foreign currency
cash flows, on a rolling basis. Consequently, the impact on earnings of
Sterling volatility since the referendum is expected to be limited in the
2017 financial year.
• Increases or decreases to import or export tariffs both with EU
countries and globally, dependent upon the outcome of future
trade negotiations.
Last year, in light of the increased emphasis on risk in the 2014 Corporate
Governance Code, the Board 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 raw material 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.
27
OVERVIEW Annual Report & Financial Statements 2016TREATT 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 principal risks and uncertainties are those which individually or
collectively might be expected to have the most significant impact on the
long term performance of the business and its strategic priorities.
The risk climate in relation to our people has been amended this year from
an increasing risk to an unchanged risk, with skilled and experienced staff
continuing to visit customers as part of our added-value proposition thereby
increasing their networks and the possibility of them being poached. The
risk climate in movements in raw material prices has increased with
orange, in particular, currently at record high prices; although action taken
during the year is designed to mitigate the risk of such price movements
and it is an area in which Treatt is particularly experienced. A failure to
comply with HMRC approvals in respect of duty free ethanol has been
removed since although it remains a risk, it is unlikely, at this stage, to have
significant impact on the long term performance of the business. Although
the flavoured alcohol beverage sector remains an important opportunity,
sales into this market are not wholly dependent on the delivery of the
product in ethanol and volumes, although increasing steadily, are lower
than volumes across the rest of the product portfolio.
Strategic Priorities
4■Meeting customer needs [■Solutions in many forms 9■Differential advantage v■Customer intimacy H■Culture
Risk
People
Poaching of key
staff
Effect
Strategic
impact
Risk
climate
Mitigation
9
v
H
As our highly skilled
and experienced staff
become increasingly
customer facing the
risk of them being
headhunted increases
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
Financial
Movements in
commodity raw
material prices
Impact on
contribution, possible
stock shortages
4
[
R
Increased
Regular stock meetings and inventory
control with experienced members
of staff;
Monitoring and communication of market
conditions;
Long-term commodity contracts
Operational
Pressure on
infrastructure
from strategic
business wins
Loss of revenue,
damage to reputation,
loss of key strategic
customer
4
[
v
P
No change
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
4
[
P
No change
Loss of use of
buildings, danger
to staff, loss of
equipment and
product; Major
incident due to type of
products stored
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
Structural
damage to
production
facilities,
particularly at
Treatt USA,
which is in a
location which
suffers from
major storms
28
Action during year
Proactive engagement
initiatives, review and
enhancement of benefits,
increased investment in
training, focused recruitment
initiatives to create talent
pipelines. Creating
opportunities for knowledge
sharing to spread the
specialist knowledge (such as
lunch and learns and product
focused training)
Maintaining close contact
with suppliers and continuing
to gather and disseminate
market intelligence on key
raw materials, assisting our
customers to manage price
volatility as part of the Treatt
service. Establishment of
a designated internal team
to improve management of
Treatt’s most significant raw
materials across the Group
Continued investment in
current sites as appropriate;
Purchase of new operational
and technical equipment,
which will be transferred
to the new site in the UK
where applicable, and increase
in headcount in appropriate
areas
Continued maintenance
and upkeep of buildings.
Hurricane action plan tested
during Hurricane Matthew
I TREATT PLC Risk
Effect
Operational (continued)
Inadequate
documentation of
processes and/
or adherence
to required
processes
Failure of third party
audits and damage
to reputation as
problem-free supplier
IT issues
including
network,
hardware, data
and security
Loss of IT systems
and/or data,
impacting on
the ability of the
business to function.
Reputational damage
and possible litigation
Strategic
impact
Risk
climate
Mitigation
4
4
P
No change
Strong commitment Group-wide to
disciplined compliance to internal quality
programs; Commitment to permit third
party auditing
P
No change
Well-constructed IT infrastructure with
failover capabilities, supported by a
comprehensive asset management
database and best practice maintenance
processes. Multi-layered security
protection system in place. Security
Team continuously search for and fix
vulnerabilities, including those reported by
3rd party security consultants
Action during year
Seven third party certification
and regulatory audits
facilitated and any non-
conformances rectified
together with fourteen
customer audits across the
Group undertaken by large
multi-national companies
Review of infrastructure
resilience and failover
procedures following
best practice guidelines.
Continuous review of
protection required to prevent
against security threats
Commercial
Product failure
Potential product
recall causing
financial and
reputational loss
4
v
P
No change
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
Strengthening of new supplier
procedures and increased
visits to suppliers. Thorough
investigation of errors leading
to appropriate action such
as retraining or amendment
of procedures. Review and
renewal of recall insurance;
Testing of product recall
procedure;
Testing of products prior
to dispatch
Focusing innovation on
beverage sector
Continued value-added in-house
innovation; Rationalisation of product
portfolio to eradicate low margin
commoditised products;
Strengthen product knowledge/sourcing
Eradication of some low
margin products and
further value engineering
of a number of important
manufactured products
P
No change
P
No change
P
No change
Innovate and develop appealing
ingredients; Broaden into beverage and
other associated sectors - Earthoil;
Customer diversity
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
Increased focus on target
beverage accounts and closer
collaboration on make or buy
opportunities with strategic
flavour customers
Established relationships with
alternate supply sources and
strengthened relationships
with incumbent suppliers
29
[
9
v
4
[
Commoditisation
of established
Treatt products
Shortening
Value Chain and
new entrants in
speciality still-
based aqueous
distillates
Effect on revenues
and margin attrition
Customers
demonstrating
increased
competence to fold,
fractionate, break
bulk; Increased
competition
Consolidation
within the flavour
industry
Fewer flavour
customers
Single sourced
for synthetic
speciality
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
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I Strategic Report continued
Strategic Priorities
4■Meeting customer needs [■Solutions in many forms 9■Differential advantage v■Customer intimacy H■Culture
Strategic
impact
Risk
climate
Mitigation
Action during year
4
[
P
No change
Enhancing relationships with competitors/
brokers and other supply channels;
Forward purchasing contracts for
medium to longer term supply
Continuing to strengthen
relationships with suppliers
and customers
Risk
Effect
Commercial (continued)
Natural products
Loss of supply,
increase in market
price or impact on
quality resulting from
fluctuations in yields
caused by weather,
disease etc; Squeeze
on margins
Legal/Regulatory
Failure to comply
with relevant
UK and US
environmental,
H&S and other
applicable
legislation
4
HSE/EA investigation;
Probable enforcement
action involving fines,
enforcement notices;
Risk of site closure
P
No change
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
Continuing to work closely
with the EA and relevant
authorities in respect of
COMAH. Safety climate
survey to assess attitudes
to H&S across the Group to
determine actions required
to ensure that the H&S
culture within the business
remains strong
The Group regularly reviews its commercial insurance programme and maintains an appropriate and adequate portfolio of insurance policies in line with
the nature, size and complexity of the business.
The Group also continues to have in place a “Business Continuity” team whose on-going responsibility is to assess the issues which the Group would face
should it experience a major and unforeseen disaster and to put in place a clear action plan as to how the Group would continue to operate successfully
in such an event.
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 conditions and disease often have an effect on crop yields
resulting in higher raw material prices and limited supply. There has, for
example, been a significant reduction in both the production and yield
of oranges world-wide due to the bacterial disease Huonglongbing (also
known as citrus greening). There has also been an increase in the price of
lime oil in Mexico following last year’s Hurricane Joaquin which stripped
many trees of their buds and flowers, resulting in not only a smaller but
heavily delayed crop.
30
Environmental Improvements in 2016
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
• 87% reduction in fugitive Volatile Organic Compound emissions;
• 25 tonnes of material sent to anaerobic digester;
• 46% of hazardous waste recycled;
• 92% of used drums recycled; and
• reduced liquid laboratory waste collected by 79%.
Treatt USA
• redesigned the thermal fluid recycle system for one of the speciality
distillation units. This will eliminate oxygenation and in turn will
increase the life cycle of the thermal fluid. Additionally, the height of
the expansion tank was raised above the recycle system to reduce
exposure to atmosphere further prolonging the thermal fluid life cycle;
• installed a once through, oil sealed vacuum pump to replace a dry
rotary vane vacuum pump. The oil sealed pump drastically reduces
VOC’s released to the environment in the blending operations;
I TREATT PLC • installed new air compressor water coolers and dryers in conjunction
with new water/oil removal cyclones to reduce the temperature and
oil content of the operations airstream. Previously, any air used in
operations discharged atomised oil from the compressors and caused
premature failure of critical instruments and equipment; and
• transitioned six million kilos of by-products from the natural distillate
process to cattle feed and/or compost material. Previously this material
was sent to landfill.
Earthoil
• replacement of an old diesel forklift with a more fuel-efficient, smoke-
free model;
• installed a grease trap that separates oil and other particles from water,
preventing discharge into the sewerage system. The trappings are
removed every fortnight for pig feed;
• improved processing procedures have enabled more efficient recovery
of by-product, known as fines, which is sold to animal feed processors.
Fines are also used by Earthoil Extracts Limited as manure on the tea
tree farm;
• the “Re-use & Reduce” initiative encourages staff to re-use envelopes
and printing papers and to use double sided printing;
• all lights in the factory offices and on the shop floor are switched off
during day light hours;
• delivery of forty new 3000 litre water tanks to farmers to enable them
to catch and utilise rain water. Introduction of energy efficient gasifier
stoves for farmers, which create reusable charcoal from wood, thereby
reducing deforestation and smoke emissions and resulting in carbon
neutral certification for Earthoil;
• there has been training and establishment of plastic collection centres
in all regions where Earthoil farmers are located enabling collection of
soft and hard plastics for recycling; and
• used steel epoxy drums have been converted to use as gutters
to harvest rain water from roofs and carry it to the dam reservoir on
the Earthoil Extracts farm. Some have also been converted to make
biochar kilns.
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.
The intended site relocation of Treatt’s UK operation 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 2016 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 four 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.
2016
2015
Scope 1 – Direct CO2 emissions (tonnes CO2e)
1,451
1,370
Scope 2 – Indirect CO2 emissions (tonnes CO2e)
1,747
1,842
Total tonnes CO2e emissions
3,198
3,212
gCO2e emissions per kg of product shipped
438
378
GHG emissions detailed in this table have been calculated using the
appropriate 2016 DEFRA conversion factors, except for overseas
electricity which used the 2014 and 2015 DEFRA conversion factor.
Following the decrease in total emissions in 2015 by 314 tonnes of
C02e, there has been a further marginal decrease in emissions of
14 tonnes of CO2e. Whilst there has been an increase in Scope 1
emissions, Scope 2 electricity usage in the UK, US and Kenya are all
down with the largest decreases coming from the UK and Kenya. Electric
consumption decreased at Earthoil Kenya due to reduced production in
the first quarter of the financial year but at R C Treatt electric consumption
actually increased; the reduction in emissions results from a change in
the conversion factor. The additional electric consumption results from
investment in new state of the art technical equipment, the remainder
from increased hours in distillation. The increase in Scope 1 emissions
is due to an increase at R C Treatt; decreases were seen at both Treatt
USA and Earthoil Kenya. This increase is driven primarily by changes to
chiller units incurring high one off emissions resulting from installation
and decommissioning but there was also a 5% increase in gas use, which
again results from increased hours in distillation.
The overall decrease in emissions is lower than might have been expected
from a decrease of 1.2m kgs of product shipped during the year, resulting
in an increase in the emissions per kg. The reduction in Kg shipped
results from the continued strategic emphasis on manufactured value-
added products and movement away from lower margin traded business,
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.
In Kenya, distillation biomass waste is converted to biochar, mixed with
farm yard manure and composted for use on the farm. The biochar
reduces the carbon footprint by sequestering carbon into the soil. Some of
the waste is also used as mulch on the tea tree farm.
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
31
OVERVIEW Annual Report & Financial Statements 2016TREATT PLC I
Strategic Report continued
and the cleaning of its specialist equipment. Due to its high consumption,
Treatt USA uses a 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. Water
consumption at Treatt USA is consistent with last year; Kenya is slightly
down but R C Treatt shows the highest reduction resulting from repair of
the two underground water leaks at the end of the last financial year.
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. Distillation waste water is re-used as irrigation water
on the farm vegetable garden.
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)
2016
2015
33,514
34,455
Water efficiency (litres per Kg of product shipped)
4.59
4.06
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.
The focus on training continued in 2016 in order to continuously
improve the skills of our employees through both general and targeted
training programs provided by internal and external providers. Lunch-
and-learn style training provides the opportunity for knowledge sharing
across the Group on a variety of subjects relevant to our business,
whilst also providing the opportunity for staff to spend time together. By
improving communication between colleagues these initiatives are vital
to the sustainable growth of the business. The Group supports ongoing
qualifications by providing funding and study time to employees across
the business from NVQs to professional qualifications in Procurement and
Supply Chain Management and Company Secretarial.
Additionally, the Group continues its 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 one apprentice, within the technical
department, providing them with a structured training and qualification
programme. Also within technical there are three interns providing
additional resources whilst assisting with their learning and continued
development.
Employee Involvement
Meetings are held with employees to discuss the operations and progress
of the business. In particular, Executive Directors make half yearly results
presentations to all employees and encourage questions and dialogue on
any matters pertaining to the performance or activities within the Group. In
addition, the Information Exchange Committee (IEC) at R C Treatt exists in
order to encourage a further exchange of ideas and information between
the Company and its employees. The IEC is chaired by the CEO and the
32
members of the Committee are all employees below management level
who represent all departments and areas of the business in the UK. The
Executive Directors regularly take small groups of staff out to lunch in
order to get to know them better and to hear their views on the business
from the employee perspective. Treatt USA Vice Presidents regularly hold
“town hall meetings” to communicate with staff on a variety of subjects
and provide them with the opportunity to ask questions and challenge
management. Board members make a point of visiting all Group affiliates
and regularly carry out site visits and tours, thereby engaging in meaningful
discussions with employees at all levels within the organisation.
In preparation of the intended site relocation in the UK, eight design
teams, comprising staff from a variety of functions, were formed to
consider potential design features of different areas of the new site in
order to provide input into the project from an employee perspective.
Following several months of research, the teams presented their design
ideas to the UK Leadership Team and to the project architects, who have
taken on board the teams’ ideas and incorporated them into the design,
where appropriate.
All-employee bonus schemes, based on the performance of the business,
remain in place and employees are encouraged to become involved in
the success of the Group through share-save schemes and the Share
Incentive Plan (see note 25). A Group-wide consultation has taken place
with all staff to determine the Group’s new values. Managers across the
business were involved in acting as facilitators in workshop sessions that
all staff attended. These sessions provided a fantastic opportunity for staff
to get together and share their thoughts in a fun and relaxed manner
whilst providing valuable input into the values process. By engaging with
the staff in this manner it is hoped that there will be increased buy-in to
the new values.
The Share Incentive Plan is run 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 2015 and will do so in December 2016; UK staff will
also be able to buy additional partnership shares, 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. In order to
maintain, encourage and support high levels of employee ownership, the
Company has a scheme that enables those who wish to sell their shares
to sell them at market value to colleagues, without commission and with
quicker settlement. The scheme has proved popular, particularly with
those members of staff based in the US, who find it more problematic to
sell shares in a UK listed company.
Diversity
Appointments within the Group are made on merit according to the
balance of skills and experience offered by prospective candidates. Whilst
acknowledging the benefits of diversity, individual appointments are made
irrespective of personal characteristics such as race, disability, gender,
sexual orientation, religion or age.
As a manufacturing business, it is extremely rare for women to apply
for positions within the production and despatch areas, where manual
handling is a significant part of the role and there are currently none
employed in this capacity. However, the number of women in other areas
of the business continues to increase and women account for 37% (2015:
33%) of the Group workforce and 44% of Group senior management
positions (2015: 37%). Excluding production and despatch staff, women
account for 42% of Group employees.
I TREATT PLC
Position
Group Directors
Senior Managers
Other Employees
Total Employees
Male
Female
Total
6
24
170
200
1
19
96
116
7
43
266
316
Diversity is a key aspect of our approach to resourcing the needs of the
business, developing our colleagues and recruiting new talent but gender
diversity is only part of the story. We aim to create an inclusive environment
that values all differences in people since diverse teams are more likely
to be innovative when drawing from cultural differences and experiences.
We recognise that our employees have lives outside of work and we aim
to provide a flexible workplace that enables them to achieve a balance
between their role with Treatt and their responsibilities outside of work.
Our flexible working policy enables all employees, as far as their roles
permit, to work from home and provides general flexibility to staff. Such
policies are helpful in the recruitment of a diverse workforce.
Social, community and human rights issues
The Group endeavours to impact positively on the communities in which
it operates and over the last few years has significantly increased its
presence in the community. During the year the Group made charitable
donations of £22,000 (2015: £18,000) 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 for a variety of charities in
which they have a particular interest including a coast-to-coast cycle ride,
IRONMAN® challenge and triathlon.
Additionally, R C Treatt staff took part in the St Nicholas Hospice corporate
takeover day with a large number of staff getting involved to run the St
Nicholas Hospice shop in Bury St Edmunds for a day. It was a great
success and raised £3,600 for the charity with Treatt taking more money
than any of the other companies taking part in the event.
The UK site operates “Payroll Giving” enabling staff to donate regularly
to their chosen charities directly from their gross pay; and staff also raise
money by entering a charity lottery directly through payroll.
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 continued to sponsor 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. We also sponsored Westgate Primary School’s Maths
Games room, which was officially opened in September.
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.
An initiative that started last year has continued to grow, with a large
number of staff volunteering to take part in working parties for community
projects, either on working days or in their own time. In April we sent a
party of seven volunteers to give the wooded nature garden at Westgate
Nursery School a makeover. As well as repairing damage inflicted by
vandals, the team cleared up winter storm debris, refreshed the planting
and prepared the vegetable patch for the pupils to plant their seeds.
Two days have been spent by project teams gardening at East Anglia
Children’s Hospice, which provides care and support to terminally ill
children and their families. Another team manned a colour station at the
East Anglia Children’s Hospice Colour Dash, throwing paint at participants
in the sponsored run.
Similar initiatives take place in the US, where a party of twenty-four Treatt
volunteers spent a morning in May collecting litter from a road near the
plant. In an agreement with the State of Florida, they have agreed to
collect rubbish on local roads on a regular basis as part of the Florida
Department of Transportation’s “Adopt-A-Highway” scheme. Treatt
volunteers will therefore be returning at regular intervals to collect litter
and tidy up the area.
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 ninety members to now well
over six hundred producers. Earthoil has helped deliver forty new 3000
litre water tanks to members of KOOFA to enable them to catch and utilise
rain water, with the remaining farmers to receive water tanks as part of
this three year project. Over two thousand family members will eventually
utilise the new water tanks, hoping to free up time that is usually spent
fetching water, for other activities.
Additionally, over a three month period, the Earthoil team donated and
installed more than forty-five stoves in 19 communities across three
counties in Kenya, resulting in Earthoil Africa EPZ Limited being certified
carbon neutral for a twelve month period.
Further, community funds provide additional benefits to the farmers and
their families, such as scholarships. Earthoil supports a virgin coconut
oil project in Samoa, which is run by a not-for-profit women’s foundation
– a unique venture aimed at rebuilding the economic independence
of individual villages. The foundation currently works with a number of
family groups, with virgin coconut oil production sites set up. By locating
the production of virgin coconut oil within the villages, the returns to the
villages, and to the individual family groups, are greatly increased by
comparison with the more highly industrialised process.
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 28 November 2016.
ANITA STEER
Secretary
33
OVERVIEW Annual Report & Financial Statements 2016TREATT 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 2016
the Group has complied with the provisions set out in the 2014 UK
Corporate Governance Code1, except for provision D2.2, as explained
in the Directors’ Remuneration Report, 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 96.
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 David Johnston, who is the Senior Independent Director
(“SID”). The role of the SID is also to provide a sounding Board for the
Chairman, to serve as an intermediary for the other Directors and to lead
the performance evaluation process for the Chairman.
Board Effectiveness
The Directors believe that the Board, having been refreshed in 2011,
2012, 2013 and 2016, 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 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. Further details on the
Group approach to diversity are given on page 32.
Upon appointment, Directors are provided with access to an appropriate
external training course and to advice from the Group’s solicitors in
respect of their role and duties as a public company director. Where they
have significant relevant experience for the role, training may be felt to
be unnecessary. In addition, all new Directors receive an induction to
acquaint them with the Group. This takes the form of site tours, meetings
with other Board members and senior management and the provision
of an induction pack, which contains general information about the
Group, its structure and key personnel, together with copies of relevant
policies and procedures, financial information and briefings on Directors’
responsibilities and corporate governance.
The Board considers that, with the exception of Anita Haines, all the
Non-executive Directors are independent of management and free of
34
1 A copy of the 2014 UK Corporate Governance Code can be obtained from www.frc.org.uk
I TREATT PLC
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. All Non-executive
Directors 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.
The Board meets formally 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.
It is a commitment of the Board to hold a meeting in the US on a biennial
basis, with the next meeting to be held at Treatt USA in 2017.
Day to day management of the Group is delegated to the Executive
Directors. However the Board has a schedule of matters reserved to it
for decision and the requirement for Board approval on these matters
is communicated widely throughout the senior management of the
Group. These matters, which are reviewed periodically, include material
capital commitments, commencing or settling major litigation, business
acquisitions and disposals, appointments to subsidiary company boards
and dividend policy.
To enable the Board to function effectively and Directors to discharge their
responsibilities, full and timely access is given to all relevant information. In
the case of board meetings, this consists of a comprehensive set of papers,
including regular business progress reports and discussion documents
regarding specific matters. Board meetings are of sufficient duration to
enable debate and discussion, ensuring adequate analysis of issues during
the decision-making process. Further opportunity for more informal and
extended discussion is provided at Board lunches which take place after
every Board meeting and also provide the Board with an opportunity to
meet members of staff, who are invited to attend.
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.
Nomination Committee
Membership and Meetings
Members of the Nomination Committee throughout the year are shown
on page 96. The Nomination Committee has met three times during the
course of the year.
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
• consideration of the appointment of a Non-executive Director following
the resignation of Ian Neil;
• consideration of the appointment of a new Chairman to the
Remuneration Committee;
• consideration of the appointment of a new Senior Independent Director;
• review of committee membership and recommendation to the Board on
the appointment of Richard Illek to the Nomination and Remuneration
Committees;
• review of the results of the Board evaluation process and consideration
of training needs;
• review of the performance of the Directors;
• continuation of structured succession plans.
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.
During the year Richard Illek was appointed as a Non-executive Director.
During succession planning it had been recognised that experience
from a customer perspective within the FMCG beverage sector of the
industry, which is a strategic priority for Treatt, was not represented on
the Board. Richard was a senior executive with over 28 years’ experience
with PepsiCo. It was thought that his experience, gained from a variety
of roles within PepsiCo, would provide valuable insight into the beverage
sector and accordingly an approach was made. Richard attended a series
of interviews with the Nomination Committee and Executive Directors and
following satisfactory completion of this process, the appointment was
approved by the full Board. The role was not openly advertised due to the
identification of a candidate with the required skills and experience and
successful completion of the recruitment process.
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. Following the use of an external
facilitator last year, the Board evaluation process involved completion,
by each Board member, of a comprehensive anonymous questionnaire
35
CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT PLC I
Corporate Governance Statement continued
designed to evaluate each of the essential components of an effective
board. The results, which were benchmarked against a prior year’s
evaluation, demonstrated that performance is effective overall. These
results were reported to the Committee and action points agreed to further
improve performance. In addition the skills matrix of each of the Directors
was reviewed and the skills and experience mix discussed in relation to
performance of the Board.
• 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.
The performance of individual Directors is evaluated by the Chairman,
in conjunction with the Chief Executive Officer in the case of the other
Executive Director. The Chairman is evaluated by the Chief Executive
Officer and an Independent Non-executive 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. Having undertaken training
during each of the last few years, no training needs were identified for
this year. The Board has spent time focusing on its objectives, approved
last year, which included further work in respect of risk management and
succession planning.
Succession Planning
Board succession planning for the Executive Directors and senior
executives is a priority of the Board. In some instances suitable internal
candidates have been identified as likely successors for both interim and
permanent positions. We will continue to invest in such talent but for
some positions external recruitment will also be necessary. We recognise
that having been through significant cultural change in recent years (a
process which continues) a cultural fit with the business is essential. The
Committee will continue to monitor progress with succession planning for
the Executive Directors and senior executives.
Audit Committee
Membership and Meetings
Members of the Audit Committee throughout the year are shown on page
96. Jeff Iliffe joined the Committee as Chairman in February 2013 and 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 of London
and in industry.
The Committee met three times during the year. The auditor attended two
of 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.
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 assess the effectiveness of the external audit process and 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;
36
Activities since the last report
• meeting with the audit partner and manager to agree the audit plan and
identification of risk;
• reviewing the auditor’s findings, management’s response and ensuring
robust challenge;
• reviewing the auditor’s performance and the audit process to ensure that
they remain objective and independent, and to assess the effectiveness
of the audit;
• give consideration to any whistleblowing reports (of which there were
none during the year);
• the Group’s annual report for 2016 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;
• reviewing the potential 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
function was not considered to be necessary at present. As the Group
develops, the need for such a function will be kept under review;
• briefing the Board in its discussions on whether an audit or formal
auditors’ review should take place at the half year;
• a review of the performance of the Audit Committee;
• consideration of the timing of an audit tender process;
• approval of the fees paid to the auditors for audit and non-audit
work; and
• review of the level of non-audit related services provided by RSM UK
during the year.
Financial Reporting
During the year the Committee and the Board monitors the integrity of
any formal announcements relating to the Group’s financial performance.
Reports are requested from management on particular matters, especially
where a significant element of judgement is required. 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 2016 annual report was reviewed at a Committee
meeting in November 2016; 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 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. The
Committee also reviewed compliance with the disclosure requirements on
Directors’ remuneration and the strategic report.
Having discussed the key judgements and risk areas monitored by
the auditors, the Board concluded that, as in prior years, the half year
results would not be subject to an external audit or a formal audit review.
In reaching that conclusion, regard was given to the matters subject to
judgement and the processes established for addressing and supporting
I TREATT PLC these, the output of the enhanced work undertaken on risk identification
and management, the consistent application of accounting policies, and
the practice of similarly sized listed companies. The review by the Board
prior to approval of the half year report included the receipt of a report from
management on the key areas of judgement made for the half year results
and how the outputs were arrived at.
Risk Management
The Committee continue to consider the requirements of the 2014 edition
of the UK Corporate Governance Code (“the Code”) and the FRC Guidance
on Audit Committees. Last year, in light of the increased emphasis on risk
in the Code, the Board 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, internal controls, approval of the going
concern statement and the assessment of the long term viability statement
should remain with the full Board, but as the Group continues to grow, this
will remain under review.
External Auditor Assessment
The Committee has oversight of the relationship with the external auditor
and is responsible for monitoring their independence, objectivity and
compliance with professional and regulatory requirements. The Committee
undertakes an annual assessment of the effectiveness of the external
auditors to facilitate continued improvement in the external audit process.
This assessment considers:
• the delivery of an efficient, robust audit in compliance with the agreed
plan and timescale;
• the provision of perceptive advice on key areas of judgement, and
technical issues;
• the demonstration of a high level of professionalism and technical
expertise;
• continuity within the audit team; and
• adherence to independence policies and other regulatory requirements.
During the year the Committee has monitored RSM’s performance and
were satisfied that the above requirements had been met and that they
demonstrated continued commitment to perform high quality work.
External Auditor Independence and Consideration of a Tendering Process
The Board and the external auditors have arrangements to safeguard the
independence and objectivity of the external auditor, which were reviewed
and deemed satisfactory. The incumbent auditors, RSM 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. The
Committee considered “The Statutory Auditors and Third Country Auditors
Regulations 2016” which will result in the mandatory rotation of auditors
by 2020, and whether an audit tender process should be undertaken prior
to the 2017 audit. It was decided that, in view of these Regulations, 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 2017.
The level of non-audit fees and their effect on the auditor’s independence
or objectivity is also considered on a regular basis. The split between
audit and non-audit fees for the year under review appears in note 5.
Non-audit fees are generally paid mainly in respect of tax compliance
services and advice on share schemes. Following the publication of
the FRC Revised Ethical Standard 2016, RSM no longer provide tax
compliance and other tax services to the Group. 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.
Audit Quality Review
During the year the FRC’s Audit Quality Review team reviewed RSM
UK Audit LLP’s files for the 2015 audit and the Chairman of the Audit
Committee received a full copy of their findings. The focus of the review
and their reporting is on identifying areas where improvements are required
rather than highlighting areas performed to or above the expected level.
The Audit Committee discussed the review’s findings with the auditors and
is satisfied that they have addressed the one matter noted in relation to the
audit process for the current year audit.
Effectiveness of the Committee
The effectiveness of the Committee was considered as part of the Board
evaluation detailed on page 35 and reviewed as part of the Committee’s
own processes. The Committee received positive feedback on the way it
challenges the business and was seen as open, transparent and effective.
Review of the 2016 Annual Report and Financial Statements
Amongst the matters considered by the Committee were the key
accounting issues, matters and judgement in relation to the Group’s 2016
annual report and financial statements relating to:
• the accounting treatment for the final consideration and related costs,
following the full and final settlement of the Earthoil dispute, to ensure
that it is reasonable and in accordance with IFRS;
• the level of provisions against obsolete, slow moving and defective
inventory, and for onerous customer contracts which are likely to result
in a loss to the Group. This involved discussions with management
on the detailed exercises undertaken to identify the relevant provision
levels, and with the auditors on their findings following their review of the
work done and the controls in place over these processes; and
• the assumptions used to calculate the Group’s pension liability in
accordance with IAS 19 arising from the final salary pension scheme.
This included confirming that they are in accordance with advice
received from the scheme actuaries, Barnett Waddingham, and that
these assumptions had been critically reviewed by the auditors.
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 39 to 50. Members of the Remuneration Committee
throughout the year are shown on page 96. 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.
37
CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT PLC I Corporate Governance Statement continued
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
Tim Jones
Anita Haines
Jeff Iliffe
Finance Director
Non-executive Director
Non-executive Director
Richard Illek (appointed 1 June 2016)
Non-executive Director
David Johnston
Senior Independent Non-executive Director
Ian Neil (retired 29 January 2016)
Senior Independent Non-executive Director
7
7
7
3
N/A
N/A
3
3
N/A
7
6
2
7
2
N/A
Chairman 2
N/A
3
1
5
N/A
N/A
5
N/A
4
1
3
3
0
3 Chairman (4) 5
2
Chairman 1
Non-executive Director and Chairman
Chairman 7
3
Chairman 3
As permitted by the Parent Company’s Articles of Association, Directors may participate in the minuted decisions via telephone or video communication
where it is impractical for them to attend in person.
Financial and Internal Control
The Board confirms that a process for the on-going identification, evaluation
and management of significant risks faced by the Group has been in place
throughout the year and to the date of approval of this report, which complies
with the “Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting” 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.
Information Technology
The Group operates on a common centrally managed computer platform.
This provides common reporting and control systems and the ability
to manage and interrogate businesses remotely. However, there are
associated risks with having the entire group IT systems on a common
platform, such as IT security, access rights and business continuity. These
risks are mitigated by an on-going focus on IT security through a process
of continuous investment in IT facilities.
The Directors are responsible for the Group’s system of internal control, the
effectiveness of which is reviewed by them annually. This covers all controls
including those in relation to financial reporting processes (including the
preparation of consolidated accounts). In addition to monitoring reports
received via the Executive Directors they consider the risks faced by the
Group, whether the control systems are appropriate and consult with
internal and external experts on environmental, insurance, legal and
health and safety compliance. However, such a system can only provide
reasonable but not absolute assurance against material misstatement or
loss. The key procedures that the Directors have established to provide
effective internal controls are as follows:
Financial Reporting
A detailed formal budgeting process for all Group businesses culminates
in an annual Group budget 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.
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.
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 26 to 30.
Relations with Shareholders
The Group places a great deal of importance on communication with
its shareholders. The Parent Company mails the full annual report and
financial statements to all shareholders who have elected to receive it. 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 28 November 2016.
ANITA STEER
Secretary
38
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 2016.
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 Remuneration Policy
Report and the Implementation Report will be put to binding and advisory
votes respectively at the Annual General Meeting on 27 January 2017.
Whilst the Remuneration Policy was approved by shareholders at the 2015
Annual General Meeting, a proposed change to the Executive Director’s
bonus scheme, requires further shareholder approval.
Looking back at 2016
As detailed elsewhere in this report, the Group performed well in 2016,
exceeding its original expectations for adjusted pre-tax profit and earnings
per share. When considering the performance targets in respect of the
annual bonus for the year to 30 September 2016, the Committee was
conscious of making the top end very challenging, yet achievable. In
order to obtain the maximum bonus award under the Executive Directors’
Annual Bonus Scheme, Group adjusted profit before tax had to exceed
115% of the prior year’s adjusted profit before tax. Threshold performance
(below which no bonus award would be made) for adjusted profit before
tax of 85% of prior year adjusted profit before tax, would result in the
award of a 4% bonus. The Committee regards this scale, and basis of
comparison, as appropriate as recent years have seen significant changes
in the business and the need to embed a new strategy driving sustainable
profitability against a long history of gains and losses from movements in
raw material prices and fluctuating profits. The cultural change required
across the Group was significant and despite significant improvements, it
continues to be a central focus of the Group’s strategy. On this basis, the
Committee assessed that another record Group performance in the year
justified a bonus payment of 88% of salary for the Executive Directors,
being 88% of the maximum bonus potential, in accordance with the rules
of the Executive Directors’ Annual Bonus Scheme.
Looking ahead to 2017
The base salaries of the Executive Directors were increased with effect
from 1 October 2016. Daemmon Reeve’s salary was increased by
1.5%, in line with the basic increase of UK staff. In accordance with the
frequency set out in the Remuneration Policy, the salary of Richard Hope
was benchmarked against other Financial Directors of Fledgling Index
companies and was also increased by 1.5%, it having been found that
there was no misalignment with benchmarking data.
A review of performance conditions in respect of all Group bonus schemes
was undertaken during the year and changes are proposed to the Executive
Directors bonus scheme, subject to the approval of the Remuneration Policy
at the Annual General Meeting in 2017. Previously, whilst the new strategy
was being embedded, the improvement in financial performance came
from both greater focus on cost control as well as the transitioning of the
business to focus more on value-added ingredient solutions. Accordingly, an
aggressive growth of 15% in adjusted profit before tax against prior year was
required to trigger a maximum bonus award. Given that contribution to profits
from cost control has made significant progress and that the Group operates
in a mature business segment, dominated by large multi-national businesses
where growth rarely exceeds 2.5%, the Committee felt that current stretched
target of 15% growth in adjusted profit before tax is now unrealistic. The
Committee strongly believes that in order to motivate behaviour a performance
criteria must be stretching but achievable. Therefore, to encourage continued
growth of the business, the Remuneration Committee propose a maximum
bonus pay-out at 110% or more of prior year’s adjusted profit before tax,
whilst narrowing the scale to reduce bonuses at the lower end of performance
so that threshold is 96% of prior year’s adjusted profit before tax, at which the
bonus award would be 5% of basic salary. The Committee will at all times
retain discretion in respect of the exceptional and other items included within
adjusted profit before tax. A summary of the performance measure is set
out below. The Committee believes that these changes to the scheme will
continue to encourage sustainable growth and the delivery of the Group’s
strategic objectives.
Performance Measure
Threshold
Target
Maximum
Adjusted profit
before tax for prior year
Bonus award
96%
102.5%
110%
5% of basic
salary
40% of
basic salary
100% of
basic salary
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. Daemmon Reeve has continued
throughout the year to add to his shareholding and currently holds 120%
of his salary (as at 30 September 2016), details of which are on page 48 of
the Implementation Report. Richard Hope has exceeded his shareholding
requirement but continues to add to his shareholding.
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,
is considered annually by the Remuneration Committee. As a result of
consultation 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.
The Committee believes that this policy continues to be aligned with
our business strategy, set out elsewhere in this report, in driving the
sustainable growth in profits for the long-term benefit of the business
and its stakeholders and has shown positive results with a continual rise
in the profits of the business. 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
39
CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT PLC I Directors’ Remuneration Report continued
to ensure consistency and proportionality. The bonuses of all senior
managers in the Group are approved by the Committee.
Members of the Committee are shown on page 96 and for full biographies
of the Committee members see page 25. The terms of reference of the
Committee can be found on the Treatt website at www.treatt.com.
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 2015 Directors’ Remuneration Report;
• agreement of the bonuses payable for the 2015 financial year;
• grant of options to Directors under the Treatt LTIP and the setting of
performance conditions;
• review of the remuneration package of the CEO following relocation to
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:
the UK;
• salaries should be competitive but not excessive when compared to
• grant of options to senior management and key employees and the
similar companies;
setting of performance conditions;
• review and amendment of Executive Directors bonus scheme
performance condition;
• 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 2017 financial year;
• 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; and
• review of the Share Retention Policy.
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 parameters of the Executive Directors bonus scheme, as stated above.
• 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. Emphasis will continue to 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.
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.
The current intention is that the framework of this remuneration policy will
apply for future years.
DAVID JOHNSTON
Chairman
Remuneration Committee
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 2017 financial year:
Element – Purpose
and link to strategy
Operation
Maximum Opportunity
Performance Metrics
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
Individual
and company
performance are
considered
Discretion may be exercised for the purpose
of retention
Changes for 2017
financial year
No changes have
been made to
the salary review
process
Base salary increase
for Daemmon Reeve
is consistent with the
basic increase of UK
employees at 1.5%
Base salary
increase for Richard
Hope, following
benchmarking is
1.5%
40
I TREATT PLC
Maximum Opportunity
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
Performance
Metrics
Changes for 2017
financial year
Not applicable
Following relocation
back to the UK,
Daemmon Reeve
receives benefits
in line with those
received by UK
employees
Element – Purpose
and link to strategy
Operation
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; Life
Assurance; Permanent Health Insurance;
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 3 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
The Committee will at all times retain
discretion in respect of the exceptional and
other items included within adjusted profit
before tax
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 adjusted
Group profit
before tax is
115% or more of
prior year
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
For 2017, bonuses
are to be based
on the growth in
adjusted Group
profit before tax
compared to the
prior financial year
Bonus payments
range from 5% of
salary at threshold
level, being 96% of
prior year’s adjusted
Group profit before
tax rising
incrementally to a
maximum of 100%
of salary where
adjusted Group profit
before tax is 110% or
more of prior year
The Committee has
discretion to reduce
bonuses 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
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CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT PLC I
Changes for 2017
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
criterion 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
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
Pension
Help recruit and retain
high calibre Executive
Directors and to provide
a competitive package
relative to the size of the
Group
Not applicable
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)
Following
relocation back
to the UK,
Daemmon Reeve
receives 15%
contribution,
having been a
member of the
defined benefit
pension scheme
42
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 2017
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.
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CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT PLC I
Directors’ Remuneration Report continued
Maximum Opportunity
Changes for 2017 financial year
Fee increases for all Non-executive
directors are consistent with the
basic increase of UK employees
at 1.5%
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
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
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 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.
Where exceptional circumstances arise, the Committee shall have
discretion to approve payments not specifically referred to above where the
Committee, acting in good faith and taking into account the needs of the
wider business, considers it reasonable and appropriate to do so.
Illustration of remuneration policy
The graphs below provide estimates of the potential future reward for each
of the Executive Directors based on their current roles, the remuneration
policy outlined on pages 39 to 50 and base salaries as at 1 October 2016.
Remuneration policy illustration
(£’000)
600
500
400
300
200
100
0
287
144
43
43
43
185
7
15
93
7
15
7
15
287
287
287
185
185
185
Minimum
On target
Maximum
Minimum
On target
Maximum
Chief Executive Officer – Daemmon Reeve
Finance Director – Richard Hope
Salary
Pension
Bonus
Share Options
Only those share options which potentially vest in 2017 have been
included and have been calculated as the difference in market value at
30 September 2016, being £2.10, and the option price.
44
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:
• 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
• market segment.
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 2016:
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
6 April 2016
1 October 2013
Notice period
12 months
12 months
Provision
Notice period
Termination payment
Salary
Benefits
Summary
12 months by either party
Daemmon Reeve – No provision for payment in lieu of notice
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, 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.
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CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT 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, if approved at the 2017 Annual General
Meeting, shall be effective immediately and remain effective 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 2016.
Directors’ Remuneration (audited)
The tables below report a single figure for total remuneration for each
individual Executive and Non-executive Director respectively.
Executive Directors:
Salary
Taxable benefits (Note 1)
Annual bonus (Note 2)
Share options vesting in the financial year
Pension (Note 3)
Non-executive Directors:
Tim Jones
Anita Haines
Jeff Iliffe
Richard Illek (from 1 June 2016)
David Johnston
Ian Neil (until 29 January 2016)
Daemmon Reeve
Richard Hope
2016
£’000
287
—
252
—
41
580
2015
£’000
233
3
214
—
20
470
2016
£’000
182
—
160
16
14
372
Fees
2016
£’000
61
33
37
11
36
12
2015
£’000
179
—
165
6
19
369
2015
£’000
53
32
35
—
33
35
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, was as follows:
190
188
Daemmon Reeve
Richard Hope
46
2016
88%
88%
2015
92%
92%
I TREATT PLC
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
2016
53%
53%
2015
52%
52%
2016
47%
47%
2015
48%
48%
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.
1
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 2011-2016
Sep 11
Sep 12
Sep 13
Sep 14
Sep 15
Sep 16
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 maximum3
2016
580
88%
N/A4
2015
470
92%
100%
2014
436
95%
100%
2013
405
85%
100%
20122
274
11%3
100%
1 The CEO Remuneration for 2012 is the combined remuneration paid to the current and previous CEO for the periods when they held that post.
2 The 2012 annual bonus only related to two months of the financial year.
3 All share options vested in full as they were all-employee share options which were not subject to performance conditions.
4 There were no options which vested during the year.
The percentage change in remuneration for 2016 of the Director undertaking the role of CEO, compared to employees as a whole was as follows:
CEO
Employees1
Salaries2
Bonus2
13.4%
3.5%
8.2%
1.8%
1 The employees used for comparison are those UK and US employees who, for the salary comparison, were employed for the whole of the 2016
financial year, and for bonuses, for the whole of both the 2015 and 2016 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 2016.
47
CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT 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
2016
11,635
2,095
2,354
2015
Movement
10, 676
1,978
1,909
+9%
+6%
+23%
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 2016 had the following interests in the shares of the Parent Company:
Shares held outright
or vested
Unvested share options
with performance conditions
2015
2016
Unvested all-employee
share options
2016
2015
Executive Directors
Daemmon Reeve
Richard Hope
Non-executive Directors
Tim Jones
Anita Haines
2016
2015
159,001
199,520
120,751
50,680
131,462
176,400
75,877
50,680
460,992
245,868
284,586
148,010
13,043
13,238
5,710
11,874
—
—
—
—
—
—
—
—
Between 1 October 2016 and 24 November 2016, the latest date practicable to obtain the information prior to publication of this document the following
changes occurred:
Daemmon Reeve purchased 891 shares under a Dividend Reinvestment Plan
Richard Hope purchased 1,193 shares under Dividend Reinvestment Plans
The table below shows the value of Executive Directors’ interests in shares as at 30 September 2016 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
2016
£’000
334
419
2015
£’000
212
285
2016
£’000
287
182
2015
£’000
233
179
2016
%
116%
230%
2015
%
91%
159%
200%
150%
Daemmon Reeve
Richard Hope
1 Base salary is the average basic gross pay for the corresponding year.
48
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
SAYE 20161
LTIP 20152
All-staff
Executive
15 Jul 16
14 Dec 15
SAYE 20161
LTIP 20152
All-staff
Executive
15 Jul 16
14 Dec 15
£1.725
£1.700
£1.725
£1.700
22
299
7
188
N/A
30%
N/A
30%
N/A
30/9/18
N/A
30/9/18
1 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.
2 Executive LTIPs are granted at Nil cost, subject to performance conditions.
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 2016
Sep 2019 – Feb 2020
Dec 2017 – Dec 2022
Dec 2018 – Dec 2023
Dec 2017 – Mar 2018
Dec 2018 – Mar 2019
Sep 2016 – Feb 2017
Sep 2017 – Feb 2018
Sep 2018 – Feb 2019
Sep 2019 – Feb 2020
Dec 2015 – Dec 2022
Dec 2016 – Dec 2023
Dec 2017 – Dec 2024
Dec 2018 – Dec 2025
Exercise
price
137.0p
138.0p
79.0p
147.2p
Nil
Nil
97.8p
138.0p
132.0p
138.0p
78.0p
147.2p
Nil
Nil
At 1 Oct
2015
Granted
during the Year
Exercised
during the Year
Expired
during the Year
At 30 Sept
2016
—
—
78,195
41,575
165,182
—
5,710
13,043
—
—
—
176,040
284,952
194,793
—
—
—
—
—
—
—
(5,710)
—
—
—
—
—
—
13,043
78,195
41,575
165,182
176,040
(5,710)
474,035
2,940
4,434
4,500
—
12,820
6,790
128,400
—
—
—
—
4,304
—
—
—
110,678
(2,940)
—
—
—
(12,820)
—
—
—
159,884
114,982
(15,760)
—
—
—
—
—
—
—
—
—
—
4,434
4,500
4,304
—
6,790
128,400
110,678
259,106
The aggregate amount of gains made by the Directors on the exercise of share options in the year was £16,000 (2015: £6,000).
There have been no further changes in the interests of the Directors to subscribe for or acquire shares between 1 October 2016 and 24 November 2016,
the latest date practicable to obtain the information prior to publication of this document.
The market price of the shares at 30 September 2016 was £2.10 and the range during the financial year was £1.57 to £2.10. All market price figures are
derived from the Daily Official List of the London Stock Exchange.
49
CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT 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
2016
£
2015
£
Daemmon Reeve
24 Sep 2036
20,988
20,985
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*
2016
£’000
41
14
2015
£’000
20
19
* 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 29 January 2016, the votes cast in respect of the resolution to approve the Directors’ Remuneration Report, were
as follows:
For: 99.90% Against: 0.10% Votes withheld: 16,300
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 28 November 2016.
ANITA STEER
Secretary
50
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 53 to 90. 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 23, 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 2016
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 34 to 38 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.
Directors’ assessment of the principal risks that would threaten the solvency
or liquidity of the Group
We have nothing material to add or to draw attention to in relation to:
• the Directors’ confirmation in the annual report that they have carried out
a robust assessment of the principal risks facing the Group, including
those that would threaten its business model, future performance or
liquidity;
• the disclosures in the annual report that describe those risks and
explain how they are being managed or mitigated;
• the Directors’ statement in the financial statements about whether
they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material
uncertainties in the Group’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial
statements; and
• the Directors’ explanation in the annual report as to how they have
assessed the prospects of the Group, over what period they have
done so and why they consider that period to be appropriate, and
their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities
as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications
or assumptions.
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 page 21, in relation to going
concern and longer-term viability; and
• the part of the Corporate Governance Statement on page 34 relating
to the Parent Company’s compliance with the provisions of the 2014
UK Corporate Governance Code specified for our review.
51
CORPORATE GOVERNANCE Annual Report & Financial Statements 2016TREATT PLC I Independent Auditor’s Report to the Members of Treatt plc continued
Our assessment of risks of material misstatement
We identified the following risk as being that which had the most significant
impact on our audit strategy and set out below how this was 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.
An overview of the scope of our audit
Our group audit approach focused on the Parent Company and the three
key trading subsidiaries, two in the UK and one in the US. The UK entities
are subject to local statutory audit completed to the Group reporting
timetable. The US entity is not subject to local statutory audit and has
been subject to full scope audit to Group materiality. The US entity audit
was undertaken by the same team as the UK statutory audits.
These audits covered 99% of Group revenue, 99% of Group profit before
tax, and 97% of Group total assets.
CHARLES FRAY (Senior Statutory Auditor)
For and on behalf of RSM UK AUDIT LLP
Statutory Auditor
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 £475,000, which was not changed
during the course of our audit.
Chartered Accountants
Abbotsgate House
Hollow Road
Bury St Edmunds
Suffolk IP32 7FA
28 November 2016
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.
52
I TREATT PLC
Group Income Statement
for the year ended 30 September 2016
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 diluted2
Notes
4
5
7
8
9
11
11
11
11
2016
£’000
88,040
(67,639)
20,401
(10,852)
9,549
(703)
8,846
(553)
8,293
(2,144)
6,149
11.85p
11.68p
12.84p
12.65p
2015
£’000
85,934
(66,955)
18,979
(10,289)
8,690
(740)
7,950
(174)
7,776
(1,786)
5,990
11.64p
11.55p
11.94p
11.85p
1 Operating profit is calculated as profit before net finance costs, exceptional items and taxation.
2 All adjusted measures exclude exceptional items, and in the case of earnings per share the related tax effect, details of which are given in note 8.
All amounts relate to continuing operations
Notes 1 - 30 form part of these financial statements
53
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Group Statement of Comprehensive Income
for the year ended 30 September 2016
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
2016
£’000
6,149
2,576
—
120
(47)
2,649
(4,297)
—
643
(3,654)
(1,005)
5,144
2015
£’000
5,990
830
(2)
(404)
81
505
(638)
43
86
(509)
(4)
5,986
54
I TREATT PLC Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2016
Group
1 October 2014
Net profit for the year
Other comprehensive income:
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 trust
Gain on release of shares
in share trust
Issue of share capital
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
(549)
(377)
291
25,590
28,760
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
128
—
(2)
—
—
—
(404)
—
81
—
830
—
—
(2)
5,990
5,990
—
—
(638)
129
830
(404)
(638)
208
(323)
828
5,481
5,986
—
—
—
—
—
—
—
—
—
—
—
—
(1,978)
201
(1,978)
201
—
52
—
36
128
52
—
36
1 October 2015
1,050
2,757
(423)
(700)
1,119
29,382
33,185
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 trusts
Gain on release of shares
in share trusts
Issue of share capital
Taxation relating to items recognised
directly in equity
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
94
—
(3)
—
—
—
120
—
—
(47)
73
—
—
—
—
—
—
—
6,149
6,149
2,576
—
—
(20)
—
—
—
(4,297)
20
643
2,576
120
(4,297)
—
596
2,556
2,515
5,144
—
—
—
—
—
—
(2,095)
597
(2,095)
597
—
171
—
91
94
171
—
91
30 September 2016
1,053
2,757
(332)
(627)
3,675
30,661
37,187
Notes 1 – 30 form part of these financial statements
55
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS
Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2016
Parent Company
1 October 2014
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
Issue of share capital
1 October 2015
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
Share
premium
£’000
Own shares
in share
trusts
£’000
Retained
earnings
£’000
1,048
2,757
(549)
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
128
—
—
(2)
1,050
2,757
(423)
—
—
—
—
—
—
3
—
—
—
—
—
—
—
—
—
—
94
—
—
(3)
1,736
4,066
4,066
(1,978)
—
201
52
—
4,077
2,878
2,878
(2,095)
—
597
171
—
Total
equity
£’000
4,992
4,066
4,066
(1,978)
128
201
52
—
7,461
2,878
2,878
(2,095)
94
597
171
—
30 September 2016
1,053
2,757
(332)
5,628
9,106
Notes 1 – 30 form part of these financial statements
56
I TREATT PLC Group and Parent Company Balance Sheets
as at 30 September 2016
Registered Number: 1568937
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment in subsidiaries
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Redeemable loan notes receivable
Current tax assets
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
Post-employment benefits
Deferred tax liabilities
Derivative financial instruments
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
Group
Parent Company
2016
£’000
2015
£’000
2016
£’000
2015
£’000
Notes
12
13
14
15
16
17
18
29
19
20
21
22
23
29
20
26
16
23
24
2,727
637
11,361
—
1,436
16,161
29,990
17,853
—
4
6,588
54,435
70,596
(487)
(67)
(14,151)
(999)
(9)
(675)
(16,388)
38,047
(7,755)
(7,401)
(1,111)
(754)
(17,021)
(33,409)
37,187
1,053
2,757
(332)
(627)
3,675
30,661
37,187
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
—
—
—
7,737
—
7,737
—
13
1,350
—
1,399
2,762
10,499
—
—
(718)
—
—
(675)
(1,393)
1,369
—
—
—
—
—
(1,393)
9,106
1,053
2,757
(332)
—
—
5,628
9,106
—
—
—
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
The financial statements were approved by the Board of Directors and authorised for issue on 28 November 2016 and were signed on its behalf by:
TIM JONES
Chairman
RICHARD HOPE
Finance Director
57
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Group and Parent Company Statements of Cash Flows
for the year ended 30 September 2016
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
Net finance costs
Share-based payments
(Increase)/decrease in fair value of derivatives
Increase/(decrease) in post-employment benefit obligations
Notes
14
13
5
7
25
29
Group
Parent Company
2016
£’000
2015
£’000
2016
£’000
2015
£’000
8,293
7,776
2,871
4,060
1,347
142
2
703
566
(122)
145
1,244
175
46
740
198
143
(208)
—
—
—
14
—
—
—
—
—
—
19
—
—
—
Operating cash flow before movements in working capital
11,076
10,114
2,885
4,079
(2,501)
688
1,541
10,804
(2,022)
2,907
(2,282)
(2,072)
8,667
(1,469)
8,782
7,198
(752)
—
(679)
(109)
8
—
5
(924)
(108)
1
(1,532)
(1,026)
381
(711)
(2,095)
265
(2,145)
(741)
(1,978)
180
—
695
(277)
3,303
6
3,309
(752)
—
—
—
5
(747)
—
(19)
(2,095)
265
—
(77)
50
4,052
7
4,059
—
—
—
—
20
20
—
(39)
(1,978)
180
(2,160)
(4,684)
(1,849)
(1,837)
5,090
1,488
713
—
713
686
(33)
1,455
21
1,476
1,399
1,477
(1)
1,476
1,399
—
1,399
2,242
—
2,242
(1,556)
686
686
—
686
15
5,105
1,476
6,581
6,588
(7)
6,581
Movements in working capital:
(Increase)/decrease in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables, and provisions
Cash generated from operations
Taxation (paid)/received
Net cash from operating activities
Cash flow from investing activities
Investments in subsidiaries
Proceeds on disposal of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Cash flow from financing activities
Increase/(decrease) in bank loans
Interest paid
Dividends paid
Net sale of own shares by share trusts
Net increase in cash and cash equivalents
Effect of foreign exchange rates
Movement in cash and cash equivalents in the year
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash and cash equivalents comprise:
Cash and bank balances
Bank borrowings
Notes 1 – 30 form part of these financial statements
14
13
7
7
10
19
20
58
I TREATT PLC Group Reconciliation of Net Cash Flow to Movement in Net Debt
for the year ended 30 September 2016
Movement in cash and cash equivalents in the year
(Increase)/repayment 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
2016
£’000
5,105
(381)
4,724
(223)
4,501
(6,155)
(1,654)
2015
£’000
1,455
2,145
3,600
(171)
3,429
(9,584)
(6,155)
59
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016
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 96.
2. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
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.
New and amended accounting standards
There were no new standards or amendments to standards, which had
a material impact on these financial statements, and are mandatory and
relevant to the Group for the first time for the financial year ending 30
September 2016.
Of the profit for the financial year, £2.9m (2015: £4.1m) has been dealt
with in the accounts of the Parent Company. The Parent Company has
taken advantage of the exemption under Section 408 of the Companies
Act 2006 and has not presented its own income statement in these
financial statements.
Basis of consolidation
The Group accounts consolidate the accounts of Treatt plc and all of
its subsidiaries (entities controlled by the Parent Company) made up to
30 September each year. Control is achieved where the Parent Company
has the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities. All intra-group
transactions, balances and unrealised gains on transactions between
Group companies are eliminated on consolidation. Unrealised losses are
also eliminated unless the transaction provides evidence of an impairment
of the asset transferred.
Going concern
The Directors have, at the time of approving the financial statements, a
reasonable expectation that the Parent Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future. Thus they continue to adopt the going concern basis of accounting
in preparing the financial statements. Further detail is contained in the
Directors’ Report on pages 20 to 23.
Presentation of financial statements
The primary statements within the financial information contained in this
document have been presented in accordance with IAS 1, “Presentation
of Financial Statements”.
Investments in subsidiaries
Investments in subsidiaries in the Parent Company balance sheet are
stated at cost, less any provision for impairment.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method.
The cost of the acquisition is measured at the aggregate fair values, at the
date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree.
The acquiree’s identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 are recognised at their
fair value at the acquisition date, except for non-current assets (or disposal
groups) that are classified as held for sale in accordance with IFRS 5,
“Non-current assets held for sale and discontinued operations”, which are
recognised and measured at fair value less costs to sell.
The accounting policy for goodwill is shown later in this note under
intangible assets.
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
• Annual improvements 2014
•
•
IFRS 2 Share-based payments (amendments)
IFRS 7 Financial instruments: Additional hedge accounting
disclosures (and consequential amendments)
IFRS 9 Financial instruments: Classification, measurement,
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
IFRS 16 Leases
IAS 1 Presentation of financial statements (amendments)
IAS 7 Statement of cash flows (amendments)
IAS 12 Income taxes (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 34 Interim financial reporting (amendments)
IAS 38 Intangible assets (amendments)
IAS 39 Financial Instruments: Recognition and measurement
(amendments)
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
The Directors anticipate that the adoption of these standards and
interpretations in future periods will have no material impact on the
financial statements of the Group or the Parent Company when the
relevant standards and interpretations come into effect.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies which have been used in the preparation
of these financial statements are set out below.
60
I TREATT PLC 3. SIGNIFICANT ACCOUNTING POLICIES (continued)
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”.
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.
61
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (continued)
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 the asset is impaired.
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, and 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.
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Exceptional items
The Group has elected to classify certain items as exceptional and present
them separately on the face of the income statement. Exceptional items
are classified as those which are separately identified by virtue of their
size, nature or expected frequency, to allow a better understanding of the
underlying performance in the period.
Post balance sheet events and dividends
IAS 10, “Events after the Balance Sheet Date” requires that final dividends
proposed after the balance sheet date should not be recognised as a
liability at that balance sheet date, as the liability does not represent a
present obligation as defined by IAS 37, “Provisions, Contingent Liabilities
and Contingent Assets”. Consequently, final dividends are only recognised
as a liability once formally approved at the Annual General Meeting and
interim dividends are not recognised until paid.
Cash flow
The Statement of Cash Flows explains the movement in cash and cash
equivalents and short term borrowings.
Property, plant and equipment
Property, plant and equipment is stated at cost less depreciation.
Depreciation is provided on all property, plant and equipment, except
freehold and long leasehold land, using the straight-line basis to write off
the cost of the asset, less estimated residual value, as follows:
• Plant and machinery:
• Buildings:
4-10 years
50 years
Intangible assets
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. In accordance with IFRS 3, “Business Combinations”, for
acquisitions prior to 1 October 2009, any revision to the estimated cost of
an acquisition (eg for deferred consideration) is included as an adjustment
to the cost of the acquisition. Any revisions to cost for acquisitions dated
on or after 1 October 2009 are included as a charge or credit to the
Income Statement. 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.
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
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.
62
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.
Cash flow hedges
Changes in the fair value of derivative financial instruments that are
designated and effective as cash flow hedging instruments are recognised
directly in equity. The ineffective portion is recognised immediately in
the income statement. If the cash flow hedge of a firm commitment or
forecasted transaction results in the recognition of an asset or a liability,
then, at the time the asset or liability is recognised, the associated gains or
losses on the derivative that had been previously recognised in equity are
included in the initial measurement of the asset or liability. For transactions
that do not result in the recognition of an asset or a liability, amounts
deferred in equity are recognised in the income statement in the same
period in which the hedged item affects net profit or loss.
Pension costs
One of the Group’s UK subsidiaries, R C Treatt & Co Limited, operates a defined
benefit scheme through an independently administered pension scheme.
For defined benefit retirement plans, the cost of providing benefits
is determined using the projected unit credit method, with actuarial
valuations being carried out every three years and updated at each balance
sheet date. The post-employment benefits obligation recognised in the
balance sheet represents the present value of the defined benefit pension
obligations adjusted for unrecognised past service cost, and as reduced by
the fair value of scheme assets. Any asset resulting from this calculation is
limited to past service costs, plus the present value of available refunds and
reductions in future contributions to the scheme.
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.
The Group has an HMRC-approved share incentive plan (“SIP”). The
Group also has a wholly-owned UK Trust, Treatt SIP Trustees Limited
(“Trust”), to whom shares are 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.
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
63
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (continued)
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
for staff in the UK and US, is recognised on a straight-line basis over the
vesting period of the scheme, based on the Group’s estimate of the number
of equity instruments that will eventually vest.
At each balance sheet date, the Group revises its estimate of the number
of equity instruments expected to vest as a result of the effect of non
market-based vesting conditions. The impact of the revision of the original
estimates, if any, is recognised in profit or loss such that the cumulative
expense reflects the revised estimate, with a corresponding adjustment to
the 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.
The Group has an HMRC-approved 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 (the “Trust”). The shares held in the EBT and Trust 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 2016 the market value of the shares held by the EBT
was £1,212,000 (2015: £1,189,000), and the market value of shares held
by the SIP was £506,000 (2015: £142,000) of which £470,000 (2015:
£122,000) relates to shares beneficially held by employees.
64
I TREATT PLC
3. SIGNIFICANT ACCOUNTING POLICIES (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
2016
£’000
8,794
5,527
5,871
11,011
33,729
4,142
4,536
14,430
88,040
2015
£’000
10,878
4,576
7,903
10,834
27,447
6,721
4,840
12,735
85,934
All Group revenue is in respect of the sale of goods, other than property rental income of £17,000 (2015: £17,000). No country included within “Other”
contributes more than 5% of the Group’s total revenue. There were no customers which represented more than 10% of Group revenue (2015: largest
customer represented 12.1% of Group revenue).
Non-current assets by geographical location, excluding deferred tax assets, were as follows:
United Kingdom
United States
Rest of the World
2016
£’000
7,645
6,611
469
2015
£’000
6,353
6,041
340
14,725
12,734
65
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS
Notes to the Financial Statements
for the year ended 30 September 2016 (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
Research and development costs
Operating leases
– plant & machinery
– land & buildings
Net foreign exchange loss2
Rent receivable
Cost of inventories recognised as expense3
Write down/(write back) 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 modelling software services*
Total non-audit fees
* The financial modelling software services have been included in Other Intangible Assets.
2016
£’000
1,347
142
2
895
12
100
(8)
(17)
58,357
(561)
1,643
601
583
498
36
71
107
19
2
—
11
32
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
66
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)
2016
Number
190
126
316
2016
£’000
10,874
1,040
761
566
13,241
2015
Number
186
124
310
2015
£’000
9,955
943
721
198
11,817
Directors
The information on Directors’ emoluments and share options set out on pages 39 to 50 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
Restructuring costs
Less: tax effect of exceptional items
2016
£’000
2015
£’000
431
134
20
7
119
711
8
703
2016
£’000
302
251
553
(38)
515
483
116
34
10
98
741
1
740
2015
£’000
174
—
174
(18)
156
The exceptional items in the year all relate to non-recurring items. The legal and professional fees relate to the costs in respect of the full and final
settlement of the Earthoil earnout dispute. The restructuring costs relate to one-off non-recurring reorganisation costs incurred in the US and Kenya.
67
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (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 charge/(credit) 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 charge/(credit) in equity:
Current tax:
Share-based payments
Deferred tax:
Share-based payments
Total tax credit recognised in equity
2016
£’000
2015
£’000
967
9
1,370
8
2,354
(179)
(27)
(4)
(210)
2,144
—
—
—
47
(643)
(596)
(596)
(16)
(75)
(91)
956
(11)
931
33
1,909
(59)
—
(64)
(123)
1,786
2
(43)
(41)
(81)
(86)
(167)
(208)
(38)
2
(36)
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% (2015: 20.5%). The differences
are explained below:
Profit before tax multiplied by standard rate of UK corporation tax at 20% (2015: 20.5%)
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
2016
£’000
1,659
51
(145)
566
13
2015
£’000
1,594
(80)
(125)
439
(42)
Total tax charge for the year
2,144
1,786
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% (2015: 20.5%). The adjustments in respect of prior year’s relate to the finalisation of previous years tax computations.
68
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
20162
Pence
1.35p
3.00p
4.35p
20151
Pence
1.28p
2.76p
4.04p
20141
Pence
1.24p
2.60p
3.84p
2016
£’000
662
1,433
2,095
2015
£’000
638
1,340
1,978
1 Accounted for in the subsequent year in accordance with IFRS.
2 The declared interim dividend for the year ended 30 September 2016 of 1.35 pence was approved by the Board on 13 May 2016 and was paid on
14 October 2016. Accordingly it has not been included as a deduction from equity at 30 September 2016. The proposed final dividend for the year
ended 30 September 2016 of 3.00 pence will be voted on at the Annual General Meeting on 27 January 2017. Both dividends will therefore be
accounted for in the financial statements for the year ending 30 September 2017.
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)
2016
6,149
51,895
11.85p
2015
5,990
51,464
11.64p
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)
2016
No (‘000)
52,575
(680)
51,895
645
122
52,662
11.68p
2015
No (‘000)
52,450
(986)
51,464
262
152
51,878
11.55p
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)
2016
£’000
6,149
553
(38)
6,664
12.84p
12.65p
2015
£’000
5,990
174
(18)
6,146
11.94p
11.85p
69
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS
Notes to the Financial Statements
for the year ended 30 September 2016 (continued)
12. GOODWILL
Group
Cost
1 October 2014
1 October 2015
Deferred consideration
30 September 2016
Accumulated impairment losses
1 October 2014
1 October 2015
30 September 2016
Carrying amount
30 September 2016
30 September 2015
£‘000
3,507
3,507
1,652
5,159
2,432
2,432
2,432
2,727
1,075
All goodwill relates to the acquisition of the Earthoil Group. Deferred consideration of £1.7m was payable in the year following the full and final settlement of
the earnout dispute. In accordance with the transitional rules under IFRS 3, “Business Combinations”, the deferred consideration has been accounted for as
an increase to goodwill. 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 2016, 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 2021. Thereafter, a growth rate for
pre-tax profit of 2% (2015: 2%) per annum is assumed into perpetuity. A rate of 9.6% (2015: 12.5%) has been used to discount the forecast cash flows. The
key assumptions are based on past experience adjusted for expected changes in future conditions.
Based upon this impairment review the recoverable amount of Earthoil exceeds its carrying amount by £7.8m (2015: £9.1m). 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 £1.2m.
Lease
premium
£’000
Software
licenses
£’000
343
—
—
—
343
—
—
—
343
946
5
108
(171)
888
13
109
(246)
764
Total
£‘000
1,289
5
108
(171)
1,231
13
109
(246)
1,107
13. OTHER INTANGIBLE ASSETS
Group
Cost
1 October 2014
Exchange Adjustment
Additions
Disposals
1 October 2015
Exchange adjustment
Additions
Disposals
30 September 2016
70
I TREATT PLC
13. OTHER INTANGIBLE ASSETS (continued)
Group
Amortisation
1 October 2014
Exchange adjustment
Charge for year
Disposals
1 October 2015
Exchange adjustment
Charge for year
Disposals
30 September 2016
Net book value
30 September 2016
30 September 2015
Lease
premium
£’000
Software
licenses
£’000
17
—
4
—
21
—
4
—
25
318
322
546
3
171
(171)
549
4
138
(246)
445
319
339
Total
£’000
563
3
175
(171)
570
4
142
(246)
470
637
661
Intangible assets with a net book value of £54,000 (2015: £52,000) have been pledged as security in relation to the Industrial Development Loan detailed in note 20.
14. PROPERTY, PLANT AND EQUIPMENT
Group
Land &
buildings
£’000
Plant &
machinery
£’000
Cost
1 October 2014
Exchange Adjustment
Additions
Disposals
1 October 2015
Exchange adjustment
Additions
Disposals
30 September 2016
Depreciation
1 October 2014
Exchange adjustment
Charge for year
Impairment adjustment
Disposals
1 October 2015
Exchange adjustment
Charge for year
Disposals
30 September 2016
Net book value
30 September 2016
30 September 2015
Analysis of land & buildings
Net book value
Freehold
Long Leasehold
6,256
230
43
(162)
6,367
577
—
—
6,944
1,090
53
135
—
(143)
1,135
132
140
—
1,407
5,537
5,232
Included in plant and machinery are assets in the course of construction totalling £275,000 (2015: £305,000) which are not depreciated.
11,840
18,784
10,626
328
881
(1,071)
10,764
973
679
(576)
4,798
129
1,109
27
(1,065)
4,998
385
1,207
(574)
6,016
5,824
5,766
2016
£’000
4,831
706
5,537
Total
£’000
16,882
558
924
(1,233)
17,131
1,550
679
(576)
5,888
182
1,244
27
(1,208)
6,133
517
1,347
(574)
7,423
11,361
10,998
2015
£’000
4,510
722
5,232
71
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (continued)
14. PROPERTY, PLANT AND EQUIPMENT (continued)
Property, plant and equipment with a net book value of £6.2m (2015: £5.7m) 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
15. INVESTMENTS IN SUBSIDIARIES
Parent Company
Cost
1 October 2014
Capital contribution to subsidiaries
Rounding adjustment
1 October 2015
Investment in subsidiaries
Capital contribution to subsidiaries
30 September 2016
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
2016
£’000
362
2016
£’000
2015
£‘000
163
Total
£’000
5,285
201
(1)
5,485
1,655
597
7,737
2015
£’000
2,855
2,467
2,155
1,943
2,245
923
482
7,737
152
5,485
During the year the Parent Company had the following subsidiary undertakings:
Subsidiary
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
Country
of incorporation
Holding
Principal activity
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
72
I TREATT PLC 16. DEFERRED TAXATION
Group
UK deferred tax asset
Overseas deferred tax liability
Net deferred tax asset/(liability)
2016
£’000
1,436
(1,111)
325
2015
£‘000
647
(1,037)
(390)
A reconciliation of the net deferred liability is shown below:
UK Deferred Tax
Overseas Deferred Tax
Total
Group
1 October 2014
Exchange differences
(Charge)/credit to income statement
Credit/(charge) to OCI
Credit direct to equity
1 October 2015
Exchange differences
(Charge)/credit to income statement
For the year
For change in tax rate
Credit/(charge) to OCI
For the year
For change in tax rate
Credit/(charge) to equity
For the year
For change in tax rate
Post-
employment
benefits
£’000
Fixed
assets
£’000
Cash flow
hedge
£’000
Share-
based
payments
£’000
Fixed
assets
£’000
(1,174)
(80)
56
—
—
(1,198)
(204)
(31)
—
—
—
—
—
Other
temporary
differences
£’000
167
13
(19)
—
—
161
38
98
—
—
—
25
—
33
—
32
—
(2)
63
—
57
—
—
—
60
(10)
£’000
(611)
(67)
123
167
(2)
(390)
(166)
181
29
685
(89)
85
(10)
325
505
—
—
86
—
591
—
23
—
732
(89)
—
—
(227)
—
18
—
—
(209)
—
58
29
—
—
—
—
85
—
36
81
—
202
—
(24)
—
(47)
—
—
—
131
30 September 2016
1,257
(122)
170
(1,433)
322
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 17% (2015: 20%) as legislation has been substantively enacted which reduces the
main rate of UK corporation tax from 20% in the 2015/16 tax year, to 19% for the 2017/18 tax year and to 17% for the 2020/21 tax year. The deferred
tax rate applicable to the Group’s US subsidiary was 36% (2015: 36%).
17. INVENTORIES
Group
Raw materials
Work in progress and intermediate products
Finished goods
2016
£’000
12,395
13,476
4,119
29,990
2015
£‘000
10,830
12,504
2,465
25,799
Inventory with a carrying value of £11.2m (2015: £10.2m) has been pledged as security in relation to the Industrial Development Loan detailed in note 20.
73
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (continued)
18. TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Amounts owed by subsidiaries
Other receivables
Prepayments
Group
Parent Company
2016
£’000
16,250
—
852
751
17,853
2015
£’000
15,634
—
1,090
911
17,635
2016
£’000
—
13
—
—
13
2015
£’000
—
116
592
—
708
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
2016
66
2015
61
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
Balance at end of year
2016
£’000
307
(147)
136
12
308
2015
£’000
309
(108)
100
6
307
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 29% (2015: 30%) 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:
2016
£’000
1,809
726
1,286
2015
£’000
2,213
507
501
Group
Number of days past the due date:
1–30
31–60
Over 60
74
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
2016
£’000
15
2
8
283
2015
£’000
24
—
—
283
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 16 to 19. The currency exposure within trade receivables, analysed by
currency, was as follows:
Group
GB Pound
US Dollar
Euro
2016
£’000
3,245
10,941
1,899
2015
£’000
3,267
10,924
1,383
Trade receivables with a carrying value of £6.1m (2015: £3.7m) have been pledged as security in relation to the Industrial Development Loan detailed
in note 20.
19. CASH AND BANK BALANCES
Group
Cash and bank balances of £6,588,000 (2015: £1,477,000) 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
Bank borrowings
Non-current
US term loans
UK revolving credit facilities
Group
Parent Company
2016
£’000
—
—
—
2015
£’000
—
—
—
2016
£’000
480
7
487
Group
2016
£’000
827
6,928
7,755
2015
£’000
566
1
567
2015
£’000
1,124
5,941
7,065
75
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS
Notes to the Financial Statements
for the year ended 30 September 2016 (continued)
20. BORROWINGS (continued)
US loans and borrowings
US term loans comprise the following:
Group
Industrial development loan
Equipment financing loans
2016
£’000
1,001
306
1,307
2015
£’000
1,030
660
1,690
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 £80,000 (2015: £91,000) 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 £195,000 (2015: £491,000) and £111,000 (2015: £169,000) 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
2016
£’000
487
219
7,536
—
8,242
2015
£’000
567
412
6,465
188
7,632
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 2016 the Group had total borrowing facilities of £22.4m (2015: £20.7m) of which £3.1m (2015: £8.5m) expire in one year or less.
At 30 September 2016 the Group had access to £20.8m (2015: £14.5m) of financing facilities including its own cash balances at that date.
21. PROVISIONS
Group
Onerous contract provision:
At start of year
Utilised in year
Additional provision in year
Foreign exchange
Balance at end of year
2016
£’000
239
(243)
67
4
67
2015
£’000
920
(887)
195
11
239
Onerous contract provisions relate to losses which are or were expected to materialise in the future on fixed price contracts as a result of significant
increases in certain raw material prices. The onerous contract provision expense is included in cost of sales within the income statement.
76
I TREATT PLC 22. TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts owed to subsidiaries
Other taxes and social security costs
Accruals and other creditors
Group
Parent Company
2016
£’000
9,996
—
408
3,747
2015
£’000
7,432
—
508
2,945
14,151
10,885
2016
£’000
—
711
1
6
718
2015
£’000
—
61
8
24
93
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.
Accruals and other creditors include £0.9m in relation to the final agreed settlement of the earnout dispute.
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 16 to 19. The currency exposure within trade payables, analysed by currency,
was as follows:
Group
GB Pound
US Dollar
Euro
23. DERIVATIVE FINANCIAL INSTRUMENTS
Group
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.
2016
£’000
1,407
4,618
1,181
2016
£’000
9
754
763
2015
£’000
1,529
4,446
533
2015
£’000
305
699
1,004
2016
£’000
2015
£’000
(2,196)
243
(54)
174
120
(188)
(216)
(404)
77
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (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
2016
£’000
1,050
3
2016
Number
52,495,170
160,000
2015
£’000
1,048
2
2015
Number
52,405,170
90,000
1,053
52,655,170
1,050
52,495,170
During the year the Parent Company issued 160,000 (2015: 90,000) ordinary shares of 2p each to the Treatt 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 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
Effect of movement in foreign exchange rates
2016
£’000
514
83
597
(31)
566
2015
£’000
178
20
198
—
198
78
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 2013
UK SAYE Scheme 2014
UK SAYE Scheme 2015
UK SAYE Scheme 2016
US ESPP2 Scheme 2015
US ESPP Scheme 2016
UK LTIP3 Scheme 2014
US LTIP3 Scheme 2014
UK LTIP Scheme 2015
US LTIP Scheme 2015
UK LTIP Scheme 2016
US LTIP Scheme 2016
UK Executive4 Options 2012
US Executive Options 2012
UK Executive Options 2013
US Executive Options 2013
UK Executive Options 2014
US Executive Options 2014
UK Executive Options 2015
US Executive Options 2015
Number of shares
outstanding
Number exercised
in year
Exercise price
per share
—
191,680
190,740
250,874
—
31,077
100,282
75,061
130,863
113,993
109,033
124,680
—
97,740
6,790
51,965
128,400
164,816
110,678
175,708
118,115
—
—
—
29,833
—
—
—
—
—
—
—
12,820
—
—
—
—
—
—
—
97.8p
138.0p
132.0p
138.0p
137.0p
150.0p
Nil
Nil
Nil
Nil
Nil
Nil
78.0p
79.0p
147.2p
147.2p
Nil
Nil
Nil
Nil
Date option exercisable
Sep 2016 – Feb 2017
Sep 2017 – Feb 2018
Sep 2018 – Feb 2019
Sep 2019 – Feb 2020
July 2016
July 2017
June 2017 – June 2024
June 2017 – March 2018
June 2018 – June 2025
June 2018 – March 2019
Dec 2019 – Dec 2026
June 2019 – June 2026
Dec 2015 – Dec 2022
Dec 2017 – Dec 2022
Dec 2016 – Dec 2023
Dec 2018 – Dec 2023
Dec 2017 – Dec 2024
Dec 2017 – March 2018
Dec 2018 – Dec 2025
Dec 2018 – March 2019
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 vesting 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 in the UK, or
upon vesting in the US. 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.
79
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (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 2013
SAYE 2014
SAYE 2015
SAYE 2016 US ESPP 2015 US ESPP 2016
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
123.5p
3.5 years
3.5 years
23.6%
1.30%
2.6%
10.0%
7.9%*
26.4p
172.5p
3.5 years
3.5 years
23.4%
2.02%
2.2%
10.0%
5.0%
39.0p
165.0p
3.5 years
3.5 years
23.3%
1.52%
2.4%
10.0%
5.0%
35.6 p
172.5p
3.5 years
3 years
20.7%
0.36%
2.4%
10.0%
5.0%
31.7p
165.0p
1 year
1 year
23.1%
1.52%
2.4%
10.0%
22.1%*
27.5p
172.5p
1 year
1 year
19.4%
0.36%
2.4%
10.0%
5%
21.6p
Key employee share schemes:
UK LTIP 2014
US LTIP 2014
UK LTIP 2015
US LTIP 2015
UK LTIP 2016
US LTIP 2016
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
10 years
23.4%
2.02%
2.2%
0.0%
0.0%
139.5p
174.0p
3.2 years
3 years
23.3%
2.02%
2.2%
0.0%
0.0%
162.1p
158.0p
10 years
10 years
23.3%
1.44%
2.5%
0.0%
0.0%
123.6p
158.0p
3.2 years
3 years
23.3%
1.44%
2.5%
0.0%
0.0%
146.0p
170.0p
10 years
5 years
20.7%
0.86%
2.4%
0.0%
56.0%
150.7p
170.0p
3.2 years
3.2 years
20.7%
0.86%
2.4%
0.0%
56.0%
157.3p
Executive share schemes:
Share price at date of grant
Contractual life
Expected life
Expected volatility
Risk-free interest rate
Dividend yield
Expected cancellations
Expected forfeitures
Fair value per
option at date of grant
* Actual forfeiture experienced.
UK Exec
2012
78.0p
10 years
10 years
21.1%
0.84%
4.0%
0.0%
0.0%*
US Exec
2012
UK Exec
2013
US Exec
2013
78.0p
10 years
10 years
21.7%
0.84%
4.0%
0.0%
0.0%
147.2p
10 years
10 years
23.6%
1.70%
2.5%
0.0%
0.0%
147.2p
10 years
10 years
23.3%
1.70%
2.5%
0.0%
3.0%
UK Exec
2014
139.7p
10 years
10 years
23.4%
1.26%
2.7%
0.0%
0.0%
US Exec
2014
UK Exec
2015
US Exec
2015
139.7p
10 years
10 years
23.4%
1.26%
2.7%
0.0%
0.0%
164.5p
10 years
5 years
23.3%
1.25%
2.5%
0.0%
56.0%
164.5p
10 years
5 years
23.3%
1.25%
2.5%
0.0%
56.0%
8.25p
8.45p
30.0p
29.6p
106.1p
106.1p
145.5p
145.5p
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.
80
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
2016
Weighted
average
exercise price
£0.61
£0.47
£1.33
£1.04
—
£1.36
£0.45
—
2016
No of options
1,441,505
805,756
(22,837)
(158,973)
—
(11,151)
2,054,300
—
2015
No of options
897,910
782,662
(8,809)
(219,802)
(9,425)
(1,031)
1,441,505
—
2015
Weighted
average
exercise price
£0.81
£0.42
£1.02
£0.65
£1.28
£1.47
£0.61
—
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 6.5 years (2015: 6.4 years). The weighted average actual market share
price on date of exercise for share options exercised during the year was 179.8 pence (2015: 158.6 pence) and the weighted average fair value of options
granted during the year was 107.3 pence (2015: 92.4 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 £525 (2015: £500) of “Free Shares”, and US employees $825 (2015: $800) 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. For every Partnership Share acquired during the
year, one “Matching Share” was awarded under the rules of the SIP. Matching Shares are subject to the same forfeiture rules as Free Shares.
Details of the movements in the SIP 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 and
matching shares
No of nil cost RSUs
2016
53,303
102,556
(3,614)
(4,697)
147,548
—
2015
—
55,421
(1,059)
(1,059)
53,303
—
2016
21,228
21,248
(4,188)
-
38,288
—
2015
—
23,058
(1,830)
—
21,228
—
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
2016
737
24
761
2015
697
24
721
81
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS
Notes to the Financial Statements
for the year ended 30 September 2016 (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 2016. 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 disclosure liability makes no allowance for discretionary benefits.
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
Proportion married (at retirement or earlier death)
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
2016
£’000
2015
£’000
2.60%
3.25%
2.25%
2.25%
2.10%
1.95%
2.25%
100% of S2PxA table with CMI_2015
projections with a long term average
rate of improvement of 1.25% pa
20%
75%
N/A
23.9
26.1
22.2
24.2
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%
90%
N/A
24.1
26.3
22.4
24.4
82
I TREATT PLC 26. POST-EMPLOYMENT BENEFITS (continued)
Effect of the scheme on future cash flows
The Company 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 Company 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 2016 revealed an actuarial deficit of £1,676,000,
being a funding level of 92%. The Company has therefore agreed to make on-going contributions to its defined benefit pension scheme in 2017 of £300,000
(2016: £Nil). The weighted average duration of the defined benefit obligation is approximately 21 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
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
2016
£’000
10,025
5,499
4,189
138
19,851
(27,252)
(7,401)
1,258
(6,143)
(21,251)
(835)
770
—
1,005
(6,941)
2015
£’000
8,908
3,658
5,652
74
18,292
(21,251)
(2,959)
592
(2,367)
(20,706)
(839)
493
(113)
(85)
(1)
(27,252)
(21,251)
18,292
716
(26)
(770)
18,177
741
306
(493)
1,639
(439)
19,851
18,292
83
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (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
Gain/(loss) on scheme assets in excess of interest
Experience losses on liabilities
Gain/(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
2016
£’000
2015
£’000
716
(835)
(119)
(119)
1,639
—
1,005
(6,941)
(4,297)
2,355
741
(839)
(98)
(98)
(439)
(113)
(85)
(1)
(638)
302
Cumulative remeasurement loss recognised in statement of comprehensive income
(8,448)
(4,151)
Approximate effect of change of assumptions on liability values at 30 September 2016:
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
1,385
380
1,150
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 2016, 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
2016
£’000
61
25
27
113
The Group as lessor
As at 30 September 2016, 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.
2016
£’000
8
2015
£’000
53
35
44
132
2015
£’000
8
84
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$1,300,000 (£1,001,000) (2015: US$1,560,000 (£1,030,000)).
The Parent Company has also guaranteed certain bank borrowings of its UK subsidiaries R C Treatt & Co Limited and Earthoil Plantations Limited. At the
year-end the liabilities covered by this guarantee amounted to £4,006,000 (2015: £5,430,000).
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 continue as going concerns whilst maximising returns 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 10 to 19.
Categories of financial instruments
In the following table those financial instruments which are measured subsequent to initial recognition at fair value are required to be grouped into levels
1 to 3 based on the degree to which the fair value is observable:
•
•
level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
level 2 – fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
level 3 – fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
•
Financial assets
Redeemable loan notes receivable from subsidiaries
Trade receivables
Cash and cash equivalents
Group
Parent Company
2016
£’000
—
16,250
6,588
22,838
2015
£’000
—
15,634
1,477
17,111
2016
£’000
1,350
—
1,399
2,749
2015
£’000
1,350
—
686
2,036
85
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (continued)
29. FINANCIAL INSTRUMENTS (continued)
Capital risk management (continued)
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
2016
£’000
675
9,996
7
6,928
1,307
9
754
2015
£’000
675
7,432
1
5,941
1,690
305
699
19,676
16,743
2016
£’000
2015
£’000
675
—
—
—
—
—
—
675
675
—
—
—
—
—
—
675
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)
2016
£’000
950
400
1,350
2015
£’000
950
400
1,350
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.
The loan notes were redeemed in full after the balance sheet date.
Further details of the Group’s credit risk management are given in notes 18 and 19.
86
I TREATT PLC 29. FINANCIAL INSTRUMENTS (continued)
Credit risk management (continued)
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
2016
£’000
754
2015
£’000
699
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 loss on interest rate swaps was as follows:
Group
Other comprehensive income
2016
£’000
(54)
2015
£’000
(188)
The derivative financial instrument for the interest rate swap described above is classified as level 2.
87
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (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
2016
£’000
(5,060)
(762)
(759)
(6,581)
675
(5,906)
2015
£’000
455
(1,709)
(222)
(1,476)
675
(801)
Fixed rate financial
liabilities
2016
£’000
2015
£’000
8,235
—
—
8,235
—
8,235
7,631
—
—
7,631
—
7,631
Total
2016
£’000
3,175
(762)
(759)
1,654
675
2,329
2015
£’000
8,086
(1,709)
(222)
6,155
675
6,830
* 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 1.25%-2.25%
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$1,300,000 (2015: US$1,560,000), equipment financing term loans of
$398,000 (2015: $1,000,000) 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
2016
£’000
475
200
675
2015
£’000
475
200
675
Following the settlement of the Earthoil earnout legal dispute, the loan notes were settled after the balance sheet date. 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 2016 would have decreased or increased as follows:
Impact on profit before tax of 1% interest rate movement
Group
Parent Company
2016
£’000
89
2015
£’000
83
2016
£’000
(7)
2015
£’000
(7)
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 10 to 19.
88
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 2016
US Dollars:
Forward contract to sell US Dollars in 3 months
Forward contract to sell US Dollars in 6 months
Euros:
Forward contract to sell Euros in 3 months
Forward contract to sell Euros in 6 months
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
Average
Contract Rate
1.299
1.303
1.161
1.158
Average
Contract Rate
1.585
1.585
1.403
Nominal
currency
‘000
$6,750
$6,750
€1,375
€1,375
Nominal
currency
‘000
$13,500
$13,500
€3,000
Contract
GBP
£’000
Fair value
gain/(loss)
£’000
5,195
5,182
1,185
1,187
1
(2)
(4)
(4)
(9)
Contract
GBP
£’000
Fair value gain
£’000
8,517
8,517
2,139
(262)
37
(80)
(305)
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. These represent the amounts which the Group would expect to pay in order to close these 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
2016
£’000
(2,196)
175
(2,021)
2015
£’000
243
(216)
27
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
2016
£’000
5,495
1,644
7,139
2015
£’000
4,762
1,161
5,923
89
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS Notes to the Financial Statements
for the year ended 30 September 2016 (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
2016
£’000
611
2015
£’000
529
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 39 to 50.
Salaries and other short-term employee benefits
Employers’ social security costs
Pension contributions to money purchase schemes
Share-based payments
2016
£’000
1,071
90
56
215
1,432
2015
£’000
982
90
39
85
1,196
During the year no Directors (2015: 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 2016 was £21,000 (2015: £21,000) 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
2016
£’000
4
2
1,862
1,037
2016
£’000
950
400
13
(712)
2015
£’000
14
6
3,072
1,021
2015
£’000
950
400
(61)
116
The redeemable loan notes were redeemed in full after the balance sheet date. Interest is receivable at 1% above UK base rate. Amounts owed to the Parent
Company are unsecured and will be settled in cash.
90
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 27 January 2017 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 27 January 2017, 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 10 and 11 will be proposed as Ordinary Resolutions and
Resolutions 12 to 14 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 2016.
10. Approval of Remuneration Policy
THAT:
The Remuneration Policy be and is hereby approved.
2. To approve the Directors’ Remuneration Report.
11. Authority to allot securities
3. To approve a final dividend of 3.0p per share on the ordinary shares of
the Company for the year ended 30 September 2016.
4. To re-elect Anita Haines as a Director of the Company.
5. To re-elect David Johnston as a Director of the Company.
6. To re-elect Jeff Iliffe as a Director of the Company.
7. To re-elect Richard Illek as a Director of the Company.
8. To re-appoint RSM 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.
9. To authorise the Directors to determine the remuneration of the Auditors
of the Company.
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 27 April 2018; and
(ii) this authority shall be limited to the allotment of shares and
the granting of Rights up to an aggregate nominal amount
of £347,524 (representing approximately 33 per cent of the
existing issued share capital of the Company).
91
Annual Report & Financial Statements 2016TREATT PLC IFINANCIAL STATEMENTS
Notice of Annual General Meeting continued
(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.
12.
Disapplication of pre-emption rights for up to 5% of existing
share capital
THAT:
(a) Conditionally upon the passing of Resolution 11 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 11 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 £52,655 (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 27 April 2018;
(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.
13. 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 11 and 12 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 11 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 12 up to an aggregate nominal amount
of £52,655 (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 27 April 2018;
(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.
14. 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 5,265,517 (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 2018, unless
such authority is renewed, varied or revoked prior to such time; and
(e) the Company may prior to the expiry of such authority make a
contract to purchase ordinary shares under the authority hereby
conferred which will or may be executed wholly or partly after the
expiry of such authority, and may make a purchase of ordinary
shares in pursuance of any such contract.
By order of the Board
ANITA STEER
Secretary
9 December 2016
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 93 to 94 form part of this notice.
92
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 close of business on 25 January 2017 (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 close of
business 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.
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.
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 27 January 2017 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:
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.
93
Annual Report & Financial Statements 2016TREATT 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 24 November 2016 the Company’s issued share capital consists
of 52,655,170 ordinary shares. The total number of voting rights in the
Company as at 24 November 2016 (the latest practicable reporting date
prior to publication of this document) is 51,837,193.
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)
The Companies Act 2006, implemented by the Enterprise and Regulatory
Reform Act 2013, provides that a quoted company may not make a
remuneration payment to a Director of the Company unless the payment
is consistent with the Company’s Remuneration Policy, as approved by
shareholders, or the payment is approved by a Shareholders’ Resolution.
The legislation requires two resolutions to be put to shareholders on
separate sections of the Directors’ Remuneration Report.The first of these
is an advisory resolution on the Implementation Section of the Directors’
Remuneration Report, which details the remuneration packages paid to
Directors during the year ended 30 September 2016. You can find the
Implementation Section of the Directors’ Remuneration Report on pages
39 to 50.
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 3.0 pence 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 17 February 2017.
If approved, the date of payment of the final dividend will be 23 March
2017. An interim dividend of 1.35 pence per ordinary share was paid on
14 October 2016. This represents an increase of 0.31 pence per share, or
7.67 per cent, on the total 2015 dividend.
Re-election of Directors (Resolutions 4, 5, 6 and 7)
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, Anita Haines, David Johnston, Jeff Iliffe and Richard Illek
will retire and stand for re-election as Directors. Short biographies of these
Directors are given on page 24. 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 8 and 9)
Resolutions 8 and 9 propose the reappointment of RSM UK Audit
LLP as Auditors of the Company and authorise the Directors to set
their remuneration.
Remuneration Policy Report (Resolution 10)
As referred to under Resolution 2 above, two resolutions are required to be
put to shareholders on separate sections of the Directors’ Remuneration
Report. The second of these is a binding resolution, passed by a majority,
to approve the Company’s Remuneration Policy. Although the policy was
approved at the 2015 Annual General Meeting, the proposed revision
94
I TREATT PLC to the Annual Bonus of the Executive Directors requires the approval
of Shareholders. Once approved, a Remuneration Policy only requires
Shareholder approval every three years unless any revisions are required.
The policy, which is set out on pages 48 to 50, will apply to all payments
made to Directors from the date the policy is approved by shareholders. In
the event that this resolution is not passed at the Annual General Meeting,
the version of the Remuneration Policy approved by shareholders in 2015
will continue in force.
Directors’ authority to allot securities (Resolution 11)
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 27 April 2018
(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 £347,524 approximately 33 per cent of the Company’s issued
ordinary share capital as at 24 November 2016.
Disapplication of pre-emption rights (Resolution 12)
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 12 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 £52,655 (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 24 November 2016. 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 2018 or, if earlier, 27 April 2018 (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 13)
The Directors are seeking 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 13 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 £52,655 (being five per cent
of the Company’s issued ordinary share capital at 24 November 2016,
the latest practicable date prior to publication of this notice). This is in
addition to the five per cent referred to in Resolution 12. If given, this
power will expire on 27 April 2018 or at the conclusion of the AGM in
2018, 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 has taken place in the preceding six month period
and is disclosed in the announcement of the issue. As at 24 November
2016 the only specified capital investment proposed in this context is the
potential site relocation in the UK.
Authority to purchase own shares (Resolution 14)
In certain circumstances, it may be advantageous for the Company to
purchase its own shares and resolution 14 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 24 November 2016) 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 24 November 2016 (the latest practicable reporting date
prior to publication of this document) was 2,054,300. The proportion of
issued share capital that they represented at that time was 3.9 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
4.3 per cent.
Resolution 14 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
2018 or, if earlier, 27 April 2018 (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.
95
Annual Report & Financial Statements 2016TREATT 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)
Richard Illek (Non-executive Director – from 1 June 2016)
David Johnston (Senior Independent Non-executive Director)
Ian Neil (Non-executive Director – until 29 January 2016)
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
Jeff Iliffe (Chairman)
David Johnston
Tim Jones
Ian Neil (until 29 January 2016)
Ian Neil (Chairman – until 29 January 2016)
David Johnston (Chairman – from 29 January 2016)
Jeff Iliffe
Richard Illek (from 22 July 2016)
Tim Jones
Tim Jones (Chairman)
Daemmon Reeve
Anita Haines
Jeff Iliffe
Richard Illek (from 22 July 2016)
David Johnston
Ian Neil (until 29 January 2016)
Investec Investment Banking,
2 Gresham Street, London, EC2V 7QP.
RSM UK Audit LLP, Abbotsgate House, Hollow Road, Bury St Edmunds, Suffolk, IP32 7FA
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).
Remuneration Committee
Nomination Committee
Brokers
Auditors
Solicitors
Bankers
Registrars
Share Price
96
I TREATT PLC Financial Calendar
2015/16
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2016 goes ‘ex-dividend’
Record date for 2016 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2016 paid
2016/17
Interim results to 31 March 2017 announced
Interim dividend for 2017 goes ‘ex-dividend’
Record date for 2017 interim dividend
Last day for dividend reinvestment plan election
Interim dividend for 2017 paid
Financial year ended
Results for year to 30 September 2017 announced
Final dividend for 2017 paid
* These dates are provisional and may be subject to change
Annual Report & Financial Statements 2016
30 September 2016
29 November 2016
9 December 2016
27 January 2017
16 February 2017
17 February 2017
26 February 2017
23 March 2017
9 May 2017*
13 July 2017*
14 July 2017*
23 July 2017*
17 August 2017*
30 September 2017
28 November 2017*
22 March 2018*
THE GROUP
WE ARE A TRUSTED INGREDIENTS
MANUFACTURER AND SOLUTIONS
PROVIDER TO THE GLOBAL
FLAVOUR, FRAGRANCE AND
CONSUMER GOODS MARKETS FROM
OUR BASES IN THE UK, THE US,
CHINA AND KENYA.
We have been making the world taste better since our
foundation in 1886, but this is just the beginning.
Committed to continuous improvement, we have deep
roots and a clear strategic path that drives us forward.
Our people are creative, technically excellent and
dedicated – allowing us to develop and supply a range of
ready-made and bespoke systems to suit even the most
adventurous needs.
Everyone from logistics, HR, finance, operations and
research and development to sales, purchasing, marketing,
planning, IT and procurement work together to ensure
we’re the sustainable partner of choice for our international
customer base.
The passion and expertise for our industry is visible in every
interaction with Treatt, which is why our customers rely
on our specialists to deliver innovative ingredient solutions
that will drive commercial results.
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TREATT PLC I
97
Treatt plc
Northern Way,
Bury St Edmunds,
Suffolk, IP32 6NL UK
01284 702500
01284 703809
Tel:
Fax:
Email: enquiries@treatt.com
www.treatt.com
www.earthoil.com
Annual Report & Financial Statements 2016
MAKING THE WORLD
TASTE BETTER
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