Annual Report & Financial Statements
2019
TREATT PLC Annual Report & Accounts 2019
Our Purpose
Working at the cutting
edge of the flavour and
fragrance industry,
we create outstanding
sustainable solutions,
designed around our
customers’ needs
We understand that everything we do has an impact on
people and the environment, which is why we operate in
an ethical and socially responsible way. With a deep-rooted
respect for the world’s resources, we are committed to
ensuring a sustainable, fair and rewarding future for all
our staff, suppliers and growers – wherever they live.
See our working responsibly report on page 44
Contents
OVERVIEW
Highlights
At a Glance
Why Invest in Treatt?
STRATEGIC REPORT
Chairman’s Statement
Market Overview
Our Business Model
Ambition & Strategy
Strategy in Action
Chief Executive’s Review
Key Performance Indicators
Financial Review
Group Five Year Trading Record
Principal Risks and Uncertainties
People & Culture
Working Responsibly
CORPORATE GOVERNANCE
Board of Directors
Corporate Governance Statement
Nomination Committee
Audit Committee
Directors’ Remuneration Report
Directors’ Report
FINANCIAL STATEMENTS
Independent Auditor’s Report
to the Members of Treatt Plc
Group Income Statement
Group Statement of
Comprehensive Income
Group and Parent Company
Statements of Changes in Equity
Group and Parent
Company Balance Sheets
Group and Parent Company
Statements of Cash Flows
Group Reconciliation of Net Cash
Flow to Movement in Net Cash
Notes to the Financial Statements
OTHER INFORMATION
Notice of Annual General Meeting
01
02
04
08
10
14
16
18
24
26
28
35
36
42
44
56
58
64
66
70
84
90
94
95
96
98
99
100
101
142
Parent Company Information and Advisors
148
Financial Calendar
149
For more information view
www.treatt.com/about-us
1
2
Excluding discontinued operations, details of which
are given in note 11 of the financial statements.
Excluding exceptional items, details of which are
given in note 9 of the financial statements.
The dividends per share relate to the interim
dividend declared and final dividend proposed
in relation to the corresponding financial year.
4 Operating profit is calculated as profit before
3
other losses, net finance costs, exceptional items
and taxation.
The methods of calculating key performance
indicators are shown on pages 26 and 27.
5
01
Highlights
2019
2018
2017
£112.7m
£112.2m
£101.3m
2019
2018
2017
£13.3m
£12.6m
£11.7m
Revenue1
£112.7m
+0.5%
Profit before tax and
exceptional items1
£13.3m
2019
2018
2017
5.50p
5.10p
4.80p
2019
2018
2017
Dividend per share3
5.50p
Net operating margin2,4,5
+7.8%
12.0%
+5.2%
12.0%
12.4%
12.4%
-40bps
2019
2018
2017
19.0%
18.5%
2019
£16.0m
2018
£10.1m
22.1%
(£10.2m)
2017
Return on capital employed2,5
Net cash/(debt) balance
19.0%
+50bps
£16.0m
+5.9m
Operational highlights
Good progress against our 2022 strategy
81% of Group revenues came from natural and clean-label product portfolio
as we continue to diversify.
Profits up despite significant citrus and FX headwinds
Citrus revenue fell by 10% due to a substantial fall in raw material prices,
whilst non-citrus revenue increased by 16% led by tea, health & wellness
and fruit & vegetables categories.
Investing for future growth
We completed our investment in our US facility, doubling capacity in tea, health
& wellness and fruit & vegetables categories, ready for the new crop season.
New UK relocation project is now underway with completion due late 2020.
Strategic growth markets
The US continued to provide growth opportunities in the Group's largest beverage
market; China revenues grew by 24% with new opportunities emerging.
Reducing our environmental impact
54% of Group revenues come from the citrus category where we use the by-
product from the citrus industry which might otherwise be a waste product.
We are now transporting goods as part of the Sustainable Shipping Incentive.
Strategy in action
Transforming our
future with key
infrastructure
projects
Growing our
business with
consumer brands
in China
Diversifying our
coffee product
range to maximise
market growth
18
20
22
GovernanceFinancial StatementsOverviewStrategic Report 02
At a Glance
We manufacture and supply a diverse portfolio
of flavour and fragrance ingredients to our
customers across the globe
Who we are
Founded in the UK in 1886, we create flavour and fragrance
solutions designed around the needs of our customers.
Drawing upon extensive technical knowledge amassed over Treatt’s 130 year history our experts work closely with customers
across the global flavour, fragrance and consumer goods markets to help them create appealing and innovative products.
For more information view www.treatt.com/about-us
What we do
Our flavour and fragrance ingredients are present in
countless food, beverage and fragrance products
around the world.
Bringing together the expertise from our long history and a mindset that embraces continuous improvement and innovation,
we are able to meet customer specifications with solutions that are off-the-shelf or bespoke, as appropriate.
transform
ingredients
Our
end
products in a number of applications.
Experts work with customers across a
range of markets to identify how we can
best support new product development
or match customer needs with our range
of exciting, high-quality solutions.
Our expansive range of fragrance
ingredients and blends bring household
products and fine fragrances to life.
In
today’s competitive environment,
brands rely on the power of perfume to
entice consumers and drive sales. Our
specialists support perfumers in the
pursuit of the ideal ingredient that will
make all the difference to the final blend.
We manufacture and supply over
3,000 products to customers in over
90 countries. Our flavour ingredients
are the result of over a century of
knowledge, experience and innovation,
developed with an inspirational modern
twist.
TREATT PLC Annual Report & Accounts 2019 03
948
Clients
£113m 399
Employees
Sales
Where we operate
We service customers in more than 90 countries
from our core facilities in the UK, the US and China.
Our global footprint and our integrated supply chain, whereby we manufacture as well as process sourced material,
give us flexibility and agility that is valued by customers.
See our Market Overview on page 10
Routes to market
We supply manufacturers
of consumer goods, directly
and also indirectly via our
flavour and fragrance houses.
By working in partnership with our global customer base, we
are able to grow our footprint in multiple diverse markets.
With facilities in strategic locations across the world, we draw
upon our knowledge of a region's consumer drivers as well as
regulatory requirements to best serve our customers.
Product categories
Our portfolio is the result of
over a century of knowledge,
creativity and innovation.
We have a diverse product range made up of citrus, coffee, tea
and health & wellness solutions as well as fruit & vegetable
extracts, herbs, spices & floral ingredients and high impact and
aroma chemicals. We provide everything from 100% natural
products to tailor made blends and price-stable synthetics.
With a strong background in citrus, our capabilities, expertise
and ways of working are recognised and valued by those who
need the best quality products at every level.
FLAVOUR HOUSES
These organisations buy our products
and sell them on to FMCG (Fast-Moving
Consumer Goods) customers. They look
for competitive pricing and choose to
work with us because of our technical,
regulatory and application knowledge.
48%
sales
Flavour houses
resell our products
to FMCG clients
FMCG AND OTHER CLIENTS
We work closely with many of the global FMCG
beverage brands, who are often international
household names. They typically have multiple
products under an umbrella brand and operate in
several categories. They value our track record of
innovation, technical knowledge and demonstrable
market and regulatory awareness.
52%
sales
GovernanceFinancial StatementsOverviewStrategic Report 04
Why Invest in Treatt?
With longstanding customer relationships
built upon our expertise and global presence,
our clear strategy aims to create sustainable
value for stakeholders
Recognised
expertise
Diversified
business
Clear
strategy
Renowned for our technical
expertise, knowledge of
ingredients and their origins,
and market conditions, we
are recognised as a leader
in our field.
Our broad portfolio enables
us to meet any customer
specification, with ready-
made or tailored solutions. We
collaborate closely with our
diversified customer base, and
our value-added solutions are
sold around the world.
Our 2022 growth plan includes a
renewed strategic focus on our
three core product categories
of citrus, health & wellness and
tea, which together represent
65% of revenues; and capital
investment to accelerate the
transition from an ingredients
business to a value-added
solutions manufacturer.
130+
years of knowledge
and innovation
3
sites on three continents
90+
65%
countries in which our
solutions are sold
of revenues represented by
our three core categories
47%
of our revenue is from our
top ten customers
See our Board of Directors on page 56
See our Business Model on page 14
See our Strategy on page 16
TREATT PLC Annual Report & Accounts 2019 05
Strong
performance
Sustainable
practices
Experienced
management
We have a track record of
sustained financial performance
as a result of the focus and
global alignment behind our
shared strategy.
Our Executive Directors
have deep experience of the
sector and are supported by
a talented and ambitious senior
management team within
the business.
We are continually looking at
ways to minimise our impact
on the environment and to build
upon the positive effect we have
on those that work for us and the
communities in which we operate.
The commitment to continuous
improvement has a positive effect
on our ability to meet strategic
objectives and create long-term
shareholder value.
3yrs
early meeting the Group’s
2020 strategic objectives
0%
of general waste
is sent to landfill
44yrs
combined sector experience
See our KPIs on page 26
See our Working Responsibly report
See our Governance overview on page 58
on page 44
GovernanceFinancial StatementsOverviewStrategic Report 06
Inside the Strategic Report
Chairman’s
Statement
Strategy in Action
08
Market
Overview
10
Strategy in Action
Discover how we
are maximising
growth in China
Our investments in our China
operation continue to deliver
success for the Group as we
grow our business with ambitious
beverage brands.
20
Expansion and
relocation progress
The expansion of our US facility
and the relocation of our UK facilities
represent the largest investments in
our future growth to date.
18
Our Business
Model
14
Ambition
& Strategy
16
TREATT PLC Annual Report & Accounts 2019 07
Strategy in Action
Chief Executive’s
Review
Diversifying
our portfolio
with a new
coffee range
We are set to maximise on the
impressive growth of the coffee
market. The global ready-to-drink
(RTD) coffee market is valued
at $19.05bn and will increase to
$36.6bn in 2025 with a CAGR of
8.5% during the forecast period.
Financial
Review
28
People &
Culture
24
Key
Performance
Indicators
22
Principal Risks
and Uncertainties
26
36
Working
Responsibly
The Group is committed to
providing greater transparency
of critical sustainability issues
specifically environmental,
social and governance
(ESG) factors.
42
44
GovernanceFinancial StatementsOverviewStrategic Report 08
Chairman’s Statement
A successful year with
increased profits1 and
strong cash inflows
2019
2018
2017
5.50p
5.10p
4.80p
Dividend per share
5.50p
Performance
I am delighted to report increased profits1
and strong cash inflows for the year. This
performance is all the more notable in the
context of the challenge created by the
sharp fall in citrus oil prices during the year,
combined with the effect of adverse foreign
exchange headwinds. Treatt’s largest product
category, citrus, was impacted by one of the
sharpest falls ever recorded in the commodity
price of orange oil and consequently our
strategy of diversifying our product portfolio
has proven to be important in delivering the
Group’s seventh consecutive year of growth
in profits1. To maintain revenues and grow
profits1 in the face of such market conditions
is an extraordinary testament to the Treatt
team and the passion and determination with
which they work.
Treatt’s expertise in citrus, developed over the
Group’s long history spanning more than 130
years, came to the fore over this challenging
period with our close relationships with
growers and markets also informing our
decision making.
The effect on the business of the sharp fall
in orange oil prices was mitigated in no small
part by the diversification of the Group’s
product mix in line with our strategic vision.
We have seen accelerating growth rates in
tea, with iced tea a large and growing segment
around the world. Consumer preference for
healthier beverages has continued its upward
trend, which – along with sugar taxes in
some markets – has driven demand for our
innovations in lower calorie solutions as
well as our real fruit and vegetable extracts.
Consumers are
for
lower sugar options and natural, clean-label
products, alongside interesting innovations
as evidenced in the wide array of beverages
available on the supermarket shelf.
increasingly
looking
Thanks to the hard work and dedication of
our teams, a real highlight of the year was
delivered without disruption, in the expansion
of our US facility. This investment adds
significant manufacturing capacity and
expands our global technical and research &
development capabilities, providing a strong
platform for future growth. Construction of
the new UK facility is underway with a view
to transforming our operational capability,
efficiency and working environment. The new
and expanded facilities will give us the scalable
platform to continue to invest in our core
categories, increase our product capabilities
and achieve further diversification, including
our recently launched innovative range of
coffee products for the large and rapidly
growing RTD and cold brew coffee markets.
People, culture and stakeholder
engagement
The efforts of Team Treatt over the last
year have been outstanding. Such strong
performance is powerful testimony to what
can be achieved when a team pulls together.
I am proud of the collegiate culture at Treatt;
it is a hallmark of the organisation and at the
core of its success.
I have always operated an open-door
policy; it is my view that teams which care
about each other, the business and our
communities work with greater pride and
motivation which manifests itself in superior
performance to the benefit of everybody.
We formalised the Board’s engagement with
employees at the beginning of the year by
putting in place Employee Voice sessions. At
least every six months David Johnston, the
Senior Independent Director, or I, hold well-
publicised sessions during which colleagues
can come to us individually or in groups.
These forums enable staff to say whatever
they wish, and the Board to be grounded in
the real sentiments, views and issues that
might be at hand. More information about
the Board’s engagement with stakeholders is
outlined on page 63.
through Daemmon
I was delighted that Treatt’s success over
the last seven years, since Daemmon Reeve
became Chief Executive, was recently
recognised
being
awarded an honorary doctorate by the
University of Suffolk. This is testament to the
way our community thinks of Treatt today
and reflects the fact that contributing to the
communities in which we operate is a value
at the heart of our ethos. More detail about
Treatt’s community initiatives may be found
on page 52.
social
Environmental,
and governance
matters are ever more of mind for the Board
as the business seeks to minimise its impact.
Board changes
As mentioned in last year’s Annual Report, Anita
Haines retired as a Non-executive Director at
the beginning of the year. Anita joined Treatt
in 1988, initially as Company Secretary before
moving into HR. She subsequently served
16 years on the Board and championed the
people agenda that has been so central to
Treatt’s success. I wish to thank Anita for her
invaluable contributions over a period that saw
Treatt change significantly.
Having reviewed the skills and experience
of the Board to help take the Company into
the next phase of its growth, we decided
two Non-executive Directors
to recruit
and were joined in the spring by Yetunde
Hofmann and Lynne Weedall. Both have
distinguished careers in relation to HR,
change management and strategy in the
global fast-moving consumer goods (FMCG)
sector and I am delighted to welcome them
as first-class additions to the Board.
1 Profits refers to profit before exceptional items and discontinued operations, details of which can be found in notes 9 and 11.
TREATT PLC Annual Report & Accounts 2019 09
Site visit
This year the Board spent time
with our growing applications team
The Board is committed to getting out into the business to meet with and learn
from the excellent people we have across our different sites. Taking part in product
tastings and learning about how Treatt's products work in application was brilliant.
Learn about our Board activities on page 58
Dividend
The Directors propose to pay a final dividend
of 3.80p per share (2018: 3.50p), an
increase in the total dividend for the year of
7.8% to 5.50p (2018: 5.10p). If approved by
shareholders at the Annual General Meeting,
the final dividend will be payable on 19 March
2020 to all shareholders on the register at
the close of business on 7 February 2020.
Shareholders who wish to participate in the
dividend re-investment plan for this and
future dividends should elect to do so by 27
February 2020.
Outlook
The next year will see us capitalising on the
benefits of our enhanced facility in the US
and completing our relocation in the UK,
scheduled for late 2020. Both are major
milestones in Treatt’s development, and we
are excited about the opportunities they open
up. Ongoing consumer trends that favour
innovative, natural and authentic flavours
will continue to underpin demand for our
expertise, and the recent launch of our
coffee proposition adds a further pillar to our
offering for both existing and new customers.
While we are not immune to the geopolitical
challenges posed by factors such as the US-
China trade dispute, or the UK’s relationship
with the EU, our operating model gives us
the flexibility to optimise variables across
production, tariffs, exchange rates or other
relevant metrics between the UK and US.
With our expert teams, our work to enhance
our operational capabilities and our product
innovations the business has never been
stronger, and we look forward with optimism.
Tim Jones
Chairman
25 November 2019
“ To maintain revenues and grow
profits1 in the face of such market
conditions is an extraordinary
testament to the Treatt team and
the passion and determination
with which they work.”
GovernanceFinancial StatementsOverviewStrategic Report 10
Market Overview
We sustainably grow our business in key markets
with a diversified product portfolio that is
aligned to long-term consumer trends
Introduction
The reach and strength of the health and wellness movement
only increases. This now established mega-trend is driven by the
mindful consumer seeking total wellbeing in all aspects of life.
As a result, markets are diversifying, and new opportunities are
arising on a global scale as healthy living becomes more complex.
A generation of challengers are fuelling innovation and new product
development across every beverage pillar. Consumer comfort zones
are expanding as social media inspiration is blurring the lines between
reality and #lifegoals as exposure to what was previously out of reach
increases. The impact on the beverage industry is profound as emerging
trends gain traction and drive strong commercial growth.
Douglas Rash
Group VP of Global Sales
Sales by category – 2019
Our diverse product range allows us
to take advantage of opportunities in a
range of markets.
The strength of our natural portfolio means we
are well-placed to continue to grow our footprint
in markets that demand clean-label solutions.
Tea 5%
Fruit & Vegetables 6%
Health & Wellness 6%
Herbs, Spices & Florals 10%
Citrus 54%
Aroma & HICS 19%
TREATT PLC Annual Report & Accounts 2019 11
38% 95% 1.8x 26%
CAGR for low/no
alcohol RTD products
in North America from
2018–2022
of Spanish consumers
are looking to reduce
alcohol intake
The Chinese economy
will be 1.8x larger
than the US by 2030
Increase in products
launched with a
natural label claim
We utilise customer data and market insights
to grow our global footprint in key markets
How is Treatt responding
We use robust market insights to
drive our Sales strategy, innovation
pipeline and product marketing
campaigns.
Improving our understanding of the markets
we operate in is an essential part of how our
business will grow. In the last year, we have
made investments in how we utilise market
insights across the business.
Our global marketing department has
increased its resource around data gathering
and analysis and we have improved how this
information is shared around the business as
a result.
These changes to our internal structure
have allowed us to become more agile at
responding to trends, as well as better
prepare the business for long-term market
movements.
together, which now work
We have brought our commercial functions
closer
in
partnership with our category managers to
drive smart product development and more
effective marketing.
Sales by geography – 2019
We are growing our presence in all of
our key regions.
Our global footprint enables us to provide our
customers with a responsive regional service
that exceeds their expectations.
Rest of the World 18%
China 6%
South America 7%
UK 7%
Germany 5%
Ireland 7%
Rest of Europe 11%
North America 39%
GovernanceFinancial StatementsOverviewStrategic Report 12
Market Overview continued
North America
The need for natural, clean-label
ingredients is becoming a top priority
for consumers across almost every
beverage pillar.
UK and Europe
Following the trends first seen in
North America, the geographical
diversity of Europe continues to
produce creative opportunities.
Asia
A growing middle class and an
increasing appetite for innovative
flavour pairings is re-shaping the
beverage landscape in Asia.
The North American beverage market is
currently worth approximately $577bn and
is forecast to grow to a value of $653bn
by 2023, reflecting an 13% growth. Non-
alcoholic beverages make up over 40% of
this total.
The explosion of ready-to-drink (RTD) coffee,
the premiumisation of alcoholic and non-
alcoholic spirit variants and their mixers, as
well as the rise of the seltzer continue to be
of particular interest to our trend forecasters.
The European beverage market is worth
approximately ¤732bn and is forecast to
grow to a value of ¤781bn by 2023, reflecting
a 7% growth. Non-alcoholic beverages make
up almost 30% of this total.
Several compelling trends continue to gain
traction across the continent, with low sugar
solutions driving innovation across all pillars.
With consumer preferences continuing to
shift towards products that are perceived to
be 'better for you', brands are innovating at
pace to retain market share and compete with
the rise of the entrepreneurial start-up.
The Chinese beverage market was valued
at ¥572.4bn in 2018, with bottled water and
RTD tea making up the largest segments.
Younger consumers are driving dial-turning
growth in several categories, including the
energy drink, bottled water, sports drink and
RTD coffee segments.
Performance-based drinks continue to gain
traction, as well as those reported to have
functional health benefits.
$270bn
2023 forecast value of the
North American non-alcoholic
beverage market
€781bn
2023 forecast value of the
European beverage market
¥572.4bn
Current value of the Chinese
beverage market
Product portfolio
Our diverse and growing
product range allows us
to maximise commercial
opportunities across
the world.
With a strong and established
background
in citrus, our
range of natural and synthetic
products are well aligned with
consumer tastes.
Consumers continue to look
for 'better for you' products
and our clean-label solutions
are performing well
in
this space.
Tea is the second most widely
consumed beverage in the
world, after water, and our
natural range of tea products
continue to win.
TREATT PLC Annual Report & Accounts 2019
13
Naturalness wins
Shoppers have never been more aware of
the ingredients they’re consuming, where
they are from and how they are processed.
Clean-labelling, brand
transparency and
traceable provenance are key priorities and
successful businesses are aligning to these
core concerns in order to gain market share.
Brands are increasingly looking to take
flavour off the label in order to appeal to this
new generation of mindful consumers who
want to enjoy beverages that they perceive to
be from natural sources.
In the last two years, 23% of new products
launched globally included a natural label
claim which is an increase of 27% compared
with just four years ago.
Opportunities
We provide 100% natural ingredients across
our citrus, coffee, fruit & vegetables, tea,
herbs, spices & florals and health & wellness
product ranges. Our offering is known in the
market for delivering true to flavour impact in
a range of applications.
Sustainability matters
While plastic was the hottest topic in 2018,
consumers’
is
interest
becoming much wider.
in sustainability
Environmentally friendly packaging is the
top of a complex iceberg that also involves
ethical supply chains, socially responsible
diverse
manufacturing
workplaces with fair pay and benefits for
staff to name just a few.
processes,
Brands are responding to the needs of the
activist consumer whose social, political and
personal concerns are directly affecting their
purchasing decisions. Approximately 35%
of global consumers say that how ethical/
a
environmentally
business is, will always/often influence their
product choices which continues to create
new opportunities for suppliers in this space.
In addition to having a bearing on which
products they will buy, data from Nielsen and
Mintel indicates that consumers will pay more
for products with sustainable credentials.
friendly/responsible
Opportunities
Our global procurement function offers secure,
sustainable and strategic global sourcing in a
way that mitigates risk for our customers while
providing maximum traceability throughout
every stage in the process.
Trends in action
Low/no alcohol
As health-conscious consumers
to
improve wellbeing in all areas of life, they
are turning to low alcohol or alcohol-free
beverages that allow them to indulge without
sacrificing enjoyment.
look
is becoming a major
Health
influencer
on all alcohol-related decision making.
According to Global Data, more than 25%
of global consumers report that an alcoholic
beverage’s effect on health and wellbeing
their product choice,
always
with 50% stating it often/sometimes has an
influence.
influences
Alcoholic drinks represented $1.8tn in global
spending in 2018. Non-alcoholic spirit variants
are forecast as the key growth area with
Global Data reporting a CAGR (Compound
Annual Growth Rate) of almost 22% by
2023. Albeit this growth is from a small
base, it reflects the strength of the health and
wellness trend in driving mindful consumers
towards ‘better for you’ products in indulgent
markets such as alcoholic beverages.
Opportunities
This emerging growth market presents
multiple opportunities for Treatt as brands
are looking to incorporate ‘better for you’
ingredients like fruit extracts, tea and coffee
as well as reduce sugar levels.
Our natural distillates deliver
on impact and clean-label
requirements, both of which
are increasingly important to
consumers.
are
ingredients
Botanical
popularity
in
growing
as
several markets
in
'naturalness' continues to be
an increasing priority.
chemicals
Our
business
continues to perform well
as our ability to deliver a
consistent and high quality
service stands us apart from
other players.
is one of
Coffee
the
quickest growing beverage
categories in the world and
we are well positioned to
take advantage.
GovernanceFinancial StatementsOverviewStrategic Report 14
Our Business Model
Our simple business model delivers
value to all of our stakeholders
CUSTOMER CENTRICITY
Our business is structured around
effectively understanding and meeting
the complex, evolving needs of our
global food, beverage and fragrance
customers. Every
is
driven by a common goal of delivering
excellence.
department
DIVERSE ROUTES TO
GROWING MARKETS
We have a presence on three
continents and our 3,000 products
are enjoyed by consumers in over
90 countries. The broad appeal of
our product offering allows us to
capitalise on growth opportunities
in several competitive markets. As
well as our sales direct to end-
users, we also sell to flavour and
traders and
fragrance houses,
distributors.
RESPONSIBLE
MANUFACTURING
From our facilities in the UK and US we
manufacture and also process sourced
material to create consistently high-
quality products.
OUR PURPOSE
Creating outstanding sustainable
solutions, designed around our
customers’ needs
FOCUSED STRATEGY
Our clear strategy provides focus for
our global business, our employees and
our customers. Strong and experienced
leadership, supported by a diverse and
passionate management team, provide
clarity and purpose in all areas of
the Group.
TECHNICAL EXCELLENCE
The sharpest minds across research
and development, applications, quality
assurance and quality control deliver
unrivalled technical solutions for our
customers, challenging what is possible
in our industry. Treatt supplies ready-
made and bespoke solutions, with
particular expertise in coffee, citrus,
tea and sugar reduction. Over 75% of
our revenues are from value-added
products, with the remainder generated
through trading in raw materials.
SUSTAINABLE SOURCING
Working
growers,
directly with
processors and suppliers across the
world guarantees the finest quality raw
materials and standards of production.
We work hard to develop and maintain
a transparent and stable supply chain,
mitigating risk, maintaining integrity and
providing maximum traceability.
TREATT PLC Annual Report & Accounts 2019 15
How we share value
with our stakeholders
1.
5.
2.
4.
3.
EMPLOYEES
Empowering culture, opportunities for training and development, and a
safe working environment.
226
courses attended throughout
the year as we continually
invest in employee development
3991
Number of employees
INVESTORS
Consistent growth in shareholder returns.
Dividend Growth over five years
43% (7.4% p.a.)
equivalent annual dividend growth
rate over the last five financial years
CUSTOMERS
Tailored product range and service, built on our technical and regulatory
expertise, quality standards and market intelligence.
Positive experience and great service at the
forefront of our qualitative customer feedback
A Flavour and Fragrance customer, has recently said that they have
been very impressed with the level of customer service provided by
Treatt stating that we are ‘head and shoulders above our competitors'.
SUPPLIERS
Sustainable, fair and rewarding outcomes for growers and processors.
Supplier visits
32
COMMUNITIES
Donations of time, expertise and money to charities and causes that matter
to our employees and their families.
Group donations
£41,200
Number of community projects
20
1 Actual number of employees at the year-end date. This differs to the headcount in note 6 to the financial
statements which is the average number of employees during the year measured on a full time equivalent basis.
GovernanceFinancial StatementsOverviewStrategic Report 16
Ambition & Strategy
We have a clear
strategy for growth
1
Investing in our
core categories
2
Diversifying into
new categories
3
Investing for
future growth
We are recognised by customers around
the world for our expertise, and have a
particularly long and reputable history in
citrus, tea and health & wellness categories,
where our natural and authentic solutions
are valued by consumers.
During the year we continued to develop
the global multidisciplinary teams for our
together
established categories, bringing
control,
process
including
functions
procurement, sales and marketing
to
maximise our commercial effectiveness.
We also added new skills to our R&D and
sales teams as we seek to work ever more
closely with customers to develop innovative
solutions.
We recently entered the coffee market,
one of the biggest growth segments in the
global beverage market. Having recruited
coffee specialists with both technical
and sourcing expertise, we developed
proprietary technology that enables the
flavour and freshness of coffee to be
retained. Initial feedback from customers
has been very positive, and we look
forward to developing our offering in this
high growth segment.
We have continued to broaden our portfolio as
opportunities have aligned with our capabilities,
and have seen attractive growth in categories
including tea, health & wellness and fruit &
vegetables. Overall revenues from our non-
citrus portfolio grew by 16% during the year.
An important focus is on enhancing our
operations to provide a sound platform for
growth. During the year we completed a
$15m investment in our US operation to
increase manufacturing capacity and to
expand our R&D facilities. Work on our
new UK headquarters is underway, and
we plan to complete our relocation in late
2020. This will add significant capacity
and enable operational efficiencies.
Beyond our most established markets, our
activities in China have been strengthened
by our investment in the region. We continue
to monitor progress against our strategy to
ensure we remain in a strong position to
serve this important region.
8.5%
increase in R&D and
Sales team headcount
16%
growth in non-citrus
revenues
$15m
investment in US operations
TREATT PLC Annual Report & Accounts 2019 17
Our objective
We will reach our newly extended
goals by building on the successes
of our proven strategy
4
Investing in
our culture
5
Engaging with our
communities
6
Reducing our
environmental impact
Treatt’s supportive, collaborative culture is
integral to the Company’s success, and we
are proud of all that we do to nurture and
develop our people.
Undertaking a wide range of fundraising
and volunteering activities, Treatt is an
active contributor to our local communities
as well as to national causes.
To support staff development and encourage
a performance culture in a consistent and
transparent way, during the year we introduced
a UK-wide
performance management
framework providing all employees with an
opportunity to review performance and set
objectives for the year ahead.
Over the years, we have worked with schools
and colleges, not only to deepen relationships
with our communities but also as a means of
enhancing our future talent pool. An example
new initiative in collaboration with a local
school will see us hosting exchange students
from Shanghai in our UK office, and the
British students will spend time in our office
in Shanghai.
Environmental considerations are seen as
the responsibility of all staff, and we strive
to maximise our efficiency across the
business, whether in the usage of energy
and fuel, or the recycling and disposal of
waste.
In addition to our ongoing efforts to minimise
our impact, example initiatives undertaken
during the year included increasing the
transported
proportion of our volumes
via logistics groups working as part of the
Sustainable Shipping Incentive.
Read more on page 42
Read more on pages 52 and 53
Read more on pages 45 to 48
100%
UK employee engagement in
performance review process
" Our visit to Treatt was great. It was a
the
hugely beneficial experience
UK and Chinese students taking part in
our prestigious
leadership programme.
The students got so much from their
visit and Treatt staff were amazing."
for
Mr. E, King Edward VI School,
Bury St. Edmunds
0%
of general waste to landfill
Read more about our KPIs on page 26
GovernanceFinancial StatementsOverviewStrategic Report 18
TREATT PLC Annual Report & Accounts 2019 19
Strategy in Action
Investing in
future growth
The expansion of our US
facility and the relocation of
our UK facilities represent the
largest investments in our
future growth to date.
These landmark milestones will transform almost
every aspect of our business and facilitate our
continued sustainable growth.
LAKELAND, FLORIDA
Our expanded US facility opened in March 2019, having
been completed on time and to budget. The site provides
a 50,000sq ft manufacturing space and a 15,000sq ft state
of the art laboratory and office complex. The expansion
has doubled capacity across all product categories, most
notably in tea and health & wellness, as well as almost
quadrupling the size of our technical centre.
The employee base has tripled in size since the business
moved from Haines City to Lakeland in 2002, illustrating
the importance of our role as a key employer in the region.
Positioned for future growth, the modular design of the site
allows for additional expansion which supports our long-
term goals.
Expanded facility
130,500sq ft
Completed
March 2019
BURY ST. EDMUNDS, ENGLAND
Construction is underway and is on schedule following
the appointment of Readie, the principal contractor, earlier
in the year. The Company celebrated with a ground-
breaking ceremony in September, attended by staff, senior
management and local dignitaries.
The 112,000sq ft new building will include cutting edge
laboratories, manufacturing areas, offices, breakout spaces
and a catering facility. It will replace the existing complex
of buildings on Northern Way, which has served as the
Company’s UK headquarters since the 1970s.
The new facilities will greatly increase the efficiency of our
UK operations, delivering optimum results for our customers
while also providing a significantly improved, modern working
environment in which the Treatt community will flourish.
Complex
112,000sq ft
Completion date
Late 2020
GovernanceFinancial StatementsOverviewStrategic Report 20
Strategy in Action
Growth in China
Rising affluence in the middle
classes, patterns of urbanisation
and increasingly youthful
populations are all contributing
to new, fast-growing trends in the
beverage industry across China.
Driven by tastes influenced by Western culture,
health and wellbeing are starting to become greater
concerns for consumers. Younger generations are
leading the charge for low sugar, healthy beverages
that fit in with their broader lifestyle. Exciting, novel
and fresh ingredients appeal to a powerful consumer
population who will wait in line for the latest 'must-
share' drink experience.
Brands are adapting to shifting consumer tastes as new
product development pipelines shorten, reflecting the
growing competition for consumer spend on ready-to-
drink (RTD) beverages.
The Chinese beverage
market is currently worth
¥572.4bn
Energy drinks, bottled water, sports
drinks and RTD coffee are all seeing
year on year growth of more than
5%
See our Market overview on page 00
TREATT PLC Annual Report & Accounts 2019 21
GovernanceFinancial StatementsOverviewStrategic Report 22
TREATT PLC Annual Report & Accounts 2019 23
Strategy in Action
Diversifying
into new
categories:
Coffee
Our innovative portfolio
of coffee extracts are
re-defining what’s possible
in this fast-growing industry.
Coffee is one of the most exciting and diverse
beverage categories in the world today. This multi-
billion-dollar industry is driven by a varied and
growing population of consumers who are united in
their deep attachment to this once simple drink.
We have extended our capabilities in this space,
partnering with our customers to deliver stand-out
products in a crowded and competitive marketplace.
Our experts artfully interpret a customer brief,
crafting a blended solution that takes taste profile,
naming and regional requirements and desired
caffeine levels into account.
The global coffee market is
expected to reach a valuation of
£102bn
by growing at a CAGR of
4.3%
by 2023
GovernanceFinancial StatementsOverviewStrategic Report 24
Chief Executive’s Review
Building
a platform
for growth
Summary
• The Group delivered solid results, notwithstanding a fall in the citrus market
• We have achieved exceptional growth in our non-citrus categories
• Investments in our infrastructure are underway and on track
• We have strong grounds to look to the future with confidence
for
Delivering sound performance
I am pleased to report that the Group
the year,
results
delivered solid
notwithstanding a very significant fall in
certain citrus raw material prices and some
foreign currency headwinds which had
an impact on profitability. Revenue from
continuing operations grew by 0.5% (a
decrease of 2% in constant currency) relative
to the preceding year to reach £112.7m (2018:
£112.2m) producing a profit before tax and
exceptional items for the year of £13.3m, in
line with management expectations. This
represents an increase of 5.2% relative to the
preceding year (2018: £12.6m).
As announced earlier in the year, revenue for
the year was impacted by a substantial fall in
citrus raw material input prices, with orange
oil (which accounts for around one third of
Group revenue) prices dropping by more
than 50% over the year, and lemon oil prices
also experiencing significant weakness. To
have delivered such strong results during
a period of unprecedented turbulence in
key raw material markets is a remarkable
achievement, and a demonstration of the
commitment and expertise of my colleagues
as well as further confirmation of the
continued success of our strategy.
Diversifying our portfolio
Although reported revenue for our citrus
category (representing 54% of the Group
total) decreased by 10%, this suppressed
performance in our largest category was
more than counterbalanced by the exceptional
16% growth in our non-citrus revenues.
Sales in our tea category grew by 42%,
“ To have delivered such strong results during
a period of unprecedented turbulence in
key raw material markets is a remarkable
achievement, and a demonstration of the
commitment and expertise of my colleagues.”
health & wellness (including sugar reduction)
increased by 23%, and fruit & vegetables
grew by 35% as our clean-label innovations
continue to resonate with consumer demand
for 'better for you' options, particularly in
our core beverage market. While natural
propositions account for more than 80% of
the Group’s portfolio, we also saw pleasing
revenue growth of 16% in synthetic fragrance
and flavour products.
In addition to these growth areas, we are
excited to have recently launched a competitive
proposition in the coffee category. The global
ready-to-drink (RTD) coffee market is valued
at $19.05bn and is expected to increase
markedly in the coming years and we have
been encouraged by customers to help them
harness the opportunities in the fast-growing
cold brew segment. Coffee oxidises quickly,
hence historically it has been difficult to
develop natural solutions to preserve flavour
and freshness. We continue to build our IP-
led, proprietary extraction capabilities in this
area as well as embedding supportive roasting
capacity. It is early days, but customer feedback
gives us confidence that coffee will become
another strong pillar
increasingly
diversified portfolio and may deliver 1%-2% of
revenue growth in the financial year.
in our
In terms of the geographical markets we
serve, we are encouraged by our progress
in China, which is a key area of focus. The
North American market continues to be
very important for the Group and we expect
further good growth in that region for many
years to come.
Investing in our infrastructure
A key development in the year was the
expansion of our US facility, which opened
in March and is now fully operational, with
increased capacity coming on stream in early
2020 - ready for the new crop season. The
$15m investment has doubled our capacity in
our non-citrus, natural tea, health & wellness
and
fruit & vegetables categories, and
quadrupled the size of our US technical and
innovation centre as we invest further in R&D
and innovation.
TREATT PLC Annual Report & Accounts 2019 25
Financial highlights for 2019
2019
2018
2017
Revenue1
£112.7m
£112.7m
£112.2m
£101.3m
2019
2018
2017
£13.3m
£12.6m
£11.7m
2019
2018
2017
12.0%
12.4%
12.4%
Profit before tax
and exceptional items1
£13.3m
Net operating margin1,2
12.0%
to
through an enhanced
Work on our new UK site is underway,
and we look forward to relocating in late
2020. In addition to significantly increasing
our capacity, the new site will allow us to
accelerate the important partnership-based
technical
model
collaboration
drive
infrastructure
innovation, together with our customers,
in line with our strategy. We believe that
multiple operational efficiencies achievable
through improved site logistics, automated
warehousing and computer-controlled stills
will enable the business to flourish and gives
us confidence to deliver an enhanced return
of profitability some 10% to 15% higher than
operating from our current UK site, three
the
years after completion.
modular design will enable us to add further
capacity in the future as demand dictates.
In addition,
Addressing market challenges
The very sharp fall in the cold pressed
orange oil market was driven by substantially
larger crops in Brazil and other citrus
growing regions. The impact on pricing was
exacerbated by weaker demand for some of
the industrial by-products that are derived
from orange oil, following reformulations
in the wake of high prices experienced in
previous years. Supply factors also impacted
lemon oil pricing, with better crops across
key global growing regions. The citrus team
at Treatt did an excellent job applying their
experience to mitigate some of the acute price
falls, making some very astute judgements.
Our strategic shift over time to a more
diversified range of value-added products
that are less closely related to external market
movements has also been a significant
mitigating factor. It is only a few years ago,
under my early tenure as CEO, that a close
correlation existed between our business
performance and that of key citrus markets.
We now feel that we have successfully
decoupled our financial performance from
external movements in the key raw materials
markets and have obtained a greater control of
our business as a result of this diversification
of our portfolio. Although we have started
our new financial year with much lower unit
prices in citrus, we expect and look forward
to calmer waters ahead with at least a good
majority of market falls behind us.
Capitalising on market opportunities
The pace of new product development across
beverage categories and geographical markets
shows no sign of slowing as consumer tastes
evolve and brands seek
to differentiate
themselves. Relative to five years ago, the
beverage aisle in a typical supermarket has
seen a proliferation of choice in both alcoholic
and non-alcoholic drinks, with segments such
as energy drinks and functional or health and
wellness beverages seeing strong growth.
The 'better for you'/clean-label/natural trend
is accelerating as consumers are looking for
more premium beverage propositions with
positive health connections, which plays well
to Treatt’s strengths around natural, authentic
tasting products.
Operating responsibly for
our stakeholders
I am immensely proud of our exceptional
people and our open, supportive culture. A
Company’s true culture often shines through
most clearly during challenging times. For
Treatt to have weathered the storm in the
citrus category over this difficult period is
remarkable, and testament to the energy,
drive and proficiency of our fantastic team.
I wish to extend my heartfelt appreciation to
my colleagues for their outstanding efforts.
We have always believed in doing the right
thing for all our stakeholders and the
communities in which we operate, and
we work hard to be active, responsible
participants in our communities and to
minimise our environmental impact. I was
proud to have been awarded an honorary
doctorate by the University of Suffolk which
reflects not only our success in business but
also the way our business conducts itself in
the wider community, details of which are
outlined on pages 52 and 53.
Looking forward with confidence
Although citrus market weakness impacted
these challenges and our
last year,
performance in our non-citrus categories
served to underline our commitment to the
execution of our strategic plan. The next year
will see further benefits from investment in
our US expansion and we look forward to
completing the relocation of our UK site and
the opportunities that will open up by having
an appropriate physical infrastructure across
the Group to showcase the best of Treatt’s
capabilities to our growing customer base.
Notwithstanding uncertainty in relation to
factors such as the ongoing trade tensions
between the US and China and the twists
and turns of the UK’s departure from the
EU, underlying growth in our core beverage
and other categories continues apace, and
we see plenty of potential in both our more
established markets as well as in China,
where traction is notable.
The know-how of our people, our work
to develop and diversify our portfolio and
our additional manufacturing capacity will
allow us to continue to capitalise on these
favourable market dynamics and gives us
grounds for optimism for the year ahead and
beyond. We are recognised for our expertise
in a broad range of categories and are excited
about the opportunities ahead as we work
with customers in ever closer partnerships
at the cutting edge of innovation.
We are driving ahead with confidence and
whilst it is still early in the financial year
ending 30 September 2020, the Group
continues to perform in line with the Board’s
expectations for the full year.
Daemmon Reeve
Chief Executive Officer
25 November 2019
1 Excluding discontinued operations, details of which are given in note 11 of the financial statements.
2 For details of how this has been calculated see the key performance indicators on page 26.
GovernanceFinancial StatementsOverviewStrategic Report 26
Key Performance Indicators
We assess Group performance using
a set of financial and non-financial KPIs
The Group has financial KPIs which it monitors on a regular basis at Board level and, where relevant,
at operational executive management meetings. The key performance indicators shown below cover
a period of five years which is reflective of the Board’s long-term thinking.
1
2
3
Growth in profit before
tax and exceptional items1
Growth in adjusted1
basic earnings per share
Net operating margin1
2019
5.2%
2019
(1.1)%
32.2%
9.8%
7.5%
2018
2017
2016
2015
20.0%
27.8%
2019
2018
2017
2016
2015
12.0%
12.4%
12.4%
10.8%
10.1%
2018
2017
2016
2015
8.1%
11.3%
15.2%
5.2%
(1.1)%
12.0%
Adjusted earnings per share is
considered the most appropriate
measure of performance which
is aligned with shareholder value.
Net
is
operating margin
considered an important measure
of the profitability of the Group.
is widely
Earnings per share
considered one of
the most
important metrics used by investors
in order to place a value on a
company and
turn
impact upon the share price. It lets
shareholders know how much profit
was made for each share they own.
therefore
in
Net operating margin shows the
operating profit as a percentage of
revenue. This enables comparison
between different businesses. As
it takes into account all the day-to-
day costs incurred in operating the
business it demonstrates whether
growth in the business is profitable.
We divide operating profit by
revenue from continuing operations
both of which are shown in the
Group income statement.
Description
Why we measure it
Profit before tax and exceptional
items is considered the most
the
appropriate measure of
of
performance
underlying
the Group.
the
Profit before
tax shows
underlying performance of
the
business for the year. We have a
clear policy on exceptional items
to ensure that only items (both
positive and negative) which would
otherwise distort
the reported
performance are excluded.
Calculation
As shown in the Group income
statement.
As shown in the Group income
statement.
1
All KPIs are calculated excluding exceptional items (see note 9). They also exclude discontinued
operations in 2017, 2018 and 2019 – earlier years have not been restated for discontinued operations.
TREATT PLC Annual Report & Accounts 2019 27
4
5
6
7
Return on capital
employed1
Average net cash/(debt)
to EBITDA1
Number of reportable
accidents across Group
Average number of
sick days per employee
2019
2018
2017
2016
2015
19.0%
18.5%
22.1%
24.6%
22.1%
0.87
2019
2018
(0.01)
2017
(0.42)
2016
(0.35)
2015
(0.78)
19.0%
0.87
2019
2018
2017
2016
2015
5
4
3
2
5
2019
2018
2017
2016
2015
5
3.00
2.86
3.06
4.29
3.66
3.00
to monitor
Average number of sick days
enables us
the
welfare of our workforce and
the effectiveness of our absence
policies.
is
The recording of sickness
essential
for proactive absence
management, which can help to
reduce sickness absence and
ensure that employees are healthy
and working effectively.
We divide the total number of sick
days recorded across the Group by
the total number of employees.
Return on capital employed is
an important measure used to
assess the profitability of the
Group relative to the capital being
utilised.
Return on capital employed enables
stakeholders to see the profitability
of the business as a function of how
much capital has been invested in
the business.
Average net cash/(debt) is used
to ensure that the level of debt is
appropriate relative to the profits
generated by the business.
number
of
is used
reportable
to monitor
safety of our working
The
accidents
the
environment.
It is important to ensure that the
level of borrowings in the business
can be supported by the cash flow
in the business. EBITDA is widely
recognised as a good indicator of
the cash generative performance
in the year.
of
The health and safety of our
is
employees
paramount
to us. Recording
importance
accidents, which includes those
that are reportable, assists with
their prevention and encourages a
focus on safety.
We divide operating profit from
continuing operations (as shown in
the Group income statement) by the
capital employed in the business
which we calculate as total equity
(as shown in the Group balance
sheet) plus net debt or minus
net cash (as shown in the Group
reconciliation of net cash flow to
movement in net cash).
See Our Strategy on page 16
We divide the average net cash or
debt in the year (being the average
of the opening and closing net cash
or debt as shown in the Group
reconciliation of net cash flow to
movement in net cash) by EBITDA.
EBITDA is the profit before interest,
tax, depreciation and amortisation.
This is calculated as operating profit
(as shown in the Group income
statement) plus depreciation and
amortisation
continuing
from
operations as shown in note 5 to
the financial statements.
We record the number of reportable
accidents, which have occurred
the Group. Reportable
across
accidents
work-related
accidents, which legally have to
be reported to a statutory body or
have to be recorded in a specific
format.
are
GovernanceFinancial StatementsOverviewStrategic Report 28
Financial Review
Financial Review
Profit before tax and exceptional
items1 up 5.2% despite citrus and
foreign exchange headwinds
Income statement1
Revenue and profit
Revenue for the year from continuing operations grew by 0.5% to £112.7m (2018:
£112.2m) with growth continuing across the Group’s main product categories
other than citrus. Revenue in citrus (which represents 54% of Group sales) fell
by 10% as the result of a sharp fall in orange oil prices as well as lower lemon oil
prices. Across non-citrus categories, revenue grew by an encouraging 16% with
tea (42% growth), health & wellness (23% growth), and fruit & vegetables (35%
growth) driving performance. In other categories, whilst more than 80% of the
Group's revenue comes from our natural and clean-label product ranges, there
was also strong growth in our synthetic flavour chemical range of 16% in the year.
% Growth in sales –
2019 v 2018
42%
35%
23%
16%
-10%
-5%
TREATT PLC Annual Report & Accounts 2019 29
Categories
% Share of sales1 – 2019
Geography
% Share of sales1 – 2019
Tea 5%
Fruit & Vegetables 6%
Health & Wellness 6%
Citrus 54%
Herbs, Spices & Florals 10%
Aroma & HICs 19%
Japan 4%
Other markets 5%
Germany 5%
China 6%
Ireland 7%
South America 7%
North America 39%
Rest of Europe 11%
Asia Pacific 9%
UK 7%
Net operating margin2 was down slightly in the
year at 12.0% (2018: 12.4%). This compares
to 10.1%
five years ago. Consequently,
operating profit1 decreased by 3.2% to £13.5m
(2018: £13.9m).
Return on capital employed2 increased to
19.0% (2018: 18.5%) as a consequence of
the cash generated in the year reducing the
amount of capital employed.
As plans continued to progress towards the
relocation of the Group’s UK headquarters
to a new ten-acre site in Bury St. Edmunds,
an accelerated depreciation charge of £0.2m
(2018: £0.2m) was applied to those assets at
the current site which will no longer generate
value for the business. In addition, costs
relating to the relocation were incurred during
the year totalling £0.6m (2018: £0.9m). These
included
legal fees, planning consultants,
architects and manufacturing plant and
machinery
these
expenses total £0.8m (2018: £1.1m) and are
included in exceptional items (see note 9).
specialists.
Together
Profit before tax and exceptional items from
continuing operations rose by 5.2% to £13.3m
(2018: £12.6m). Earnings before interest,
tax, depreciation and amortisation (EBITDA)
for the year2 increased by 2.0% to £14.9m
(2018: £14.6m).
Whilst herbs, spices & florals revenue fell by
5%, this category contains a large, traditional
range of SKUs, many of which are traded.
In constant currency terms, revenue from
continuing operations fell by 1.9%, with 2.4%
of the revenue growth being reflective of a
weaker Pound Sterling/US Dollar exchange
rate in 2019 as compared to 2018.
In terms of geographic markets, the Group’s
strategic focus on China delivered reported
sales growth of 24% to £6.8m, being 6% of
Group revenue. Sales to the Rest of the World
(excluding China) grew by 8% driven by a
strong performance in Japan and Singapore
which
together represent 8% of Group
revenue. Although the Group continued to
perform well in mainland Europe, the impact
of lower orange oil prices was more acutely
felt with revenue falling by 4%. In the Group’s
largest market, representing more than 38%
of Group revenue, revenue in the US grew
by a modest 3% with citrus dampening down
an otherwise good year for the US market. In
the UK revenues contain a disproportionate
volume (compared with other markets) of
traded citrus by-products, which therefore
resulted in a notable, price-led, fall in revenue
of 15%.
Gross profit grew by 3.2% with gross profit
margins increasing from 24.7% to 25.4%.
This increase in margins resulted from the
combined effect of strong growth in higher
margin product categories such as tea, health
& wellness and fruit & vegetables. The overall
increase in gross profits should be seen in the
context of the impact of lower citrus prices
which resulted in gross profits from the citrus
category falling by £1.8m. This supports the
business strategy of diversifying the Group’s
product portfolio such that the business
can successfully manage its way through a
period of volatility in one of its key markets.
In terms of new business wins, we continue
to grow margins with new clients through our
collaborative, science-led approach.
Administrative expenses grew by 9.7% in
the year to £15.2m (2018: £13.8m), although
on a constant currency basis the increase
was lower at 7.5%. Of the £1.4m increase in
administrative expenses, £0.6m related to the
net adverse movement in foreign exchange
gains and losses compared to the prior year,
and £0.6m was driven by higher employment
costs (see note 6), impacted by increased
headcount numbers across the Group – up
by 9% globally. The Group continues to focus
its recruitment on highly skilled scientists and
on growing the sales force in order to support
growth in the business.
“ Across non-citrus categories, revenue grew by
an encouraging 16% with tea (42% growth), health
& wellness (23% growth), and fruit & vegetables
(35% growth) driving performance.”
1 Unless indicated otherwise all measures are based on continuing operations.
2 For details of how this has been calculated, see the Key Performance Indicators on pages 26 and 27.
GovernanceFinancial StatementsOverviewStrategic Report 30
Financial Review continued
The total dividend per share for the year of
5.50p represents an increase of 7.8% and is
covered more than three times
Foreign exchange gains and losses
Whilst the Group’s functional currency is
the British Pound (‘Sterling’), the amount
of business which is transacted in other
currencies creates foreign exchange exposure,
particularly the US Dollar and, to a more
limited extent, the Euro. During the year the US
Dollar gradually strengthened against Sterling
ending the year 5% stronger at £1=$1.23 (2018:
£1=$1.30). As explained further under ‘Financial
Risk Management’ as set out on page 34, the
Group hedges its foreign exchange risk at
our UK business 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
loss on foreign exchange contracts and re-
translation losses in aggregate of £0.8m (2018:
£1.1m loss). There were no ineffective hedges
in the year (2018: £0.7m loss) – see note 7.
There was a substantial currency impact, a gain
of £2.1m (2018: £0.9m gain), 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 fell by 65% to
£0.2m (2018: £0.6m) as the Group remained
cash positive in the year. Although in a cash
positive position, there are a number of fixed
costs for maintaining facilities for future use
including facility fees and non-utilisation fees
which are funded from operating cash flows.
Following the decrease in net finance costs,
interest cover for the year before exceptional
items and discontinued operations increased
to 67.8 times (2018: 24.6 times).
in 2020, which would further reduce the
Group’s overall effective rate of tax over the
course of the next two years assuming the
profit mix between tax jurisdictions remains
broadly unchanged.
Group tax charge
The current tax charge of £1.5m (2018:
£2.9m) represents an effective rate (based
on profit before tax and exceptional items)
of 11.9% (2018: 24.3%). After providing for
deferred tax, the overall tax charge increased
by £0.4m to £2.7m (2018: £2.3m); an overall
effective tax rate (after exceptional items)
of 21.3% (2018: 19.8%). The Group now
benefits from a US corporation tax rate of
21%, having reduced from 24.5% in the prior
year, and from 35% in the year before that.
This means that the main rates of corporation
tax which effect the Group are now broadly
similar in both the UK and the US, with
the UK rate currently at 19%. The full year
effect of the US rate (in the prior year the
hybrid US rate was 24.25%) had the effect of
reducing the current year tax charge on US
profits. In addition, the US equivalent of first
year allowances ('bonus depreciation') meant
that a significant proportion of the US capital
investment was 100% tax deductible, albeit
with a commensurate increase in the deferred
tax charge. In the prior year there was a
one-off deferred tax gain on US deferred tax
liabilities of £0.3m. There were no significant
adjustments required to the previous year’s
tax estimates. Legislation has been enacted
to reduce UK corporation tax rate to 17%
Discontinued activities
Following the disposal of Earthoil Plantations
Limited, the former Earthoil businesses based
in Kenya are considered to be a disposal group
in accordance with IFRS 5, 'Non-current
assets held for sale and discontinued activities'.
The net assets of the Kenyan businesses have
been impaired by £0.8m to £0.7m which
management consider to be their fair value.
The Kenyan businesses made a trading loss
for the year of £0.2m.
Earnings per share
Adjusted basic earnings per share excluding
exceptional items and discontinued operations,
(as set out in notes 9 and 11 respectively) for
the year decreased by 1.1% to 17.82p (2018:
18.02p). This small reduction in earnings per
share resulted from a 1.5% increase in the
overall effective tax rate and the full year
effect of the 10% placing and LTIP exercises
in the prior year. The calculation of earnings
per share excludes those shares which are
held by the Treatt Employee Benefit Trust
(EBT) and Treatt SIP Trust (SIP) which are not
beneficially owned by employees since they
do not rank for dividend, and is based upon
adjusted profit after tax.
“ The Group’s net finance costs fell by 65% to £0.20m
as the Group remained cash positive in the year.”
TREATT PLC Annual Report & Accounts 2019 31
2019
2018
2017
7.8%
6.3%
2019
2018
2017
10.3%
£46.5m
£87.1m
£81.6m
2019
2018
2017
£3.6m
£4.7m
£20.5m
Dividend growth per annum
7.8%
Net assets
£87.1m
Cash inflow from operations
£20.5m
the
increases
Dividends
The proposed final dividend of 3.80p per
share (2018: 3.50p)
total
dividend per share for the year by 7.8% to
5.50p, representing dividend cover of 3.2
times continuing pre-exceptional earnings for
the year and a rolling three-year cover after
exceptional items of 3.1 times. The Board’s
long-term policy is to maintain dividend cover
on a consistent basis at between 2.0 and 2.5
times three-year rolling cover. However, as
per last year, in light of the Group’s capital
investment programme, this year’s dividend
increase has been set with a more prudent
level of dividend cover. The Board considers
this to be appropriate given the equity fund
raise which took place during the previous
financial year and the forthcoming cash
requirements of the business in order to fund
the UK site relocation.
Balance sheet
Shareholders’ funds grew in the year by
£5.5m (2018: £35.1m, of which £20.8m related
to the prior year equity fund raise) in the year
to £87.1m (2018: £81.6m), with net assets per
share increasing by 5% to 145p (2018: 137p).
Over the last five years net assets per share
have grown by 163%. 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,
on the balance sheet.
Cash flow
The overall cash performance for the year
showed a marked improvement in working
capital as inventory and receivable levels were
reduced. Consequently, the Group’s total net
cash position improved by £5.9m to £16.0m
(2018: £10.1m), with free cash flow of £7.8m
(2018: outflow of £6.0m). Excluding the impact
of the expenditure on the US expansion and
UK relocation, free cash flow was a very
strong £16.3m for the year.
There was an overall working capital inflow in
the year of £5.6m (2018: outflow £12.7m) which
was driven by an improvement in receivables
and a reduction in inventory levels. The
improved position in respect of receivables,
resulting in a cash inflow of £5.3m, has come
in part as a consequence of the Group availing
itself of a number of non-recourse supplier
financing programmes, where customers with
strong credit ratings partner with a bank or
finance provider to accelerate payments to
suppliers at rates which are often below the
Group’s own cost of borrowing.
Inventory held at the year-end was £36.8m
(2018: £39.6m), a decrease of £2.8m. 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.
The level of capital expenditure in the year was
£10.6m compared with £6.6m in 2018, and
included £5.8m for the US expansion project
which was completed successfully during
the year. With the UK site relocation being the
main area of focus in the UK, other capital
expenditure tended to be related to on-going
routine renewal and maintenance.
The cash flow benefit of delaying certain
capital projects in the UK in anticipation of the
new site will inevitably reverse (as explained
later) as both delayed projects, and brought
forward capital expenditure, will occur as part
of the site relocation.
Net cash position
As explained previously, the Group currently
has a net cash position. This is due to the
fact that the major expenditure on the new
UK facility has yet to commence, with only
the land (£3.8m) and some preliminaries
(£3.7m excluding non-cash items) having
been incurred to date. The Group therefore
retains a mix of secured and unsecured
borrowing facilities totalling £28.7m, of which
£9.3m expires in one year or less. The Group’s
borrowing facilities are held with HSBC, Bank
of America and Lloyds Banking Group with
the majority of facilities now held on three to
five-year terms with expiry dates staggered to
fall in different years. The Group continues to
enjoy positive relationships with its banks and
expects all facilities to be renewed when they
fall due.
US site expansion
During the year we completed the expansion
of our facility in Lakeland, Florida resulting
in a total footprint of 130,500 square feet
compared to the previous size of 65,500
square feet. The total cost of the expansion
was $15.3m, of which $3.3m relates to new
plant and machinery. This project was multi-
faceted, primarily resulting in a substantially
larger manufacturing facility in order to double
our capacity for the key product categories
of tea, health & wellness (including sugar
reduction) and fruit & vegetables, with space
for further expansion. This increased capacity
is expected to come on stream in early 2020
– ready for the new crop season. In addition,
we have enhanced the customer experience
as well as expanding our laboratory and office
facilities which were at full capacity.
GovernanceFinancial StatementsOverviewStrategic Report 32
Financial Review continued
A strong cash performance in the year puts
the Group in an even stronger position to
drive future investment and growth
Under the SIP, UK employees could also
purchase up to £1,800 (or 10% of salary,
whichever is lower) of Treatt shares out of
gross income at no cost to the Company which
the Company matched on a one and a half
for one basis. In the year a total of 33,000
(2018: 48,000) matching shares were granted.
During the year, nil (2018: 230,000) shares
were issued to the SIP at par (2 pence per
share). The SIP currently holds 507,000
shares (2018: 540,000), of which 138,000
(2018: 215,000) are beneficially owned by
the Company and are available for future
awards. It is anticipated that going forward
the obligations under the SIP will be satisfied
through the issue of new shares.
In addition, the Group continued its annual
programme of offering share option saving
schemes to staff in the UK and US. Under
US tax legislation, staff at Treatt USA are able
to exercise options annually, whilst the UK
schemes provide for three-year saving plans.
Under the Long Term Incentive Plans which
were approved by shareholders at the 2014
and 2019 Annual General Meetings, Executive
Directors and certain key employees were
granted 251,000 (2018: 205,000) 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 401,000 (2018: 341,000) shares
during the year, whilst 760,000 (2018: 873,000)
were exercised from options awarded in prior
years which have now vested.
During the year, 700,000 (2018: 1,070,000)
shares were issued to the Employee Benefit
Trust (EBT) at par (2 pence per share). The
EBT currently holds 454,000 shares (2018:
542,000) 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, to which further shares will
be issued as necessary.
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 scheme were offered
membership of the UK 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 2018,
the result of which was that the scheme had
an actuarial surplus of £473,000 (1 January
2015: £314,000). This represented a funding
level of 102%. Consequently, the Group has
been able to agree with the trustees that with
effect from 1 October 2018 it would continue
not 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 2021, 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 2019 which
showed a deficit of £2.5m (2018: surplus of
£0.7m), being a funding level of 90% (2018:
103%). This has arisen due to a reduction
in the assumed level of future investment
returns. Consequently contributions of £0.3m
per annum will be resumed.
Similarly the IAS 19, 'Employee Benefits'
pension liability in the balance sheet, net
of deferred tax, increased in the year from
£2.9m to £6.5m. The increase in the deficit
was also largely the result of a significant
fall in the discount rate used to measure the
liabilities of the scheme.
UK relocation
Work continues towards relocating our UK
business from its current site in Bury St.
to a brand-new purpose-built
Edmunds,
facility nearby. The Group acquired a ten-
acre green field site on the new Suffolk Park
in Bury St. Edmunds in mid-2017. During the
year we have secured full planning permission
for our new facility and appointed the main
contractors, Readie Construction Limited, who
began work on site in September 2019.
As previously announced, the table on page 33
breaks down the cost estimates for the project.
As well as the land and buildings infrastructure
the project also involves significant investment
in new and upgraded plant and machinery,
including the incorporation of a number of
new technologies for the UK business such
as automated warehousing, clean-in-place
and computer-controlled stills. 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. Of the £16.9m of planned plant
and machinery capex at the new UK site,
approximately £7m relates to projects which
would have been undertaken at the current
site in the last five years, had the impending
site move not been on the horizon; the balance
relates to new and enhanced technologies.
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 £600 (2018:
£575) of ‘Free Shares’ during the year as
part of the Group’s employee incentive and
engagement programme as the Board is
firmly of the view 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 $900 (2018: $875) of
Restricted Stock Units during the year. These
shares are forfeited by employees who leave
within three years from the date of grant.
TREATT PLC Annual Report & Accounts 2019 33
2019
2018
2017
EBITDA1
£14.9m
£14.9m
£14.6m
£14.1m
2019
2018
2017
£2.1m
£1.7m
£1.4m
2019
2018
2017
£6.6m
£5.2m
£10.6m
Investment in R&D
£2.1m
Capital investment
£10.6m
The overall estimated costs of the UK relocation (see below for further information as to the basis of these estimates) are
as follows:
Capital expenditure:
Note
Land
Buildings
Plant & machinery
Existing site disposal
Net capital expenditure
Procurement, installation & commissioning
Net Relocation Costs
Other exceptional items:
Accelerated depreciation (non-cash)
Relocation costs
1
2
3
Spend to date (£’000)
Budget
£’000
3,823
17,483
16,863
(4,965)
33,204
2,884
36,088
434
2,052
2,486
To
30/9/18
3,823
198
126
–
4,147
335
4,482
217
553
770
Year to
30/9/19
Total spend
to date
–
835
1,133
–
1,968
305
2,273
217
233
450
3,823
1,033
1,259
–
6,115
640
6,755
434
786
1,220
Note 1: These costs relate to expenditure which does not fall to be capitalised and will be expensed as exceptional items with the remaining costs expected to be incurred in the year
ending 30 September 2020.
Note 2: Accelerated depreciation relates to the reduction in the estimated useful lives of assets which will not transition to the new site and has been accounted for in the year ended
30 September 2019 and the prior year ended 30 September 2018.
Note 3: Other exceptional items include initial design costs, parallel running costs, additional staffing resources and costs associated with the physical transfer of the business to the
new site. The remaining costs are expected to be incurred in the years ending 30 September 2020, 2021 and 2022.
It should be noted that in accordance with IAS 23 ‘Borrowing costs’, and in addition to the above, the interest charges incurred
on funds utilised on the relocation project prior to its completion, expected to total £0.6m, fall to be capitalised in the year ending
30 September 2020 rather than expensed.
We expect the project to be completed in late 2020 with occupation shortly thereafter and the cash outflows for the project are
expected to result in rolling net debt to EBITDA ratio peaking at less than 1x EBITDA.
Whilst the detailed costs for the project have been prepared in full quantity surveyor detail, and the design and build contract is at
a fixed price, the Board recognises the risks inherent in a project of this scale. The Board has reviewed the level of contingency
allowed for in the project, being 7.5%, and considered the flexibility built into the plant and machinery spend. The Board has also taken
appropriate advice from risk management consultants who will monitor the project on a regular basis. These factors, combined with
the funding now in place following the share placing in December 2017, give the Board confidence that the risks inherent in the UK
relocation project have been mitigated as far as practicable.
1
For details of how this has been calculated, see the Key Performance Indicators on page 27.
GovernanceFinancial StatementsOverviewStrategic Report
34
Financial Review continued
We have continued to invest in people
as employee numbers in the UK and US
have grown by 9%
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 a proportion of these
balances are held in foreign currencies, but
only as part of the Group’s overall hedging
activity as explained herein.
The nature of Treatt’s activities is such that
the Group could be affected by movements
in certain exchange
rates, principally
between Sterling and the US Dollar, but
other currencies such as the Euro can have
a material effect as well. This risk manifests
itself in a number of ways.
Firstly, the value of the foreign currency
net assets of Treatt USA (the Group’s main
fluctuate with
overseas subsidiary) can
Sterling.
Secondly, with R C Treatt (the Group’s main UK
subsidiary) exporting throughout the world,
fluctuations in the value of Sterling 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 the relative
strength of Sterling 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.
When the Group is in a net debt position,
the Group 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
have been entered into which hedge part
of R C Treatt’s foreign exchange risk.
These contracts (and options if applicable)
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. Under the technical provisions of
IFRS, if any options or forward contracts
are deemed to be ineffective hedges then
the related foreign exchange gain or loss is
included within ‘other gains and losses’ in
the income statement. The foreign exchange
gains or losses charged to ‘other gains and
losses’ in the year was £nil (2018: £0.7m
loss). 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 fluctuations
in currencies.
Summary
The financial results of the year have
continued the unbroken trend of continuing
growth in profit before tax and exceptional
items since we remodelled the business
in 2012. What is of particular note is that
in spite of a material reduction in profits
from our citrus category (down by £1.8m)
and the impact of foreign exchange (a loss
of £0.8m), the business has successfully
grown its revenue and profits, underpinned
by the very encouraging 16% growth in our
non-citrus categories.
We have continued to invest in people as
combined employee numbers in the UK and
US have grown by 9% to an average of 312
full time equivalent employees for the year.
Having delivered on our US expansion we
have now started to build our new UK facility
which we expect to open in late 2020. This
on-going investment in our resources and
infrastructure is testament to the ambitions
we have to grow our business in a sustainable
way for the long term.
Richard Hope
Chief Financial Officer
25 November 2019
“ Excluding the impact of the expenditure on the US
expansion and UK relocation, free cash flow was
a very strong £16.3m for the year.”
TREATT PLC Annual Report & Accounts 2019 Group Five Year Trading Record
1 2017, 2018 and 2019 show discontinued operations separately.
Earlier years have not been restated.
2015
£’000
2016
£’000
20171
£’000
20181
£’000
20191
£’000
35
INCOME STATEMENT
Revenue
EBITDA1
Operating profit
Profit before taxation and exceptional items
Growth in profit before taxation and exceptional items
Exceptional items
PROFIT BEFORE TAXATION
Taxation
Discontinued operations
Profit for the year attributable to owners of the Parent Company
BALANCE SHEET
Goodwill
Other intangible assets
Property, plant and equipment
Net deferred tax (liability)/asset
Current assets
Current liabilities
Non-current bank loans
Post-employment benefits
Non-current derivative financial instruments
Total equity
CASH FLOW
Cash generated from operations
Taxation paid
Net interest paid
Dividends paid
Additions to non-current assets net of proceeds
(Acquisition)/disposal of subsidiaries
Purchase of redeemable loan notes
Net sale of own shares by share trust
Proceeds on issue of shares
Other
Movement in (debt)/cash
Total net (debt)/cash
RATIOS
Net operating margin3
Return on capital employed4
Average net (debt)/cash 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
Notes:
85,934
88,040
101,250
10,109
8,690
7,950
15.2%
(174)
7,776
(1,786)
–
5,990
1,075
661
10,998
(390)
45,045
(13,481)
(7,065)
(2,959)
(699)
33,185
8,667
(1,469)
(740)
(1,978)
(1,027)
–
–
180
–
(204)
3,429
(6,155)
10.1%
22.1%
(0.78)
11.94p
20.0%
4.04p
2.94
63.0p
11,038
9,549
8,846
11.3%
(553)
8,293
(2,144)
–
6,149
2,727
637
11,361
325
54,435
(16,388)
(7,755)
(7,401)
(754)
37,187
10,804
(2,022)
(703)
(2,095)
(788)
(752)
–
265
–
(208)
4,501
(1,654)
10.8%
24.6%
(0.35)
12.84p
7.5%
4.35p
2.94
71.0p
14,083
12,547
11,696
32.2%
–
11,696
(3,129)
978
9,545
2,727
604
14,821
616
68,230
(27,003)
(7,293)
(5,821)
(403)
46,478
4,683
(2,822)
(913)
(3,025)
(5,203)
(900)
(675)
355
–
(71)
(8,571)
(10,225)
12.4%
22.1%
(0.42)
16.41p
27.8%
4.80p
3.40
87.9p
112,163
14,577
13,944
12,642
8.1%
(1,105)
11,537
(2,284)
2,976
12,229
–
752
20,038
672
102,402
112,717
14,871
13,499
13,300
5.2%
(755)
12,545
(2,673)
(1,084)
8,788
–
845
29,485
(319)
98,158
(35,781)
(28,905)
(3,001)
(3,457)
–
81,625
3,581
(2,978)
(610)
(2,876)
(6,579)
8,746
–
586
20,833
(419)
20,284
10,059
12.4%
18.5%
(0.01)
18.02p
9.8%
5.10p
3.42
137.3p
(4,369)
(7,788)
–
87,107
20,544
(2,208)
(199)
(3,080)
(10,570)
1,033
–
526
14
(161)
5,899
15,958
12.0%
19.0%
0.87
17.82p
(1.1%)
5.50p
3.22
144.8p
1
EBITDA is calculated as profit before interest, tax, depreciation, amortisation and exceptional items.
2 All adjusted measures exclude exceptional items – see note 9.
3 Operating profit divided by revenue.
4 Profit before interest, taxation and exceptional items divided by total equity plus net debt.
5 Average of net (debt)/cash at start and end of financial year divided by EBITDA1.
6
The dividend per share shown relates to the interim dividend declared and final dividend proposed for the corresponding financial year.
GovernanceFinancial StatementsOverviewStrategic Report 36
Principal Risks and Uncertainties
The Board has overall responsibility
for the management of risk at Treatt
This includes the establishment of an appropriate risk culture, setting the
Group's risk appetite and overseeing its risk management and internal control
systems. Day-to-day risk management is delegated to the Executive Directors
who work closely with senior management teams in reviewing and monitoring
risk and mitigation strategies 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
register, 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 decision-
making across the Group. It also helps to
define and monitor the actions required to
mitigate our risks. Effective risk management
is embedded in the culture of the Group and
the way in which we do business.
We operate in a competitive market and
recognise that strategic, commercial and
investment risks may be incurred in seizing
opportunities and delivering results. As a
consequence, we are prepared to accept
certain risks in pursuit of our strategic
objectives, but acceptance of these risks
that potential
is subject
benefits and risks are fully understood, and
appropriate mitigation strategies are in place
to minimise the effects of these risks, should
they materialise. An understanding of risk
encourages clear decision-making.
to ensuring
Board review of risk
Every year the Board identifies risks from
the Board risk register for review in greater
detail. This year the Board reviewed the
risks associated with a potential loss of
key members of staff, loss of a significant
agreement with a supplier and the risks and
opportunities associated with consolidation
within
industry, following a
number of high profile acquisitions. The risk
owners presented their mitigation strategies
to the Board, providing the Board with an
opportunity to challenge and ensure that
appropriate mitigation is in place and is
effective. Having now undertaken detailed
the flavour
reviews of eight key risks since 2017, the
Board is content that risk mitigation is inherent
in the Group's policies and procedures
and that those responsible for risk explore
ways of continuously improving our internal
systems to ensure that we work within the
risk appetite set by the Board.
The Board has also conducted a review of the
effectiveness of the Group’s system of internal
controls. The Board reviewed and discussed
a paper on the Group’s internal controls,
including
covering all material controls,
those which are financial, operational and
compliance related. The Board has monitored
and reviewed the effectiveness of the Group’s
overall approach to risk management and has
solicited the views of a number of senior
managers relating to commercial and financial
matters and the management of those risks.
The Board has concluded that it has taken all
reasonable steps necessary to satisfy itself
that the current risk management procedures
for identifying risks and considering risk
mitigation are appropriate.
Last year 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 risk management should
remain with the full Board but as the Group
continues to grow, this will remain under
review.
External risks
Foreign exchange continues to be a risk
to the business which requires managing.
The majority of the Group’s raw material
purchases are made in US Dollars as are
the majority of the Group’s sales. The Group
has hedging policies in place which mitigate
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 28
to 34.
Following the decision of the United Kingdom
to leave the European Union (EU) 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 remains, to date, no visible
impact on the business from Brexit. Whilst
the debate about Britain’s exit from the EU
continues, management believes that Treatt’s
global footprint gives the required flexibility to
face any challenges that may arise.
We will continue to monitor the situation
regarding Brexit 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,
compared with pre-Brexit referendum
levels, would be positive for revenues and
profitability. With the increasing revenue
flows
from our US business, which
continues to grow, Treatt has benefitted
from the strengthening of the US Dollar in
this respect and we regard a stronger, but
stable US 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. 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.
• Increases or decreases to import or
export tariffs both with EU countries and
globally, dependent upon the outcome
of future trade negotiations. As well as
potential increases to cost, new customs
procedures and paperwork might result in
increased shipping times. However, having
manufacturing locations in the UK and US
gives us some flexibility to respond to this.
TREATT PLC Annual Report & Accounts 2019 37
How we manage risks
The management of risk is embedded within the framework of the Group, which includes:
• the process of strategy setting;
• processes for identification, review and monitoring of risk;
• a clear understanding of market conditions and raw material prices;
• regular dissemination of financial and non-financial information
• the quality of our people and culture;
• established policies, procedures and internal controls;
• a dedicated team reviewing adherence to internal procedures
and operational controls, requiring action where non-
conformances are identified;
and Key Performance Indicators (KPIs); and
• oversight of risk by the Board.
• Any changes to immigration rules within
the EU have the potential to cause us some
short-term disruption. The ability to attract
talent from around the world is important
for Treatt’s future growth.
• If transitional arrangements are not in place
then the process for ensuring continued
compliance with EU REACH (Registration,
Evaluation and Authorisation of Chemicals)
regulations post-Brexit remains uncertain.
The Group has appointed an
‘Only
Representative’ on a contingency basis
in order to ensure that it can maintain its
support to its EU customer base affected
by these regulations.
Risk management framework
Our risk management framework provides
a consistent and structured process for
identifying, assessing, responding to and
monitoring risk. The senior management
teams are responsible for compiling Group
risk registers to identify risks facing the
business, their effects and determining
appropriate
risk
mitigation strategies. Responsibility for
monitoring and reviewing each risk is
taken by a designated senior member of
staff, ensuring that there is appropriate
accountability. More than 80 risks are
included in the register, rated on their
probability and impact and then re-rated
proportionate
and
C o l l eagues
after mitigation. Those responsible for
each risk will use a variety of tools to
monitor their risk at a more granular level,
including more detailed sub-registers and
pertinent KPIs.
Where significant projects are undertaken,
such as the recent site expansion at Treatt
USA and the current site relocation in
the UK, specific project risk registers are
established to record all risks that could
have a significant effect on the success
of the project. This ensures that there is
accountability for the mitigation strategies
that are put in place and enables regular
identification and
monitoring of risk
the effectiveness of mitigating actions
throughout the project.
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 performance of the
business and its strategic direction. The
Board formally reviews this register twice
a year and upon any material change, with
any amendments, control issues, accidents
or commercial, financial, regulatory or
reputational issues being reported to the
Board in the meantime.
n
neratio
u
m
e
R
N
o
m
i
n
a
t
i
o
n
Board of
Directors
hip tea m
s
r
e
d
a
e
L
e
v
i
t
u
c
e
x
E
Audit
Colleag u e s
Group controls
E
x
e
c
u
t
i
v
e
L
e
a
d
e
r
s
h
ip team
All employees have a role in the management
of risk within the Group
Our risk management framework incorporates a top-down approach,
setting the risk appetite and identifying our principal risks, and
a bottom-up approach to identify our operational risks.
Review of operational controls
GovernanceFinancial StatementsOverviewStrategic Report
38
Principal Risks and Uncertainties continued
the
facing
Principal risks
The Board has carried out a robust
assessment of the principal risks and
uncertainties
business,
including those that would threaten the
future performance,
business model,
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. It
is not intended to be an exhaustive list and
additional risks not presently known to
management, or risks currently deemed to
be less material, may also have potential to
cause an adverse impact on the business.
is particularly experienced
Treatt
in
managing volatility in raw material prices
and availability, and strategic decisions are
regularly taken to mitigate price movements,
which, whilst not eliminating risk, have a
history of being effective. Abundant orange
crops in both Mexico and Brazil, coupled
with reformulation by customers away from
d-limonene and some orange terpenes (the
co-product of orange oil), has led to one of
the sharpest price declines in orange oil ever
seen. Accordingly, it has been an incredibly
challenging year in terms of our citrus
business, but with our diversified supply
base, strong supplier relationships, early
action when markets started to decline and
strategic make-or-buy decisions, we have
mitigated our exposure. However, we have
increased our assessment of the current risk
climate for the movement of raw material
prices. We expect it to take many months, but
this market will rebound, and we will manage
the risk and opportunities of a rising market
when it does so.
respect of
risk climate
The
the
in
commoditisation of existing Treatt products
appears materially unchanged this year
as Treatt continues to see some stiff
competition for existing business, as well
as the need to be highly competitive on
price in order to win new business, as our
customers seek to reduce the cost of their
products. Additionally, some products that
Treatt traditionally saw as value-added are
now seen as standard in the industry, with
customers able to put out to tender or
manufacture themselves. Our response is
to capitalise on areas of the market where
we are particularly strong and to continue
to drive process, quality and efficiency
improvements. The US expansion and UK
headquarters relocation will be instrumental
in this and in enhancing our ability to expand
our value-added offering to customers with
exciting new products, such as the recent
addition of coffee to the range. The continued
growth of other non-commoditised product
categories will naturally mitigate this risk as
commoditised products become a smaller
percentage of our overall product portfolio.
As our business encompasses so many
products derived from natural sources,
adverse weather continuously has an effect
on the availability and pricing of our raw
materials, particularly with the increase in
significant weather events across the globe.
Some recent examples include unusually
heavy snowfall in various growing regions of
China in late 2017, which affected a number
of products including star anise and ginger;
hurricane Irma, which hit Florida in mid-
September 2017, resulting in the largest and
most sustained price increase ever seen for
grapefruit oils; and unusual weather patterns
in Florida during the first half of 2019 causing
a delay in the regular processing of spring
crops such as cucumbers, watermelons,
peppers and cantaloupe. The key to working
with natural crops, where movements in
the market can be unexpected, is ensuring
the availability of alternative supply sources;
establishing and maintaining relationships
with different suppliers is a core responsibility
of the procurement function.
We have continued to see challenges this
year in the supply and pricing of natural and
nature identical chemicals, as well as non-
citrus essential oils. Very strong efforts by
the Chinese government to control pollution
and change safety protocols continues to
lead to thousands of manufacturing plants
being closed in China, many with little or
no notice. Whilst some of these plants are
starting to reopen, many smaller ones
will not survive. These closures have put
immense pressure on the supply chain
worldwide for these raw materials. That,
coupled with two very damaging fires in
2018 at major chemical manufacturing
facilities in Germany and India, caused price
increases ranging from 10% to 400% for
hundreds of chemicals, their derivatives and
essential oils. Whilst we do expect to see
many of these markets slowly move down
in price as plants come back online, the lack
of worldwide supply is likely to keep many
prices higher than historical averages. We
continue to manage the risk to this category
of products, although the overall risk to the
business of the movement in raw material
prices has not increased.
One of the principal risks identified is from
structural damage to our facilities from
adverse weather events, particularly from
hurricanes and storms in Florida, where our
subsidiary Treatt USA is based. The facility is
in Lakeland, which is inland, meaning that the
main threat is likely to be from wind rather
than flood damage. During the site expansion
project we upgraded the existing buildings
to improve their ability to withstand storm
damage, including a complete replacement
of the roof to the older of the two existing
buildings. We have detailed hurricane plans
for mitigating damage, which were put into
action in 2017 when we saw the worst
hurricane in Florida since 2005. There was
no significant damage to the facility and
only 36 hours of production was impacted.
Nevertheless, the weather in Florida remains
unpredictable and hurricanes are a continual
risk that we must recognise and be ready to
respond to.
through
The risk caused by pressure on infrastructure
to continue to deliver strategically important
business has reduced with the completion
of the expansion project at Treatt USA,
delivering greater capacity
the
addition of new plant and machinery
as well as increased warehousing and
cold storage. However, the risk remains
unchanged pending the completion of the UK
headquarters relocation in 2020, which will
add further capacity in the UK. In addition,
the shifting of work patterns across both
sites to extend the working week provides
further opportunities to increase capacity
and ensure greater efficiency within
manufacturing areas.
Risk climate key:
No Change
Increase
Decrease
Strategic impact key:
1
2
3
4
5
6
Investing in our core categories
Diversifying into new categories
Investing for future growth
Investing in our culture
Engaging with our communities
Reducing our environmental impact
See our Strategy on page 16
TREATT PLC Annual Report & Accounts 2019 39
Effect
Strategic
Impact
Mitigation
Risk
Climate
Risk
People
1
Poaching of
key staff
Financial
2 Overspend
on UK site
relocation
As our highly skilled
and experienced staff
become increasingly
customer-facing, the risk
of them being headhunted
increases.
Increased costs, reduction
in working capital
headroom and a need to
cut costs in other areas.
3 Movements in
commodity raw
material price
Impact on contribution,
possible stock shortages.
Operational
4 Pressure on
infrastructure
for strategic
business
Loss of revenue, damage
to reputation, loss of key
strategic customer.
Loss of use of buildings,
danger to staff, loss of
equipment and product.
Major incident due to type
of products stored.
5 Structural
damage to
production
facilities,
particularly at
Treatt USA,
which suffers
storms
1
3
4
5
3
1
2
1
2
3
1
2
3
6
• Ensure we secure an emotional attachment to the business,
that remuneration packages are appropriate to the position,
that staff are empowered and have opportunities within the
business through training, enabling upskilling and providing
career development opportunities.
• Project specification agreed to achievable budget before
commencement with suitable contingency included;
• Third party project managers appointed to run the project;
• Appointment of a third party project supervisor for the
construction phase;
• Appointment of a consultant to supervise the plant and
machinery element of the project;
• Robust contracts in place with contractors;
• Regular budget meetings with Directors to ensure project
remains on budget;
• Close monitoring of the build through regular site meetings
with the project manager and contractor, ensuring that the
project remains on time and on budget; and
• Internal control processes in place to fully evaluate any
additions to the schedule of works.
• Regular stock meetings and inventory control with
experienced members of staff;
• Monitoring and communication of market conditions and
long-term commodity contracts;
• Maintaining close relationships with suppliers;
• Continuing to identify new suppliers for key raw materials
or those where shortages exist;
• Assisting our customers with managing price volatility or
raw material shortages as part of the Treatt service; and
• Internal citrus team to provide greater management across
the Group of Treatt’s largest raw material.
• Ensure correct infrastructure through new headquarters in
UK and expansion in the US;
• Keep close communication between sales and operations
to determine likelihood of large order and capacity restraints
to manage customer expectations;
• Manage sub-contractor relationships; and
• Project manager working on Group inventory to ensure that
we have the right inventory to be able to meet customer
demands, whilst not carrying unnecessary levels.
• Regularly inspect and maintain building components;
• Implement hurricane action plan when necessary;
• Sufficient spread of inventory between production facilities
in UK and US;
• Comprehensive maintenance programmes across the UK
and US sites; and
• Improved capacity to withstand storm damage following
expansion of the US facility.
GovernanceFinancial StatementsOverviewStrategic Report 40
Principal Risks and Uncertainties continued
Risk
Effect
Strategic
Impact
Mitigation
Risk
Climate
6
Operational continued
Inadequate
documentation
of processes
and/or
adherence
to required
processes
7
IT issues
including
network,
hardware, data
and security
Failure of BRC, HACCP
or regulatory audits and
damage to reputation as
problem-free supplier.
Investment in rectification
of any non-compliances
noted.
Loss of IT systems and/
or data, impacting on the
ability of the business
to function effectively.
Reputational damage and
litigation in respect of data
protection.
8 Product failure
Potential product recall
causing financial and
reputational loss.
9 Commoditisation
of established
Treatt products
Effect on revenues
and margin attrition.
1
2
1
2
3
1
2
3
1
2
• Strong commitment Group-wide to disciplined compliance
with internal quality programs;
• Commitment to permit third-party auditing by customers
and for certification and regulatory purposes; and
• Internal auditing of systems and processes against
Standard Operating Procedures and British Retail
Consortium (BRC) requirements.
• 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 searches for and fixes
vulnerabilities, including those reported by third-party
security consultants;
• Continued investment in infrastructure and particularly
software security;
• Continued focus on raising of staff awareness of cyber
security through test scenarios;
• Insurance cover taken out to protect the business
against the highest cyber risks and consequent business
interruption; and
• Ad hoc hacking attempts by third-party security consultants.
• 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
Supplementary Application Questionnaire (SAQ)
documentation;
• Supplier risk assessment to determine in-house test schedule;
• Continuation of visits to suppliers;
• Thorough investigation of errors leading to appropriate
action such as retraining or amendment of procedures;
• Review and renewal of recall insurance; and
• Annual desk top testing of product recall procedure.
• Innovation and development of new products;
• Broaden into other associated sectors;
• Continued focus on citrus as area of strength;
• Identification and implementation of process improvements
and new equipment to increase efficiency; and
• Increasing value-added proposition.
TREATT PLC Annual Report & Accounts 2019 41
Risk
Effect
Strategic
Impact
Mitigation
Risk
Climate
Operational continued
10 Shortening
value chain and
new entrants
in proprietary
technology-
based aqueous
distillates
11 Single-sourced
for synthetic
speciality
chemicals, many
Treattarome®
raw materials
and materials for
applications work
12 Sourcing of
natural products
Legal and regulatory
13 Failure to
comply with
relevant
UK and US
environmental,
H&S and other
applicable
legislation
Customers demonstrating
increased competence
to fold, fractionate and
break bulk.
Increased competition.
Potential loss of primary
supply source.
The nature of the
materials concerned
would indicate individual
company IP is involved.
Loss of supply, increase
in market price or impact
on quality resulting from
fluctuations in yields
caused by weather,
disease, etc.
Squeeze on margins.
HSE/EA investigation.
Probable enforcement
action involving fines,
enforcement notices.
Risk of site closure.
1
2
1
2
1
2
1
2
5
6
• Continued value-added in-house innovation;
• Strengthen product knowledge/sourcing;
• Further rationalisation of product portfolio to remove
low margin products and improve efficiency; and
• Working with customers on make-or-buy decisions where
Treatt has the expertise available, enabling customers to buy
rather than process in-house.
• 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; and
• Long-term supply agreements put in place.
• Enhancing relationships with competitors/brokers and
other supply channels, combined with forward purchasing
contracts for medium to longer-term supply;
• Visits to existing and new suppliers for key product groups;
• Attendance at industry conferences and seminars providing
opportunities to meet with potential new suppliers; and
• Strategic buying of core products.
• 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;
• Working closely with the Environment Agency and relevant
authorities in respect of COMAH1; and
• Continuation of relevant training and assessment of
employee skills across the Group.
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, which provides further mitigation in certain areas of risk.
During FY 2018, a full-scale review of the Group’s business continuity plans took place with
the assistance of an external consultant, the cost of which was covered by the Group’s
insurers. A full business impact analysis was conducted improving our understanding of
the business’ resilience and how to minimise the impact and disruption of an incident or
crisis to both operations and reputation. A more robust business continuity plan has been
designed to incorporate emergency response, crisis management and business recovery
and strategic IT disaster recovery aligned with best principles set out in ISO22301, the
international standard for Business Continuity.
1
Control of Major Accident Hazards.
Risk climate key:
No Change
Increase
Decrease
Strategic impact key:
1
2
3
4
5
6
Investing in our core categories
Diversifying into new categories
Investing for future growth
Investing in our culture
Engaging with our communities
Reducing our environmental impact
See our Strategy on page 16
GovernanceFinancial StatementsOverviewStrategic Report 42
People & Culture
We give exceptional people
the freedom to do great things
The talent, commitment
and drive of the people at
Treatt are what shape our
winning culture. It is this
culture that differentiates
us in a competitive
marketplace and is why
our customers choose
to work with us time
and time again.
Jo Mapston
Global Head of HR
We attract exceptional people who are genuinely passionate about what they do.
This has shaped a culture where our employees are excited about their career and work
together in an open, fun and inviting environment where they can uncover their true
potential and thrive. Investing in our culture is integral to our business strategy as it is
the cornerstone of what makes us successful.
Strategic recruitment
We offer the opportunity to work in a
future-focused Company
that celebrates
excellence and diversity while looking after
its people. Successful applicants aren’t just
highly skilled professionals, they must also
be the right cultural fit for the team they’ll
be joining. Our Company values are used in
every appointment to ensure we’re bringing
the right mix of skills and personalities into
the business.
Championing values
Our values are the fuel that drive the culture
and success of our growing business. They
are the cornerstones of our organisation as
they were created, owned and championed
by our team of nearly 400 employees over
three continents.
Integrity
We are committed to excellence at every
turn while working to the highest possible
standards across the business.
Teamwork
Working in partnership is how we best serve
our customers, exceeding their expectations
and meeting
their needs – no matter
how ambitious.
Challenge
We strive for progress across the business
and always work to find a better way to
improve our service.
Pride and passion
Our people love what they do and are
driven by the desire to delight everyone they
work with.
96%
of staff received
training in the last year
4,521
hours of training for employees
TREATT PLC Annual Report & Accounts 2019 43
Celebrating achievement
We are big believers in recognition and
reward for a job well done. As we expect
the best from our people, it is only right that
everyone understands the important part
they play in our Company’s success.
Our rewards go beyond the every-day as we
are continuously looking for new, innovative
ways to make our people feel valued.
Whether it’s free ice-creams in a heatwave
or free shares at Christmas, we work hard to
say thank you all year long.
Future focus
We recognise the need to invest in tomorrow
internships,
and as such, we provide
apprenticeships, graduate trainee and work
experience placements
in almost every
area of the Company. By working with local
schools and colleges, we’re doing our part to
develop the next generation.
Starting right
Our global induction programme ensures that
every new starter is warmly welcomed into
the business and set up to succeed. Each
programme includes a tailored schedule of
meetings, seminars and training courses, all
designed around the new starter and their
role. Every detail has been thought of as each
person receives a guided tour, a welcome
bag with lots of Treatt goodies and a lunch
off-site with their team on their first day so
that they feel part of the community from
the outset. Knowledge is shared through our
Treatt University education system, which is
supported by an ongoing syllabus to facilitate
continued development.
Developing talent
This year, as part of our ongoing commitment
to attracting and retaining the best in the
implemented a new
industry, we have
Performance Management Process in the
UK. We now have a strategic framework in
place that allows us to recognise, develop
and reward talent. Every member of staff has
SMART objectives, all aligned to our strategy,
that will further drive business success.
70%
15
of new vacancies were filled
by skilled internal candidates
new roles created
What they say
“I knew very soon after first
meeting a couple of people from
Treatt that this was a team I
wanted to be on. Everyone is
working towards the same goal,
and we’re having the best time
while we do it.”
Emma Bowles, Global
Marketing Manager, UK
“I cherish coming into work
every morning knowing that I'm
surrounded by people who will not
stop until the job is done and our
customer is satisfied.”
Brandy Geiger, Director of
Regulatory and Innovation, USA
“Treatt is like a big family. There
is competition and cooperation,
opportunities and challenges. We
have the freedom to realise our
business strategy in China.”
Simona Loh, Sales, China
“Today, Treatt's active
encouragement of staff interests
and ambitions produces remarkable
results and innovative ways to help
our customers succeed.”
Andrew Campbell, Business
Development Manager, UK
GovernanceFinancial StatementsOverviewStrategic Report 44
Working Responsibly
Reaching business goals is critical
to the Group’s success – how we
achieve them is equally important
TREATT PLC Annual Report & Accounts 2019 100%
of our waste is
recycled or reused
Over
90%
of our purchased
kgs are natural
More than
80%
of our product
portfolio is natural
45
GRI STANDARDS
The Group is committed to providing greater transparency of
critical sustainability issues, specifically environmental, social
and governance (ESG) factors. This Annual Report has been
prepared with reference to the Global Reporting Initiative (GRI)
Sustainability Reporting Standards 2016. A GRI Standards index
is available on our website.
Environmental performance
and strategy
The Group continues to manage energy, fuel
and waste disposal 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, we are
constantly reminded of the many factors that
can influence price increases and present
supply challenges. Consolidation of supply
from source, fresh fruit market prices,
changes
in political/economical climates,
major fluctuation in supply versus demand,
as well as adverse weather conditions and
disease are the main drivers of volatility.
Droughts experienced over late summer
in Mexico will affect the majority of citrus
crops this season including orange, lime
and grapefruit with a potential 50% crop
reduction from the previous season. After an
incredibly difficult year, Florida’s 2019/2020
season is moving in a positive direction,
estimated to be around 73m boxes, which is
similar to last season. We are thankful that
the five to seven hurricanes predicted this
year did not have any impact on Florida or its
citrus growing areas.
Sustainability
S172 of the Companies Act 2006 places an
onus on the Board to promote the success
of the Group for the benefit of its members
as a whole, whilst having regard to various
other stakeholder interests. We take our
social responsibility seriously and have a
reputation for behaving ethically and in an
environmentally and socially responsible
way. Operating in a responsible manner is
an important aspect of our ability to deliver
our strategic objectives and in creating long-
term value. The Board, as a whole, takes
responsibility for our sustainable business
performance. Our activities are focused on
the areas where we feel we can make a
real difference – the environment, business
integrity and ethics, our employees, health
and safety and the local communities in
which we work.
Environment
Climate change and resource scarcity
are matters of deep concern not only to
humanity generally but to Treatt in particular.
Our business very much relies on the
sustainability of nature’s bounty. Robust, high
quality and affordable crops of our natural
ingredients are essential, whether oranges
or tea, watermelon or honey, limes or roses.
Whatever the raw material we work with, we
are passionate about its sustainability. From
carbon emissions to the use of water, from
reduced sugar to optimal natural extraction,
the Group strives to be at the forefront of
first-rate stewardship.
The Group is committed to good environmental
practices. 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.
GovernanceFinancial StatementsOverviewStrategic Report 46
Working Responsibly continued
We understand that everything we do has an
impact on people and the environment, which
is why we operate in an ethical and socially
responsible way
Brazil’s current citrus season, although up
from last, is likely to be reduced by at least
10% due to a recent severe ten-day period
with no rain during critical maturation. The
effects of this drought will not only be felt
this season but will also impact next, which
is expected to be some 30% lower than
2018/2019 yields. Limes in Mexico have also
been reduced by 25-30% due to severe
lack of rain. Lemon production in Argentina
suffered months of heavy rainfall which had
an impact on the size of fruit. Fruit either too
large or too small does not bode well for the
fresh fruit market, so there has been a very
large influx of lemons going for processing
which, in turn, caused an oversupply of
lemon oil.
As markets continue to fluctuate, it is never
more important to work in partnership with
our suppliers. The strength of having global
strategic supply alliances comes into play
when we are challenged with such radical
volatility of natural crops and having access
to these sources is key to being able to
mitigate risk and drive business growth.
We are constantly looking at how we can
reduce waste and our environmental
impact. We have introduced a paperless
policy in the Accounts department and have
reduced the number of freestanding waste
bins in our offices to encourage thoughtful
recycling and disposal. We are continuing to
reduce the number of printed copies of the
report and accounts required to be posted
financial
to shareholders, ensuring our
reporting process has a
less negative
environmental impact.
At Treatt USA, increased production has
required us to work closely with the Municipal
Water and Wastewater Departments as well
as Lakeland Economic Development Council
to effectively understand and manage our
wastewater with the addition of a flowmeter.
The repair of the existing injection well,
as part of the larger effort to increase well
water capacity, has eliminated ground
water leakage. In Kenya we have appointed
two Environment and Waste Management
Champions, providing quarterly training for
all staff on a 'Reuse & Reduce' initiative.
The completed site expansion at Treatt USA has
provided us with the opportunity to successfully
modernise facilities and build an appropriate
and cost-effective infrastructure that will help
to reduce the environmental impact of the
buildings. In 2020 the UK site relocation will take
place and working closely with local planning,
the building will be constructed to a BREEAM
rating of ‘very good’, a performance equivalent
to the top 25% of UK non-domestic buildings.
We have worked with assessors to measure
expected ratings covering everything from
energy, transport, water, materials, waste and
pollution. We have also worked with an ecologist
to ensure habitat improvements including trees,
hedgerows, grassland and shrubs that will
provide foraging and nesting opportunities for
a number of bird and invertebrate species,
ensuring that any detrimental impact of our
building is minimised.
in
theme
Waste
A consistent
the Group’s
environmental ethos is a commitment to
recycle as much waste as possible and
constant improvements are being made in
the reduction of waste streams. At R C Treatt
24 tonnes of material was shipped to the
anaerobic digester, 63% of hazardous waste
was recycled and/or recovered (2018: 55%)
and 100% of used drums have been recycled.
100% of waste continues to be diverted from
landfill, with 42 tonnes of general waste
being sent to an energy recovery facility
for electricity generation as well as metal
recycling, with material residues being used
in construction products. The cardboard
skip for production packaging, introduced in
August 2018 as a dedicated waste stream, has
seen 4 tonnes being recycled or recovered.
In addition, waste oil with a calorific value
is sent for use as biomass, thereby further
reducing the Company’s carbon footprint
and eliminating disposal costs. Treatt USA
recycled 80 tonnes of cardboard as well as
7,817 cubic meters of plastic and steel drums.
All plastic and wooden pallets are sent for
recycling in full loads. In Kenya, distillation
biomass waste is converted to biochar, mixed
with farmyard 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.
recording
Water
The Group has decided to record water
consumption data whilst
its
greenhouse gas emissions in order to gain
a greater understanding of its environmental
impact. The largest consumer of water in
the Group is Treatt USA, which uses large
quantities in its manufacturing processes
and the cleaning of its specialist equipment.
Due to its high consumption, Treatt USA
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. Treatt USA is working
with the local water authorities to monitor
consumption to ensure compliance with
relevant regulations.
The Group’s own crop growing area in Kenya
uses rainwater 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 wastewater
is re-used as irrigation water on the farm
vegetable garden.
TREATT PLC Annual Report & Accounts 2019 47
Recycling pyramid
As a business, we have a legal and moral responsibility to ensure we produce, store,
transport and dispose of business waste with minimal harm to the environment.
We are responsible for our waste from
the point it is produced, until we have
transferred it to an authorised body.
However, our duty of care for the waste
we produce does not end there and
extends along the entire chain of waste
management. We need to ensure that the
Company that accepts our waste holds
the relevant registrations and permits
for
final recovery
or disposal.
transportation and
The hierarchy of waste management can
be used to focus our efforts to reduce
waste first and ensure as little as possible
goes to landfill.
REDUCE
REUSE
• Reduced plastic cup usage by 33%
• General waste reduced by 22%
• Carbon footprint – 16% reduction per kg sold
• Reusable water bottles given to all staff
• Reuse of pallets through logistics chain
• 100% of used drums reused or recycled
RECYCLE
• 55% hazardous waste recycled
RECOVER
LAND
FILL
• 100% of general waste goes to energy recovery facility
• 16 tonnes of process waste material to anaerobic
digester for energy recovery
• Zero general waste to landfill
In recording water consumption for the Group,
the sales office in China has been excluded
on the basis that water usage is included in
the rent. Data has been accurately recorded
from invoice information and meter readings.
Water efficiency
Total water used (m3)
55,596
43,475
2019
2018
Water efficiency
(litres per kg of
product shipped)
7.37
5.31
The increase in water consumption primarily
results from the building work at Treatt
USA, an overall increase in production in
the US and a change in the mix of products
towards
those which use more water
during processing.
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 2019 for activities
within the operational control of the Group.
It is not currently intended to report Scope
3 emissions. The Group is working towards
compliance with Phase 2 of the Energy
Saving Opportunity Scheme, which
the
UK Government established to implement
Article 8 (4 to 6) of the EU Energy Efficiency
Directive (2012/27/EU) and is administered
by the Environment Agency.
In measuring the Group’s greenhouse gas
emissions, the sales office in China has
been excluded on the basis that emissions
from utility consumption, which is included
in the rent, is 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. GHG emissions detailed in the table
have been calculated using the appropriate
2019 DEFRA conversion factors, except for
overseas electricity which used the 2015 IEA
conversion factor for reporting consistency.
Scope 1 –
Direct CO2 emissions
(tonnes CO2e)
Scope 2 –
Indirect CO2 emissions
(tonnes CO2e)
Total CO2 emissions
(tonnes CO2e)
gCO2 emissions per
kg of product shipped
2019
2018
1,864
1,589
1,665
1,336
3,529
2,925
476
357
GovernanceFinancial StatementsOverviewStrategic Report 48
Working Responsibly continued
Sustainable Shipping
We believe in our duty to make our logistical operations as sustainable as possible.
We actively work with agents who are committed to reduce CO2 emissions through
their own sustainability strategy, which allows us to make a conscious choice when
securing freight transportation.
for
The Group’s UK site continues to operate
under the threshold limits of the Solvent
Emissions Directive 1999/13/EC
the
industry at less than 0.5 tonnes, with the
threshold limit set at 10 tonnes. Group Chiller
Operating CO2 emissions are 25 tonnes (2018:
27.5 tonnes). Total GHG CO2 Emissions for
Scope 1 and Scope 2 have increased to 3,530
tonnes (2018: 2,925 tonnes). This is primarily
a result of increased energy consumption
arising from the building work at Treatt USA;
additional use of 24-hour working patterns
in the UK and US; significant emissions
from the decommissioning and installation
of more efficient chiller units at R C Treatt
due to breakdowns; installation of new chiller
units at Treatt USA as part of the expansion
project; and additional headcount in both the
UK and US.
Business integrity and ethics
As a leading ingredients manufacturer, we take
huge pride in the stability and transparency
of our supply chains. Our proven ability to
provide our customers with consistently
high-quality products is testament to the
strategic investment in our relationships
with raw material farmers, producers and
processors. A global team expertly manage
the procurement of over 2,500 products
across our seven product categories, each
with its own unique supply chain. Our
expertise and skill here is a core part of our
Group’s value proposition and is integral to
how we deliver excellence to our customers
time and time again. As markets continue to
fluctuate, it has never been more important
to keep all lines of communication open. We
work in partnership with our suppliers and
work hard to bring our customers the latest
from the world’s key growing regions, to
mitigate risk and drive business growth.
INTEGRITY
PRIDE & PASSION
TEAMWORK
CHALLENGE
improvements
The Group is a band B member of Sedex, a
global membership organisation dedicated
to driving
in ethical and
responsible business practices in global
supply chains by using a collaborative
approach to help buyers and suppliers
share and exchange data, helping to better
manage social and environmental risks
within our supply chain, and positively
impact responsible sourcing. We are also
proud to be accredited to use the Rainforest
Alliance Green Frog certification seal, which
indicates the Group meets standards that
require environmental, social, and economic
sustainability. To support our beliefs, we are
committed to meeting the Ethical Trading
Initiative best practice requirements.
Guiding principles
Treatt has integrity as a core value. This
value, along with teamwork, challenge and
pride & passion make up our four core values
which are the four pillars on which we stand.
As a Group we understand and respect the
need to promote and maintain trust in our
business; the Group has a reputation for
honesty and integrity in its relationships with
its stakeholders.
Supplier code of conduct
Ethical concerns and human rights issues
have always played an
important role
in Treatt’s Company philosophy and the
Group’s Supplier Code of Conduct details
the standards of behaviour which Treatt
regards as acceptable. Provision of a safe,
clean working environment,
from
discrimination, coercion and the use of
free
child or forced labour is a basic right of
all employees, which Treatt expects of its
business partners as a minimum standard.
The Supplier Code of Conduct also sets out
the standards expected with regard to anti-
bribery and corruption, modern slavery,
health and safety and good environmental
practices. The Code of Conduct, which is
published on our website, forms part of the
raw material supplier evaluation process
and the approval of any new supplier will
be subject to their acknowledgement that
they materially comply with its provisions.
Suppliers are revalidated every three years
and must reconfirm their compliance with the
Code of Conduct as part of that process.
Human rights
Treatt complies with the full requirements
of the Ethical Trading Initiative Base Code,
which is founded on the conventions of the
International Labour Organisation and is an
internationally recognised code of labour
practice. It is a requirement of doing business
with Treatt that our suppliers comply with the
Base Code.
Anti-bribery and corruption
Treatt has a zero-tolerance policy as regards
bribery and corruption. This extends to all
businesses and transactions and includes
a prohibition on offering or receiving
inappropriate gifts or levels of hospitality.
The Board reviews anti-corruption policies,
which are communicated and accessible to
all Group staff, on a biennial basis to ensure
that they remain appropriate. Any changes to
policies are communicated across the Group.
TREATT PLC Annual Report & Accounts 2019 49
13%
of our shipments use these
sustainable shipping companies
Female
Male
Total
Average hours
training
Total hours
training1
13
14
13.9
1,681
2,840
4,521
1
majority of annual hours training is carried out by
external providers.
of
every
aspect
Employee involvement
Executive Directors make half-yearly
results presentations to all colleagues
and encourage questions and dialogue
on
the Group’s
performance and activities. At R C Treatt
the
Information Exchange Committee
(IEC) enables an exchange of ideas and
information between the Company and its
employees. The IEC is chaired by the CEO
and its members are all colleagues below
management level who represent every
department and area of the business in
the UK. The Executive Directors regularly
have lunch with colleagues to hear their
views on the business. At Treatt USA the
Vice Presidents regularly hold 'town hall
meetings' to communicate a variety of
subjects and provide colleagues 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, engaging in
meaningful discussions with colleagues at
all levels within the organisation.
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 28 to the financial
statements).
With the Sustainable Shipping Incentive, bringing leading companies
together with the aim of creating a sustainable industry by 2040,
Treatt can be confident that sending our products around the world
will contribute to this effort.
All UK and US staff receive anti-bribery and
anti-facilitation of tax evasion training on
joining the Group and those staff with access
to customers or suppliers are required to
refresh their training on anti-bribery every
two years. Staff in other jurisdictions receive
anti-bribery training on a two-year basis.
Modern slavery
Treatt published its first Modern Slavery Act
Statement in 2016 and has worked since to
raise awareness of this important issue with
employees, through the Anti-Slavery and
Human Trafficking Policy and with suppliers,
through the Supplier Code of Conduct. The
Group has a zero tolerance of slavery and
human trafficking in all its different forms
in any part of its business and in its supply
chain. All employees are required biennially
to undertake training using online resources.
We ensure that everyone who works for
Treatt benefits from a working environment in
which their fundamental rights and freedoms
are respected and we are committed to
taking appropriate steps to ensure that our
suppliers’ treatment of their employees is
consistent with this.
Employees
Customers choose to partner with us time
and time again because our people love
what they do and are driven by the desire to
delight everyone we work with. The Group
is committed to a policy of recruitment
and promotion on the basis of aptitude and
ability without discrimination. Applications
for employment received from people with
disabilities are given full and fair consideration
for suitable vacancies, having regard to their
particular aptitudes and abilities.
Training
The focus on training continued in 2019 in
order to continuously improve the skills of
our employees through both general and
targeted training programmes 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 the ongoing development
of staff, which
includes apprenticeship
programmes at NVQ level, right through to
further education including masters level.
Professional qualifications and memberships
are highly valued by Treatt, and we work
with a number of professional bodies for
accredited qualifications across multiple
disciplines. These qualifications are offered
across multiple departments including IT,
Procurement, HR, Technical, Engineering,
Marketing and Health & Safety.
This year we have four apprentices across
the business at the UK site who are provided
with a structured training and qualification
programme. There are also four interns who,
whilst developing their knowledge and gaining
practical experience, are providing a valuable
resource to the technical department. These
initiatives also strengthen the Group’s links
with universities and develop relationships
with the next generation of talented candidates.
Educational support is provided in the UK and
schoolchildren are encouraged to spend time
in the business through educational visits and
work experience placements. Expertise is also
shared with students at careers and science
fairs. Colleagues from various departments
held mock interviews with 13 and 14 year-
old students at a local school to help the
students develop their communication skills
and confidence.
GovernanceFinancial StatementsOverviewStrategic Report 50
Working Responsibly continued
Diversity
We believe in championing diversity in all forms throughout every area of the business.
UK
Total Employees
212
Total employees
Female
Male
88
124
Of which are Line Managers
Female
Male
18
21
UK Total
Training Hours
3,811
Total training hours
Female
Male
1,595
2,216
Average training hours per employee
18
Female
Male
18
18
EMPLOYEE INVESTMENT
This year we have implemented a new
performance management process in the UK
to improve how we develop talent within the
business.
Through round table discussions, the process has been well
received and supported by management. It has been pleasing to
see that cross-functional objective setting has been discussed
for the new financial year, as well as individual performance
and development objective setting.
ORGANISATION'S BENEFITS1
MANAGER'S BENEFITS1
EMPLOYEE'S BENEFITS1
organisational
performance;
Improved
employee retention and loyalty; improved
productivity; overcoming the barriers to
communication; clear accountabilities; and
cost advantages.
Saves time and reduces conflicts; and
ensures efficiency and consistency
in
performance.
Clarifies expectations of the employees;
self-assessment
clarify
the job accountabilities and contribute to
improved performance; and clearly defines
career paths and promotes job satisfaction.
opportunities
WORKING BENEFITS
HEALTH BENEFITS
FINANCIAL BENEFITS
• Responsibility-based flexibility
• Life Assurance
• Competitive salary
• Holiday purchase scheme
• BUPA health cover for UK based
• Cycle to work scheme
• Computer and mobile phone purchase
scheme
• Packed social calendar including our
employees
• Medical, dental and vision insurance for
US based employees
• Disability insurance
annual party and monthly events
• Employee assistance plan
• Gym membership and exercise classes
• Annual bonus based on the performance
of the Company and Group – a scheme
that pays up to 12% of annual salary
• Non-contributory UK pension scheme
and 401K savings plan for US staff
• UK and US share save scheme – offering
substantial discount in shares
• Share Incentive Plan, free shares/stock
and partnership and matching shares
available
• Childcare vouchers – salary sacrifice
enabling huge savings on childcare
1
Relates to the Group's UK-based operations only.
TREATT PLC Annual Report & Accounts 2019 51
US
Total Employees
114
Total employees
Female
Male
40
74
Of which are Line Managers
Female
Male
3
6
US Total
Training Hours
710
Total training hours
Female
Male
86
624
Average training hours per employee
6
Female
Male
2
8
The Share Incentive Plan is run for all
UK employees, with a similar plan for US
employees. Under these plans, all eligible
UK and US employees have received free
shares (or their US equivalent) since 2014
and will do so again in December 2019;
UK staff will also be able to buy additional
partnership shares, which Treatt will match
on a 1:1.5 basis in accordance with the rules
of the plan. The Directors believe that by
encouraging greater employee shareholding
the interests of employees is further aligned
with shareholder interests.
As employees based in the US can find it
problematic to sell shares in a UK-listed
company the Group has set up a Vested
Share Trust Account. This provides a platform
from which US employee shareholders
can sell their shares more easily which
should encourage higher levels of employee
ownership in the US.
Looking after our people
Promotion of our employees’ health
is
extremely important across the Group. Our
philosophy regarding our people is ‘think
well, live well, be well’. In the UK, we have
participated in the voluntary National Campaign
for Free Health Screening for over 45-year
olds on two occasions as well as a free offer
of annual influenza vaccinations for staff who
do not qualify under the NHS criteria. These
have been run by local health services on site
at R C Treatt. We understand the importance
of mental health as well as physical health.
We have provided mental health awareness
training to all our managers and staff and
subsidise a programme of pilates at work.
Over the summer we initiated the Couch to 5K
scheme, encouraging colleagues to take time
away from their desks to gradually build up
their physical health and thus benefitting mental
health too. We identify health risks from general
risk assessments and COSHH assessments
(Control of Substances Hazardous to Health).
We have a third-party Occupational Health
Service who work with us to identify any
additional health risks and carry out regular
health screening and surveillance to monitor
to exposure.
workers' health
The service involves worker assessment
of exposure and includes wellbeing and
general physical and mental health support.
We carry out a quarterly review of service
delivery.
in relation
Local employment
Our larger operations in Bury St. Edmunds
and Lakeland provide direct employment
opportunities, with a significant number
of our workforce in these locations living
within the local postal districts, including
7 of our 11 Senior Managers and Executive
Directors. In October last year we were
extremely proud to have R C Treatt awarded
Platinum accreditation for Best Employers
in the Eastern Region. We also encourage
local businesses to be part of our supply
chain, and actively seek to work with local
service providers in order to support the
local economy and build local skills and
expertise. We are especially looking forward
to developing new local relationships upon
our UK site relocation next year and have
already identified local providers to facilitate
our employees' needs.
We recognise that our employees have lives
outside of work and 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 employees,
as far as their roles permit, to work from home
and provide general flexibility. Such policies
assist in the recruitment and retention of a
diverse workforce.
Health and safety
The Group’s ongoing 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 operations.
We constantly audit our procedures and
processes across the Group to make sure that
they remain effective and that they are adhered
to; they are updated or refreshed as required.
Training plans for operational staff involve
observational and theoretical competency. For
more safety critical activities this is carried
out by a group of trained internal competency
assessors. Employees are assessed against
specific competencies through observation,
discussion, and in some cases, recorded tests.
regularly
review procedures and
We
use audit, feedback and near miss and
accident/incident data to update and ensure
procedures remain current and effective. We
have an internal concern reporting system for
Health and Safety issues using cards, which
can be anonymously completed. Additionally,
we have a quality concern raising system that
is run by a third party using a mobile phone/
cloud-based system, which enables staff to
anonymously raise issues of concern. We do
encourage staff to report as part of our ‘no
blame culture’.
Position
Group Directors
Senior Managers
Direct reports of Senior Managers
Other Employees
Total Employees1
Male
Female
6
5
30
204
245
2
4
29
119
154
Total
8
9
59
323
399
1
Actual number of employees at the year-end date. This differs to the headcount in note 6 to the financial statements which
is the average number of employees during the year measured on a full time equivalent basis.
GovernanceFinancial StatementsOverviewStrategic Report 52
Working Responsibly continued
Charity Bike Ride
Each year we look for opportunities to support local causes that matter to our people
in new and engaging ways. This year Treatt staff cycled over 4,000 miles (the distance
from our UK headquarters to our Lakeland facility) on static bikes, raising over £2,500
for NSPCC Suffolk.
The fundraising took
place over a month as
staff were encouraged to
jump on a bike throughout
their working day to raise
money, but also take a
break from work and get
some exercise.
The money our people
raised will be used to
deliver vital services to
schools in the region as
well as offering further
support to children in
need. The fundraising
cycle was part of the
NSPCC’s Suffolk 125th
anniversary appeal which
raised money for its Speak
Out Stay Safe service.
>£2,500
Raised for NSPCC Suffolk
The UK manufacturing facility is designated
as a top-tier site under the Control of
Major Accident Hazards Regulations 1999
the Competent
('COMAH'), enforced by
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. As
safety and our environment are of paramount
importance, members of the Treatt team
have established a COMAH forum to enable
collaboration between COMAH sites where
experience and ideas are shared.
All staff have training requirements identified
related to their role. This includes general
induction to health and safety and COMAH.
Depending on their role further training is
given for Control of Substances Hazardous
to Health (COSHH), Risk Assessment, Food
Safety, Manual Handling and Dangerous
Substances and Explosive Areas (DSEAR).
Team leaders and Managers are expected to
attain further IOSH (Institution of Occupational
Safety and Health) and NEBOSH (National
Examination Board in Occupational Safety and
Health) safety qualifications as part of their
role. Additional training is given to our Safety,
Health and Environment Champions, who
are employee representatives with additional
health and safety responsibilities, for which
they receive payment, ensuring that safety
remains a top priority of the business.
Relevant staff will have appropriate task
safety
training such as process safety,
confined space or scaffolding. We follow the
hierarchy of controls and review tasks by risk
assessment or a Hazard Operability study
to understand impact and how risk can be
mitigated or eliminated. If a significant risk
remains it will be reviewed via the Health
and Safety, Chemical and Process or Quality
steering meetings which will ensure the risk
has been reduced as far as is reasonably
practicable and agree a way forward, which
may be alternate methodology,
further
investment or a decision to cease the activity.
Social and community
We understand that everything we do has
an impact on people and the environment,
which is why we operate in an ethical and
socially responsible way. With a deep-rooted
respect of the world’s resources we are
committed to ensuring a sustainable, fair and
rewarding future for all our staff, suppliers
and growers – wherever they live. The Group
endeavours to have a positive impact on the
communities in which it operates and over
the last few years has significantly increased
its presence in these communities. During
the year the Group made charitable donations
of £41,200 to local and national causes, and
has been involved in many initiatives across
its locations.
The Kenyan companies are committed to
purchasing oils directly from source at a
fair and sustainable price and work 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 their
partner, the Kenyan Organic Oil Farmers
Association (KOOFA), increasing from its
initial 90 members to over 900 producers.
Our Kenyan businesses have helped deliver
TREATT PLC Annual Report & Accounts 2019 53
more than 300 new 3,000 litre water tanks to
members of KOOFA to enable them to store
valuable water, with the remaining farmers
to receive water tanks as part of this long-
term project. Over 3,000 family members
utilise the new water tanks, freeing up time
usually spent fetching or buying water for
other activities.
'Payroll Giving', operates in the UK and
enables colleagues to donate regularly to
their chosen charities from their gross pay;
money is also raised for a local charity via a
monthly lottery administered via payroll. The
Company donates additional funds to money
raised by colleagues during
fundraising
activities through its matching scheme.
Additionally, through the donation of efficient
gasifier stoves to Kenyan farmers, the Kenya
companies continue to be certified carbon
neutral; all carbon dioxide emissions from
Kenyan activities having been neutralised.
As a direct consequence, dozens of Kenyan
farming families are now living in healthier
homes
from smoke and carbon
monoxide formerly produced from open
fires. Community funds provide additional
benefits to the farmers and their families,
such as scholarships and sanitary products
to a local primary school. Tanks and taps
have also been gifted to KOOFA farmers and
shopping vouchers issued.
free
The Treatt Community Spirit Initiative goes from
strength to strength and provides opportunities
for employees to support local causes. Activities
carried out include litter picks and assistance
in a charity’s warehouse as well as supporting
local fundraising events both during working
hours and in colleagues’ own time. R C Treatt
was the main sponsor for the ‘Big Bang Fair’,
sending six volunteers who engaged with over
1,000 students on the day from schools across
Suffolk. In support of a charitable initiative, we
were proud sponsors of both the Bury Free
Press Community Awards, which celebrated
the very best local community initiatives, and
the ‘Good Neighbour Award’, for the person or
group that has shown good neighbourliness to
others within the local community.
The charities Treatt continually supports
include: kidsPACK children’s charity, Florida
Youth Fair, the Grow Into You Foundation
for teens leaving the foster system and Toys
for Tots-Boxes in the US together with East
Anglia’s Children’s Hospice, My Wish Charity
supporting West Suffolk Hospital, UpBeat
Heart Support, St Nicholas Hospice, MIND
and Bury in Bloom in the UK.
In support of a charitable initiative, UK
colleagues were invited to enjoy a locally
roasted coffee and homemade brownie with
a percentage of the proceeds being donated
to the Upbeat Heart Support Group. Similar
initiatives take place in the US, and a party
of volunteers regularly give their own time
to collect rubbish on local roads as part of
the Florida Department of Transportation’s
'Adopt A Highway' scheme.
This Strategic Report was approved by the
Board on 25 November 2019.
Signed on behalf of the Board.
Anita Guernari
Group Legal Counsel
and Company Secretary
GovernanceFinancial StatementsOverviewStrategic Report 54
Corporate Governance
Board of Directors
As a Board, we are conscious that we
are accountable to our shareholders
and must have regard
to other stakeholders
such as employees,
customers, suppliers
and the environment.
Corporate Governance
Statement
Our commitment to effective
corporate governance across
the Group is reflected in
our principles, policies
and practices.
56
58
Audit Committee Report
The Audit 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.
66
TREATT PLC Annual Report & Accounts 2019 55
Nomination Committee Report
During the year we refreshed the Board
with the appointment of two high calibre
Non-executive Directors.
64
Directors’
Remuneration Report
There has been a considerable movement in the
regulation of UK Directors' remuneration with the
introduction of the 2018 Corporate Governance
Code and the expansion of
remuneration reporting
requirements, included
under the Shareholder
Rights Directive.
Directors’ Report
The Directors' Report contains all other
disclosures and statutory information.
70
84
GovernanceFinancial StatementsOverviewStrategic Report 56
Board of Directors
Tim Jones
Non-executive Chairman
Daemmon Reeve
Chief Executive Officer
Richard Hope
Chief Financial Officer
Jeff Iliffe
Non-executive Director
Led Treatt’s Board as its Chairman
since his appointment in 2012 and
appointed Daemmon Reeve as the
Group's CEO in the same year.
A Member of the Chartered Institute
of Securities and Investments and
an Associate of the Chartered
Insurance Institute, Tim began his
career in financial services and
held posts in the Middle East, the
US and Europe before entering
the beverage/water bottling sector
including the establishment of a
joint venture in the Balkans.
to drive
For 17 years he was Chief Executive
of Allia, a charitable organisation
where he oversaw a range of
new solutions
impact
entrepreneurship and developed
social finance initiatives for impact
investment
through Employment
and Housing Bonds and London
Stock Exchange – Listed Bonds.
He is now a Senior Advisor to
Allia’s Trustees and Chairman of
its stockbroking subsidiary City and
Continental Ltd.
Appointed Chief Executive Officer
in 2012.
Daemmon joined RC Treatt & Co
Limited, the Group’s UK operating
in 1991 and gained
subsidiary,
experience
industry
extensive
and knowledge from his time in
technical, operational, sales and
purchasing disciplines. He was
appointed CEO of Treatt USA in
2010 and became Group CEO
in 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 the engaged teams
which is driving the success of
Treatt. Seeing our excellent team
succeed is what excites Daemmon
most about Treatt.
In August 2019, Daemmon's
contribution to Treatt and the wider
community was recognised by the
award of an honorary doctorate by
the University of Suffolk.
He
is an Honorary Fellow at
Cambridge Judge Business School
and actively involved in the City of
London where he is a Freeman,
Court Assistant and Chairman
of
the
International Bankers Company.
Communications
at
Key External Appointments:
No external appointments
Appointed to the Board in 2003.
Appointed to the Board in 2013.
Jeff has widespread experience
of the City, industry and internet-
based
including
businesses,
acquisitions, business integration
and investor relations.
He was CFO of Abcam plc
from 2007 until 2016, 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
environmental,
biotechnology and internet-based
businesses.
in
Key External Appointments:
Non-executive
Cambridge Nutraceuticals Limited
Director
of
Trustee of Cambridge Arts Theatre
in
Richard qualified as a Chartered
Accountant
1992 at Price
Waterhouse, which is now part of
PwC, and was certified a Fellow
Institute of Chartered
the
of
Accountants
and
in England
Wales in 2010. Richard has held
several senior finance positions
for almost 20 years in value-
added manufacturing businesses,
including Hampshire Cosmetics
Limited.
He was awarded Finance Director
of the Year at the 14th Grant
Thornton Quoted Company Awards
in February 2018 and was a Finalist
for the Shares Magazine Finance
Director of the Year award, part
of the UK Stock Market Awards,
in 2017. Richard 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.
Key External Appointments:
No external appointments
Key External Appointments:
Non-executive Director of Retail
Charity Bonds plc
Board Gender Diversity
Board Independence
Length of Service
Female
Male
25%
75%
Independent
Non-independent
25%
75%
0–5 years
6–10 years
Over 10 years
37.5%
50.0%
12.5%
TREATT PLC Annual Report & Accounts 2019 57
David Johnston
Non-executive Director1
Richard Illek
Non-executive Director
Yetunde Hofmann
Non-executive Director
Lynne Weedall
Non-executive Director
Appointed Non-executive Director
in 2011.
Appointed to the Board as Non-
executive Director in 2016.
Appointed to the Board as Non-
executive Director in 2019.
Appointed to the Board as Non-
executive Director in 2019.
Lynne is an experienced FTSE
100 Group HR and strategy
Director who has worked in a
number of FTSE 100 companies
and family businesses. She has
key expertise in business strategy,
organisation
strategic
change management and employee
engagement.
design,
and
Lynne has worked with a number of
household names in senior HR and
strategic roles including Waitrose,
Tesco, Whitbread, BUPA, Carphone
Selfridges
and
Warehouse
Group
experienced
is
leading major change and
in
integration
As
Group Organisation Development
Director for Whitbread plc she led
a major change programme, which
subsequently became a Harvard
case study.
programmes.
recent
role as
Lynne’s most
Group HR Director for Selfridges
Group saw her successfully lead
a significant family and top team
succession plan before leaving in
January 2019 to pursue a Non-
executive and business advisory
portfolio career.
Key External Appointments:
Non-executive
William Hill Plc
Director
of
Richard retired from PepsiCo in
March 2016, following 28 years
with the company. During that
time he served in various senior
positions
the world
including Plant Manager, QA
Manager and Technical Services
Director, culminating in his most
recent role as Senior Director of
Manufacturing and Formulations.
around
Key External Appointments:
No external appointments
for
David started his career working
as a biochemist
the UK
government prior to transferring
to Switzerland where he worked
on an international programme to
enhance the resistance of plants
to pathogens.
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, which focuses on
the development and sales of taste
modifying compounds.
Key External Appointments:
No external appointments
An experienced Board with over
48 years’
combined experience at Treatt
Committee Membership key
Nomination Committee
Audit Committee
Remuneration Committee
Committee chair
1 Senior Independent Director.
is Managing Director
Yetunde
Development
Synchrony
of
Consulting,
international
an
leadership and change consultancy
that partners with leaders and
organisation to facilitate strategy,
change, diversity and inclusion. She
is a Non-executive Director and
member of the Audit Committee at
the Chartered Institute of Personnel
and Development (CIPD) and is also
a Trustee of Tomorrow’s Company
and the Education Development
Trust – EDT where she is also Chair
of the Remuneration Committee.
She is a Visiting Fellow at the John
Madejski Centre for Reputation at
the University of Reading’s Henley
Business School.
(IITA)
Yetunde started out her career
at the International Institute of
Tropical Agriculture
in
Nigeria and went on to build a
successful career
in a variety
of HR leadership roles in FTSE
100 Global companies including
Imperial Brands, Unilever, Allied
Domecq and Northern Foods. She
established The Enjoyable Life
Series, a community organisation
designed to help people at all
in business, education
levels
and community identify practical
ways in which they can live more
joyfully thereby helping to support
wellbeing, diversity and inclusion.
In 2018 she was named in the
Cranfield University FTSE Board
Report '100 Women to Watch' list.
Key External Appointments:
the
Non-executive Director of
Chartered Institute of Personnel
and Development
Trustee of Tomorrow’s Company
Trustee of Education Development
Trust
GovernanceFinancial StatementsOverviewStrategic Report 58
Corporate Governance Statement
At Treatt our commitment to
effective corporate governance
across the Group is reflected in our
principles, policies and practices
Introduction from the Chairman
As the business continues to grow it needs
a strong, effective and engaged Board, with
the right skills and experience to oversee
the strategy, governance, risk and financial
frameworks across the organisation. During
the year the Board was refreshed with the
appointment of two independent Non-executive
Directors, Yetunde Hofmann and Lynne
Weedall. My colleagues and I were delighted
to welcome Yetunde and Lynne, who bring
significant experience, to the Treatt Board.
The highest standards of governance drive
the Company in balance with the interests of
its shareholders, employees, the environment
and its wider stakeholders of customers,
suppliers and the communities in which
the Company does business. At Treatt
to effective corporate
our commitment
governance across the Group is reflected
in our principles, policies and practices. I
am clear that good governance ultimately
produces a better company and optimum
long-term performance.
As Chairman, one of my key tasks is to ensure
that the Board and its committees conform
with the highest standards of corporate
the new 2018 UK
governance. Whilst
Corporate Governance Code only applies to
Treatt’s financial year commencing 1 October
2019, we have sought early compliance with
as many of its provisions as possible, with
the remainder to be implemented during the
course of 2019/20.
Board effectiveness
Our annual Board meeting at Treatt USA took
place in March, enabling the Board to see the
completed site expansion, which brings much
needed additional capacity, and share the
opening of the facility with our US employees,
who have continued to work so diligently
through a period of significant upheaval.
I also visited in September 2019 with Lynne
Weedall, as part of her induction process;
Yetunde Hofmann was able to attend in March
with the rest of the Board. Whilst visiting
Treatt USA I have taken the opportunity to
engage with our US employees through open
door sessions where any member of staff is
able to drop in and chat about any matter they
wish. These Employee Voice sessions, also
held in the UK by both David Johnston and
me have, pleasingly, been very well supported
and are invaluable to the Board in gaining
employees' perspectives on the business and
ensuring that all staff know that the Board
and its Chairman can always be approached.
I thank employees for their openness and
honesty, and their willingness to engage.
This year there were slightly fewer formal
Board meetings compared with last, when
the Board had required additional meetings
in respect of the equity fundraise and the
sale of Earthoil Plantations. I am in regular
contact with the executive team and the rest
of the Board as I aim to ensure that there
is an appropriate level of support, oversight
and challenge, a focus on entrepreneurship
as much as on risks, a commitment to
transparency and a culture of continuous
improvement.
As mentioned above, we welcomed two
Non-executive Directors to the Board and
said goodbye to Anita Haines, who retired
following 31 years of service to Treatt.
I have continued to meet with the Non-
executive Directors without the presence of
the Executives. The Nomination Committee
continues to review the Board’s composition
to ensure that it maintains appropriate skills,
experience,
independence and diversity
and that its culture is based on open and
collegiate accountability whilst encouraging
constructive debate and robust challenge.
The Board underwent its first external
evaluation this year, which has provided
additional focus on a number of areas and
has proved very worthwhile. As part of the
process all Directors were evaluated on their
individual performance. Further information
is provided on page 61.
Compliance with the Corporate
Governance Code
The Company is subject to the 2016 UK
Corporate Governance Code, which
is
issued by the Financial Reporting Council
(FRC) and is available at www.frc.org.uk.
The Code is a guide to a number of key
components of effective board practice and
is based on the underlying principles of good
governance: accountability,
transparency,
probity and focus on the sustainable success
of a company over the longer term. UK listed
companies are required to disclose whether
they have complied with the Code throughout
the financial year and provide an explanation
where they have not done so.
I am pleased to report that throughout the
year ended 30 September 2019 the Group
has complied with the provisions set out in
the 2016 Corporate Governance Code.
Tim Jones
Chairman
TREATT PLC Annual Report & Accounts 2019 59
7
Board meetings in the year
97%
Meeting attendance
Board experience
Operations 1
HR 2
Finance 2
Management 8
Industry 4
Leadership
Roles and responsibilities
Details of the Directors who served during
the year, the positions they hold, and the
committees of which they are members
are shown on pages 56 and 57. The Board
consists of Non-executive Chairman, Tim
Jones, and
further Non-executive
Directors together with Daemmon Reeve,
CEO, and Richard Hope, CFO.
five
There is a clear division of responsibility
between the CEO, whose primary role is
the day-to-day running of the Company's
businesses, the development and agreement
with the Board of the strategy required to
best promote the success of the Company
in the best interests of its shareholders and
wider stakeholders and the implementation
of that strategy, and the Chairman who is
responsible for leadership of the Board
and ensuring it operates effectively and
entrepreneurially for the Group.
The Chairman ensures that the Board and
its committees are effective and operate
under the highest standards of corporate
governance; the Chairman sets the Board
agenda, ensures that adequate time is allowed
for discussion, in particular, of strategic,
complex or contentious issues in anticipation
of which accurate,
timely and clear
information has been circulated in good time;
ensures appropriate delegation of authority
from the Board to executive management and
constructive, open relations between them;
acts at the same time as a sounding board,
counsel and mentor to the CEO; ensures
that the Company maintains a dialogue with
its principal shareholders about strategy,
direction, Directors’ and senior managers’
remuneration and is aware of shareholders'
issues or concerns; ensures that employees
are able and encouraged to maintain dialogue
directly with the Board; and ensures that the
performance of individual Directors and the
whole Board and its committees is evaluated
at least annually and that Directors are
continually encouraged to update their skills
and the knowledge and familiarity with the
Company as required to fulfil their role.
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.
Operation of the Board
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 strategy, material capital
commitments, commencing or settling major
litigation, business acquisitions and disposals,
appointments to subsidiary company boards,
risk, dividend policy and full and half year
results.
The Board meets formally a minimum of six
times a year with additional meetings held
as required. Meetings are scheduled around
events in the corporate calendar such as the
full and half year results, year-end and the
Annual General Meeting. Standing agenda
items include updates from the CEO on
performance of the business against strategic
objectives, a review of the financial and trading
position from the CFO, Health & Safety, HR
and Legal. In the last few years, time has also
been dedicated to the US site expansion and
the UK site relocation at each meeting. During
the year, the Board holds days dedicated to
discussion of key matters including Group
strategy, Board evaluation and performance
and risk evaluation and mitigation.
Day-to-day management of the Group is
delegated to the Executive Directors, who
are supported by a Senior Leadership Team,
with members located in the UK and US. The
Executive Directors attend Treatt USA Board
meetings with the US members of the Senior
Leadership Team at least six times a year
and have regular contact outside of these
meetings, with the CEO travelling to the US
on a regular basis. Meetings are held with the
UK members of the Senior Leadership Team
on a six-weekly basis.
Committees
The Board has three sub-committees; the
Nomination Committee chaired by Tim Jones,
the Audit Committee chaired by Jeff Iliffe
and the Remuneration Committee chaired
by David Johnston. During the year the
Board reviewed the membership of these
committees and made changes following the
appointment of Yetunde Hofmann and Lynne
Weedall. Although the Chairman is no longer
a member of the Remuneration Committee,
he regularly attends the committee meetings
at the invitation of the committee Chairman.
Delegation of
these
committees ensures that sufficient time is
spent on matters within their responsibility.
responsibilities
to
Further details of the committees can be
found on pages 64 to 83. The terms of
reference of all the committees can be found
on the Treatt website at www.treatt.com.
GovernanceFinancial StatementsOverviewStrategic Report 60
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
Chairman
Number of meetings held in year
Daemmon Reeve – Chief Executive Officer
Richard Hope – Chief Financial Officer
Tim Jones – Non-executive Director and Chairman
(stepped down from Remuneration Committee on 13 May 2019)
David Johnston – Senior Independent Non-executive Director
(stepped down from the Nomination Committee on 13 May 2019)
Richard Illek – Non-executive Director
(stepped down from the Remuneration Committee on 13 May 2019)
Jeff Iliffe – Non-executive Director
(stepped down from the Nomination Committee on 13 May 2019)
Yetunde Hofmann – Non-executive Director
(appointed to the Board 20 March 2019 and appointed to
the Remuneration and Audit Committees on 13 May 2019
and the Nomination Committee on 21 November 2019)
Lynne Weedall – Non-executive Director
(appointed to the Board 6 April 2019 and appointed to the
Remuneration and Nomination Committees on 13 May 2019)
Anita Haines – Non-executive Director until 25 January 2019
7
7
7
7
7
6
7
3
3
2
3
N/A
N/A
3
3
N/A
3
1
N/A
N/A
2
2
N/A
2
1
2
1
N/A
1
1
6
N/A
N/A
4
6
3
6
1
2
N/A
Board &
Nomination
Remuneration
Audit
Effectiveness
Board composition
The Board has been regularly refreshed to
ensure that it 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, which
remains a subject of debate in respect of Board
composition, is recognised and supported
by the Directors of Treatt. 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 gender, sexual orientation,
disability and other characteristics. Further
details on the Group approach to diversity are
given on pages 50 and 51.
The Board considers that all of the Non-
independent of
executive Directors are
management and free of any relationship
which could materially interfere with the
exercise of their independent judgement. In
compliance with the Corporate Governance
Code at least half of the Board are Non-
executive Directors, which
the Board
considers to be independent. The Chairman,
Tim Jones, was independent on appointment
and in the opinion of the Board, remains
independent. On 20 May 2020 David
Johnston will have served nine years on
the Board and therefore, in line with best
practice under the UK Corporate Governance
Code, the Board will no longer consider
David Johnston as independent from this
date. Consequently, he will step down as
Chair of the Remuneration Committee, as
a member of the Audit Committee and as
Senior Independent Director and appropriate
appointments will be made to these positions.
At this time, it is intended that Lynne Weedall
will succeed David Johnston as Chair of
the Remuneration Committee, having had
significant experience as Chair of Greene
King's Remuneration Committee. The Board
has determined that it is in the best interests
of the business and its stakeholders for David
Johnston to remain on the Board, subject
to re-election at the 2020 Annual General
Meeting. His contribution to the Board is
considerable; his deep technical knowledge
and insight into global flavour and fragrance
innovations, coupled with his knowledge of
the natural and sugar reduction markets and
his independence of thought in the context
of the Company’s operations are, and will
continue to be, of enormous value to the
Board. 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, be
paid an additional fee in accordance with the
Remuneration Policy.
Appointments to the Board
A formal process is undertaken for the search
and selection of appropriate candidates for
Board vacancies, details of which are set out
in the Nomination Committee report on pages
64 and 65.
Where appropriate, on appointment Directors
are provided with access to relevant training
and advice in respect of their role and
duties as a public company director. 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 a comprehensive 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.
TREATT PLC Annual Report & Accounts 2019 61
Development
The Chairman is responsible for ensuring
that all Non-executive Directors receive
ongoing training and development. In 2018
the Board became members of the Institute
of Directors ('IoD'), and registered with the
IoD Academy, providing a range of learning
and development programmes to expand
and update Directors’ knowledge and skills.
Directors are able to access appropriate CPD
content from a variety of sources in addition
to attendance at seminars and workshops.
Membership of the IoD has been renewed
for 2019. Our Directors understand the
need to keep themselves properly briefed
and informed about current issues. Regular
updates on
legislative
developments are provided to the Board by
the Company Secretary.
regulatory and
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 sometimes 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.
Information and support
Contact is maintained by the Board through
email and telephone with written updates
provided in respect of on-going issues,
enabling regular
from all Board
input
members. 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
the
Evaluation
The Board evaluation is performed annually
the
and, notwithstanding
Company is deemed to be a smaller company
under the 2016 Corporate Governance Code,
it voluntarily met the requirement of provision
21 of the 2018 Code in undertaking an
external evaluation.
that
fact
The external Board and committee evaluation
was undertaken by Board Excellence, an
advisor with no other connection to the
Company.
Commitment
The Board typically meets between six and
ten times each year and more frequently
where business needs require; one meeting
a year is held at Treatt USA. Directors are
required to be available for meetings and the
Annual General Meeting with attendance in
person or if necessary by video conference,
except where prior engagements exist. To
facilitate this, meetings are scheduled two
years in advance. In addition, contact is
maintained between meetings to ensure
regular input from all Board members in
respect of ongoing matters. It is anticipated
that the time commitment required of Non-
executive Directors is up to 30 days a year
and more for the Chairman. During the year,
changes have been made to strengthen the
provisions of the service contracts of Non-
executive Directors so that they are not
permitted to accept other board appointments
without approval from the Board, which will
consider any potential conflicts of interest
with the Group or potential constraints on
time required to fulfil the commitment to the
Company. Subsequent to her appointment
in April 2019, and following a discussion
with the Chairman, Lynne Weedall accepted
a position as a Non-executive Director of
William Hill plc. The Board is satisfied that
the other commitments of Board members
do not detract from the extent or the quality
of the time which they are able to devote to
the Group.
Board evaluation process
The evaluation process involved a number of stages to ensure it was sufficiently robust:
Detailed review
of Board and
committee materials
Confidential one-to-one
meetings with each Director
and the Company Secretary
Evaluation of each
individual Director by
the Chairman
Completion of a confidential
questionnaire for the Board
and each committee by
all Directors and
Company Secretary
Presentation of the
external evaluation report
and recommendations
Attendance, as an
observer, at Board and
committee meetings
Evaluation of the
Chairman by the SID
GovernanceFinancial StatementsOverviewStrategic Report 62
Corporate Governance Statement continued
The Group places
a great deal of
importance on
communication
with its customers,
employees and
shareholders
Evaluation continued
The evaluation report, which rated the Board’s effectiveness and performance as strong
overall, made a number of recommendations, which have been considered by the Board and
will be actioned appropriately. It was agreed that the Board has benefitted from the insight
provided by an independent evaluator, which will enable continuous improvement.
As part of the Board evaluation process, the performance of individual Executive and Non-
executive Directors was evaluated by the Chairman with objectives being identified for the
coming year. The Chairman was evaluated by the Senior Independent Director, having sought
input from the other Non-executive Directors.
Re-election
The Company voluntarily meets the requirements of provision 18 of the 2018 Corporate
Governance Code, in that all Directors offer themselves for re-election annually. Following the
annual evaluation of the Board and its committees, the Nomination Committee has determined
that all Directors standing for re-election at the Annual General Meeting continue to be
effective, hold recent and relevant experience and continue to demonstrate commitment to
the role. Biographical details of each Director standing for re-election are set out on pages
56 and 57.
Relations with shareholders and other stakeholders
Many people and organisations have an interest in our business and how we work.
Our stakeholders include:
Shareholders
and investors
Employees
Customers
Suppliers and
partners
Local
communities
Regulators
Industry peers
Shareholders
The Group places a great deal of importance on communication with shareholders and
recognises their role in safeguarding the Company’s effective governance. The Board receives
updates on the views of our shareholders expressed during our interactions with them and
from our brokers.
In the event that shareholders have any concerns, which they do not wish to address through
the CEO or CFO, the Chairman or Senior Independent Director are available to address them.
Both make themselves available, as required, for meetings with shareholders on issues
relating to the Company’s governance and strategy.
TREATT PLC Annual Report & Accounts 2019 63
Engagement with shareholders may take place through:
Results presentations
Shareholder meetings
Annual General Meeting
Consultation
Information
hold
three
analyst
days
We
and
of
and
investor meetings
presentations
following
the release of our full and
half year results in which
we aim to see as many
institutional shareholders
as
providing
them with an opportunity
to ask questions about the
Company. We make these
presentations available to
all shareholders through
our website.
possible,
auditor
In recent years we have
consulted with our major
shareholders
in relation
to Director remuneration
rotation.
and
Consultation
provides
us with an opportunity
to
shareholder
opinion and respond to any
concerns raised.
gauge
We provide updates on the
progress of the business
through regulatory news
announcements,
press
releases and updates to
the investor section of our
website.
Annual
The
General
Meeting, generally held
at the registered office,
gives shareholders
the
opportunity to meet with
Directors
individually
both before and after the
meeting and to hear about
the general development
of the business and to ask
questions of the Board.
premises
During the year, conference
calls and meetings took
place with existing and
potential shareholders at
the Company’s registered
office and at potential
in
investors
the UK and in Germany.
These meetings were
attended by either
the
CEO or the CFO or both.
The meetings provide an
overview of our business
and the industry in which
we operate and
focus
on the implementation of
our strategy.
Engagement with other stakeholders is important and takes place through:
Employees
Customers
Suppliers
Communities
our
about
care deeply
We
the
communities in which we operate
and have spent time developing
relationships with
local
communities, providing support
and opportunities where we
are able to do so. We manage
locally,
community relationships
with each business focusing on
communities important to them.
• Provision of work experience,
internships and sponsorship of
academic and careers events
• Workforce volunteering
• Donations and sponsorship
• Local press releases
Engagement with employees
is
essential for the success of the
business; many of our employees
are also shareholders. Engagement
takes a variety of forms, including
meetings with individuals, small
groups and the whole workforce
for
providing
questions and discussion.
opportunities
• Employee representative
committee
• Town hall meetings
• Results presentations
• Site relocation open days
• Open door sessions with the
Chairman and designated
Non-executive Directors
It is important that we understand
our customers’ requirements to
allow us to deliver the products
they need and to develop innovative
solutions for beverage and flavour
and fragrance applications.
• Providing customers with our
Market Intelligence Reports
• Visits to customers with
technical specialists
• Collaboration with customers
in our labs developing products
for existing applications or new
product development
We have a strong supplier base,
located all over the world. To
grow sustainably, we need strong
supplier relationships to generate
and capture value. We want to
deal with those suppliers who are
committed to Treatt and our values.
• Our Supplier Code of Conduct
makes clear our expectations
of suppliers when it comes to
ethical behaviour and social and
environmental responsibility
• Supplier visits
• Initial qualification process
and requalification every
three years
This report was approved by the Board on 25 November 2019.
Anita Guernari
Group Legal Counsel
and Company Secretary
GovernanceFinancial StatementsOverviewStrategic Report 64
Nomination Committee
The Nomination Committee
is responsible for the annual
evaluation of the Board, its
committees and its Directors
Introduction
I am pleased to introduce our Nomination Committee report, which explains the committee’s focus and activities
during the year. The committee has sought to ensure that the size, composition and structure of the Board
are appropriate for the delivery of the Group’s strategic objectives.
Nomination
Committee members
Tim Jones
Chairman
Daemmon Reeve
Chief Executive Officer
Richard Illek
Non-executive Director
Lynne Weedall
Non-executive Director
Yetunde Hofmann
Non-executive Director
Membership and meetings
Membership of the committee was refreshed
during the year following the appointments
of Yetunde Hofmann and Lynne Weedall to
the Board. As a result, Jeff Iliffe and David
Johnston stepped down from the committee,
with Lynne Weedall appointed, effective
13 May 2019. The subsequent appointment of
Yetunde Hofmann was effective 21 November
2019. Current membership is therefore Tim
Jones (Chair), Daemmon Reeve, Richard Illek,
Lynne Weedall and Yetunde Hofmann.
The committee has met twice during the
course of the year.
Role and responsibilities
The committee operates under terms of
reference, which are reviewed annually
and are available on the Group’s website.
The main responsibilities of the Nomination
Committee are:
• to regularly review the structure, size
and composition (including
the skills,
knowledge, experience and diversity) of
the Board and its committees 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 and
committee vacancies as and when they
arise;
• to oversee succession planning for the
Board and senior management, taking into
account the challenges and opportunities
facing the Group and the skills and
expertise needed on the Board for the
future; and
• to review the results of the Board and
committee
evaluation
performance
process that relate to the composition of
the Board and committees and to assess
whether the Non-executive Directors are
providing sufficient value in fulfilment of
their duties.
Activities since the last report
• recruitment of Yetunde Hofmann and
Lynne Weedall;
• receive a report from the Chairman on the
individual evaluation of the Directors;
• the commission and review of the external
Board evaluation as it relates to the
composition of the Board and performance
of the committee;
• review the time commitment required from
Non-executive Directors and determine
whether sufficient value is being provided
to the Company;
• Board succession planning;
• writing to our largest shareholders in
respect of the intention for David Johnston
to remain on the Board as a Non-
independent Non-executive Director post
May 2020;
• receive an update
the Global
Head of HR on senior management and
organisation succession plans; and
from
• review of the terms of reference of the
committee.
TREATT PLC Annual Report & Accounts 2019 65
2
Board meetings in the year
100%
Meeting attendance
Nomination Committee experience
Industry 2
Operations 1
Management 5
HR 2
Appointments
Appointments to the Board of both Executive
and Non-executive Directors are considered
by
the Nomination Committee, which
ensures that a wide range of candidates are
considered. The committee, using the skills
matrix of the Board, considers the skills mix
to identify potential gaps or areas where
increased strength is required. The skills
matrix requires Board members to rate the
strength of their experience in a range of skills
across areas such as strategy, finance, risk
management, stakeholder engagement and
corporate governance and ethics. The skills
matrix is reviewed annually by each Director
and the Chairman.
With the retirement of Anita Haines in January
2019, the committee identified a need for
skills and experience in people, coaching,
strategic planning and change management.
The committee engaged Pure Executive, an
independent search and selection agency,
which is a division of Pure Resourcing
Solutions Limited. Both Pure Executive and
Pure Resourcing have previously provided
recruitment services to Treatt but do not
provide any other services. Pure Executive
for suitable
were
candidates for the role of Non-executive
Director and provide an
initial shortlist
to the committee. The time commitment
required for the role and existing demands
on a candidate’s time were considered as
part of the selection criteria. Members of
the committee were involved in the initial
interview process with Board members
meeting the final shortlisted candidates.
The appointment of the new Directors was
approved by the Board unanimously.
to search
instructed
This year's achievements
the Board with
• Refreshing
the
appointment of two Non-executive
Directors
• Commissioning an external Board
evaluation
• Board succession planning
Future plans
• Enhanced Leadership Development
• Improved
oversight
of
senior
management succession plans
• Further review and development of
Board and committee memberships
Succession planning for the Board and senior
management, together with the structure of
the Board will continue to be a focus of the
committee during the forthcoming year.
Diversity
The Board recognises the benefit of having
an appropriate level of diversity on the Board
and in management positions throughout
the Group to support the achievement of its
strategic objectives. The committee considers
the benefits of all aspects of diversity
including, race, gender, disability, sexual
orientation, religion, belief, age and culture
when appointing Non-executive Directors.
Independence is also a key consideration.
During the year the Board increased from
seven to eight Directors and from one to two
women (25%). The Board is mindful of the
current gender imbalance but believes that
there is good diversity of skills, experience,
independent thinking and cognitive style on
the Board.
Further details on gender diversity within the
Group are set out on pages 50 and 51.
for
Committee evaluation
As noted elsewhere in this report, an external
evaluation was undertaken in relation to the
Board and its committees. The evaluation
report
the Nomination Committee
concluded that its performance was good
and made a number of recommendations
for the forthcoming year: to focus on talent
development and diversity across the Group
and to continue succession planning and
structural review of the Board.
Tim Jones
Chairman
Nomination Committee
GovernanceFinancial StatementsOverviewStrategic Report 66
Audit Committee
The Audit Committee is an
essential part of Treatt’s
governance framework which
oversees accounting and
financial reporting processes
Accountability
Membership and meetings
Membership of the Audit Committee was
refreshed with effect from 13 May 2019
with the appointment of Yetunde Hofmann
to the committee. Current membership is
therefore Jeff Iliffe (Chair), Tim Jones, David
Johnston and Yetunde Hofmann. Each of
the members is deemed to be independent.
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 other members of the committee have
financial and commercial expertise, with
David Johnston having significant industry
knowledge and experience.
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
CEO, CFO and other senior finance staff
were invited to attend as 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 CFO to discuss matters
considered relevant to the committee’s duties
and maintains a regular dialogue with the
audit partner.
Audit Committee members
Jeff Iliffe
Non-executive Director
Tim Jones
Chairman
David Johnston
Non-executive Director
Yetunde Hofmann
Non-executive Director
Role and responsibilities
The committee operates under terms of
reference, which are reviewed annually and
are available on the Group’s website. The
main responsibilities of the Audit Committee
are:
the Group’s
• to review the Group’s Annual Report
and any formal announcements relating
financial performance
to
and to report to the Board on significant
financial reporting issues and judgements
contained therein, having regard to matters
communicated to it by the auditor;
• to review the content of the Annual
Report and advise the Board on whether,
taken as a whole, it is fair, balanced
and understandable, and provides the
information necessary for shareholders to
assess the Group’s performance, business
model and strategy;
the effectiveness of
• to oversee the relationship with the auditor
the
and assess
external audit process, including making
recommendations to the Board on their
appointment, remuneration and terms of
engagement. The committee also monitors
their independence and objectivity;
• to make recommendations to the Board
on the requirement for an internal audit
function; and
in matters of
• to ensure that procedures are in place
whereby staff of the Group may, in
confidence, raise concerns about possible
improprieties
financial
reporting or other matters. The Group has
arrangements in place for the proportionate
and independent investigation of such
matters and for appropriate follow-up
action.
Activities since the last report
• review of and report to the Board on the
half year report and trading update;
• meeting with the audit partner to approve
the audit plan and identification of risks;
the
• reviewing
findings,
management’s response and ensuring
robust challenge;
auditor’s
• 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,
providing feedback to the auditor in this
respect;
• approval of the fees paid to the auditors for
audit and non-audit work;
understandable.
• review of and report to the Board on the
Group’s Annual Report for 2019 to ensure
that, taken as a whole, it was fair, balanced
and
included
consideration of a report from the auditor
on their audit and review of the financial
statements, significant financial reporting
issues and judgements contained therein,
and discussions with management;
This
• review of the clarity and completeness of
the treatment and disclosure of exceptional
items;
• giving consideration to any whistleblowing
reports (of which there were none during
the year);
• reviewing the potential requirement for an
internal audit function;
• commencement of
the audit
tender
process;
• reviewing the operation of the policy on
the provision of non-audit services by the
external auditor and approving any such
work undertaken;
• reviewing the performance of the Audit
Committee; and
• reviewing the terms of reference of the
Audit Committee.
TREATT PLC Annual Report & Accounts 2019 67
3
Board meetings in the year
100%
Meeting attendance
Audit Committee experience
HR 1
Finance 1
Management 4
Industry 1
with the policy adopted in prior years. The
application of this judgment was reviewed
by the committee and after discussion
with the auditors was concluded to be
consistent and appropriate. A high-level
exercise was undertaken to assess what
the impact would have been to adopt the
terms of trade to determine revenue cut-
off as an alternative, which showed that
the profit before tax impact on the year's
results would have been less than £0.2m.
Future plans
• Completion of
process
the audit
tender
• Implementation
relevant
of
provisions of the 2018 Corporate
Governance Code
the
Financial reporting
During the year the committee and the
Board monitor 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 2019 Annual
Report was reviewed at a committee meeting
in November 2019; after due challenge and
debate the committee was content with the
appropriateness of the accounting policies
adopted, and
judgements
applied, which where possible are supported
by external advice or other corroborative
evidence, are reasonable and
therefore
agreed with management recommendations.
the key
that
Significant judgements and issues
Amongst the matters considered by the
committee were the key accounting issues,
matters and judgements in relation to the
Group’s 2019 Annual Report and financial
statements relating to:
• 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;
• 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
the scheme actuaries,
received
Barnett Waddingham, and
these
assumptions had been critically reviewed
by the auditors; and
from
that
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 these, the output of the enhanced
work undertaken on risk identification and
the consistent application
management,
of accounting policies, and the practice of
similar-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.
• IFRS 15, 'Revenue from contracts with
customers', has been adopted for the
first time in the 2019 financial year. The
core principle of IFRS 15 is that an entity
should recognise revenue when (or as)
a performance obligation is satisfied, i.e.
when control of the goods or services
underlying a particular performance
obligation is transferred to the customer.
is
key performance obligation
The
considered to be satisfied at the point in
time that the goods are either collected by,
or despatched to, the customer irrespective
of the terms of trade. This is consistent
GovernanceFinancial StatementsOverviewStrategic Report 68
Audit Committee continued
Fair, balanced and understandable
In assessing whether the Annual Report,
taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Group’s position and performance, business
model and strategy, the committee ensures
that:
• an experienced team is responsible for
co-ordination of content, which is subject
to a detailed cross-functional review;
• senior management confirm
the
content in respect of their areas of
responsibility is considered to be fair,
balanced and understandable; and
that
• the committee receives an early draft of
the Annual Report to enable timely review
and comment.
These processes allowed the Audit Committee
to provide an assurance to the Board to assist
them in making the statement required by the
2016 UK Corporate Governance Code.
the disclosure
The Committee also reviewed compliance
with
requirements on
Directors’ remuneration and the Strategic
Report.
Risk management
and internal controls
The committee continues to consider the
requirements of the 2016 UK Corporate
Governance Code and the FRC Guidance on
Audit Committees. Following reviews in 2015
and 2018, responsibility for risk management
and monitoring the effectiveness of internal
controls remain with the full Board, rather
than being delegated to the Audit Committee.
Consistent with this approach, the Board
for reviewing
also retains responsibility
the assumptions underlying both the going
concern and longer-term viability statements
made in the Annual Report as detailed on
pages 85 and 86. As the Group continues
to grow, the delegation of these matters will
remain under review. The principal risks and
uncertainties are set out on pages 36 to 41.
reviews
is overseen by
the
The committee annually
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.
The Group maintains an in-house function,
which
the Technical
Compliance Teams in the UK and US.
Employees, who have received
internal
training, audit compliance against high-
level procedures in our quality manual and
undertake a series of unannounced monthly
inspections in operational areas in order
to review compliance with processes and
internal controls. Any non-compliance or
recommendations
improvement are
for
to Technical Compliance, who
reported
oversee corrective actions. This provides
assurance to the Board of the adherence
to operational internal controls across the
Group.
During the planning phase of the audit the
auditors re-confirm their understanding of
the internal controls relevant to the audit.
Where they plan to place reliance on internal
controls, they will test the operation of those
controls and if their examination of internal
controls leads them to believe there may
be significant deficiencies therein, they will
report their findings to the Audit Committee.
Audit quality review
The Audit Quality Review team of the FRC
reviewed the work performed by RSM for
the audit of the Company for the year ended
30 September 2018. The FRC has provided
a copy of their confidential report to the
Chairman of the committee and it has been
reviewed and discussed by the committee
and with RSM. Areas of the external audit
procedures were
identified as requiring
improvement and the committee is satisfied
with the responses which were implemented
by RSM for the audit of the Group’s financial
statements for the year ended 30 September
2019. The committee is content that the
matters raised were appropriately addressed
and do not give it concerns over the quality or
independence of the audit.
External auditor assessment
the
The committee has oversight of
the external auditor
relationship with
and
is responsible for monitoring their
independence, objectivity and compliance
with
regulatory
requirements. The committee undertakes
an annual assessment of the effectiveness
of the external auditor to facilitate continued
improvement in the external audit process.
This assessment considers:
professional
and
• the delivery of an efficient, robust audit
in compliance with the agreed plan and
timescale;
• the provision of robust and 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.
The committee has monitored and discussed
RSM’s performance and was satisfied that
the above requirements have been met
and that they demonstrated commitment to
perform high-quality work.
External auditor independence
and tendering process
RSM has, in one form or another through
various changes of name and consolidation
with other audit firms, been Treatt’s auditor
for 32 years. There has of course been a
succession of different personnel involved
with Treatt through these years, although
a small number of RSM employees, who
are no longer involved in the provision of
audit services, have been with the firm for
a significant period during this time and
continue to be employed by RSM.
TREATT PLC Annual Report & Accounts 2019 69
Whistleblowing
We require our employees and business
partners to maintain the highest standards
of integrity and to act in good faith. Although
our open culture encourages the raising of
issues, we recognise that there might be
times when it is not appropriate, or a person
will not be comfortable, raising a concern
with their line manager. The committee is
satisfied that appropriate arrangements are
in place so that employees of the Group may,
in confidence, seek advice or raise concerns
about possible illegal or unethical practices
or matters of integrity. The Group-wide
Whistleblowing Policy provides staff with a
direct means of contacting, in confidence, the
Chairman of the Board, the Audit Committee
Chairman or the Senior Independent Director
if they feel unable to discuss a matter with
their line manager or a member of senior
management.
No employee will be victimised or prejudiced
because they have raised a legitimate concern
and if misconduct is discovered as a result
of any investigation under this procedure the
organisation's disciplinary procedure will be
used, in addition to any appropriate external
measures.
Effectiveness of the Committee
The effectiveness of the committee was
considered as part of the external review
of the Board and its committees detailed on
pages 61 and 62. The evaluation report for
the Audit Committee was reviewed by the
committee in detail. The committee received
positive feedback on its strong delivery of its
mandate to the Board and the appropriate
balance between support and challenge.
It was noted that succession planning is
required for the Chairman of the Audit
Committee in due course.
Jeff Iliffe
Chairman
Audit Committee
is
The continued engagement of RSM
compliant with legislative and governance
requirements and in accordance with the
requirement to rotate the audit partner
every five years, a new audit partner, who
had no previous connection with Treatt, was
appointed in 2017. The Board and the external
auditor have arrangements to safeguard the
independence and objectivity of the external
auditor, which were reviewed and deemed
satisfactory.
As reported previously, a competitive tender
process will be completed by mid-2020. The
intention is for the new auditors to undertake
the FY2020 audit and in the meantime for
RSM to continue as Group auditors.
committee
undertaken
The
an
has
assessment of the effectiveness of RSM’s
performance and relationship with Treatt and
was satisfied that RSM delivered a robust
audit and remains independent of Treatt. The
committee has therefore recommended to the
Board that RSM UK Audit LLP be reappointed
at the Annual General Meeting in 2020 to
continue in the role until the appointment of
new auditors.
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 to the financial
statements. Following the publication of the
FRC Revised Ethical Standard 2016, RSM no
longer provides tax compliance and other tax
services to the Group. The committee has a
policy for the provision of non-audit services
to ensure that objectivity and independence
are not compromised and that it is in line
with the Standard. Under the policy, all non-
audit services to be contracted with the
external auditor will require the approval of
the committee. When considering the use of
the auditor to undertake such assignments,
consideration will be given at all times to the
provisions of the FRC Guidance on Audit
Committees with regard to the preservation
of independence.
GovernanceFinancial StatementsOverviewStrategic Report 70
Directors’ Remuneration Report
The policy is to ensure that
remuneration structures are
transparent and proportionate
The Remuneration Committee is mindful that
there has been a considerable movement in
the regulation of UK Directors’ remuneration
with the introduction of the 2018 Corporate
Governance Code and the expansion of
reporting
remuneration
requirements,
included under
the Shareholder Rights
Directive. These changes become applicable
to Treatt when we report our 2020 financial
year. We will be considering how best to
address these new obligations, particularly
as we are a smaller Company with less than
250 employees in the UK.
Key performance outcomes for 2019
As detailed elsewhere in this report, the
Group met expectations
in 2019, with
profit before tax, exceptional items and
discontinued operations increasing for the
seventh consecutive year. Following a review
of the Group’s performance against prior
year and in accordance with the rules of the
Executive Directors’ Annual Bonus Scheme,
the committee concluded that a bonus
payment of 62.5% of salary was justified
for the Executive Directors on the basis that
annual growth in like-for-like profit before tax
was 6% against a target of 10%.
In respect of the LTIPs granted to the
Executive Directors in 2016, EPS growth
over the three-year performance period has
exceeded the performance target set by the
Remuneration Committee at the time of grant
(average annual growth of 10% or more over
three financial years for full vesting) and
accordingly they will vest in full in December
2019. These awards are subject to a further
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 exercise. LTIP awards
granted from 2017 are subject to a two-year
holding period.
Overall, the Remuneration Committee is
satisfied that the total remuneration received
by Executive Directors in 2019 is a fair
reflection of performance over the period.
Remuneration in 2020
As referred to above, we do not intend
to make any changes to our policy or its
implementation for 2020. In detail:
• Executive Directors' salaries will be
increased by 2%, slightly lower than
the overall increase in the UK payroll of
2.74%; and
• We will operate our annual bonus plan for
2020 on a basis consistent with that for
2019. Performance conditions will again be
based on demanding PBT targets.
We will make further annual LTIP awards to
our Executive Directors at a level of 100%
of base salary, with performance conditions
subject to targets based on growth in
three-year
earnings per share over a
performance period, and with any vesting
shares subject to a two-year holding period.
For completeness, the fees of the Chairman
and the Non-executive Directors will also
increase by the 2% level referred to above
(noting that the fees of the Non-executive
Directors are appropriately approved by the
Board and not by the committee).
We are happy to receive feedback from
shareholders at any time in relation to our
remuneration policies and hope to receive
your support for the resolution on the
Implementation Report referred to above at
the forthcoming Annual General Meeting. I will
be available at the Annual General Meeting to
answer any questions you may have.
David Johnston
Chairman
Remuneration Committee
Chairman’s statement
On behalf of the Remuneration Committee,
I am pleased to present the Directors'
Remuneration Report for 2019.
As in past years, the Directors’
Remuneration Report is in three sections:
• The Chairman’s introductory statement;
• The Directors’ remuneration policy; and
• The Implementation Report.
The Directors’ remuneration policy was
approved by over 99% of shareholders
voting at our 2018 AGM. As no changes
are proposed to our policy for 2020, the
policy is included for information only. The
Implementation Report, which details the
remuneration paid to the Directors during the
financial year under review, will, as normal,
be put to an advisory vote at the Annual
General Meeting on 31 January 2020.
Future plans
• Implementation of the remuneration
requirements of the 2018 Corporate
Governance
The
Code
Companies (Miscellaneous Reporting)
Regulations 2018
and
• Determining a new Remuneration
by
Policy
consideration
shareholders at the 2021 AGM
for
Remuneration
Committee members
David Johnston
Non-executive Director
Jeff Iliffe
Non-executive Director
Lynne Weedall
Non-executive Director
Yetunde Hofmann
Non-executive Director
TREATT PLC Annual Report & Accounts 2019 71
6
Board meetings in the year
93%
Meeting attendance
Remuneration Committee experience
Industry 1
Finance 1
Management 4
HR 2
Policy section
Remuneration policy report: provided for information
As approved at the 2018 Annual General Meeting and not subject to
further approval at the Annual General Meeting in 2020.
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
and competitively rewarded for the role they undertake. The main
principles of the remuneration policy are:
• salaries should not be excessive when compared with similar sized
companies;
• remuneration packages should align the interests of Directors with
shareholders by using stretching performance metrics that provide
a strong link to the creation of shareholder value;
• there should be an appropriate balance between fixed and
performance-related pay to ensure delivery of results over the
short, medium and longer-term;
• performance metrics should not encourage a culture of
excessive risk taking;
• Directors should invest in and retain shares in Treatt; and
• salaries should be reasonable compared with those offered to
others of the senior management team and the wider workforce.
The committee reviews its policy annually to determine whether it
remains effective, is aligned to the Group strategy and that it promotes
the long-term success of the Group. 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.
The current intention is that the framework of this remuneration
policy will apply for three years from the date of the 2018 Annual
General Meeting.
Executive Directors’ remuneration
The table below sets out a summary of each element of the
Executive Directors’ remuneration, how it operates, the maximum
opportunity available, and applicable performance metrics:
Element: base salary
Purpose and link to strategy Help recruit and retain high-calibre Executive Directors
To provide a competitive salary relative to the size of the Group
Reflects individual experience and the role
Operation
Reviewed annually by the committee with changes taking effect from 1 October unless a change in
responsibility requires an interim review
Influenced by the complexity of the role, personal performance and by the increase in salaries of other
Group employees
Benchmarked against companies of similar size and complexity at appropriate intervals
Maximum opportunity
Any basic salary increases are applied in line with the outcome of annual reviews
Annual increases should not normally exceed the average salary increase of employees within the Group.
Exceptions can be made when a review is required by a change in role or responsibility, or where there
is a significant change in the role and/or size, value or complexity of the Group which has resulted in
material market misalignment
Performance metrics
Not applicable
GovernanceFinancial StatementsOverviewStrategic Report 72
Directors’ Remuneration Report continued
Executive Directors’ remuneration continued
Element: benefits
Purpose and link to strategy Help recruit and retain high-calibre Executive Directors
Operation
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; Car Allowance; 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
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
Not applicable
Element: pension
Purpose and link to strategy Help recruit and retain high-calibre Executive Directors and to provide a competitive package
Operation
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
Maximum opportunity
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)
Performance metrics
Not applicable
Element: annual bonus1-5
Purpose and link to strategy
Provides an element of at risk pay, which incentivises the achievement of good annual financial results
Aligns Directors’ interests with shareholders
Operation
The rules of the Executive Directors’ Bonus Scheme and the performance targets are reviewed annually
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
Maximum opportunity
100% of salary per annum
Performance metrics
Bonuses are based on the growth in Group profit before tax and exceptionals before tax compared to the
prior financial year, which aligns with all employee bonus schemes across the Group
Bonus payments are based against financial performance on a sliding scale. No bonus is payable unless
a minimum level of financial performance is achieved
Different performance measures and/or weightings may be used for the annual bonus in future years
to help drive the strategy of the business during the period of this policy, although the Remuneration
Committee would expect to consult with leading shareholders before making material changes to the
current performance measures applied
The committee has the 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
TREATT PLC Annual Report & Accounts 2019 73
Element: Long Term Incentive Plan (LTIP)1-5
Purpose and link to strategy
Incentivises Directors to achieve returns for shareholders over a longer time frame
Aligns Directors’ interests with shareholders
Operation
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
Maximum opportunity
Performance metrics
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 three years
Awards will be subject to a two-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
100% of salary per annum based on market value of shares at date of grant
The vesting of the awards will normally be based on growth in adjusted basic EPS exceeding a minimum
level during the period from date of grant to date of vesting
Targets are set by the committee for each award on a sliding scale basis. No more than 25% of awards
will vest for threshold performance, with full vesting taking place for equalling or exceeding maximum
performance conditions
Different performance measures and/or weightings may be used for future LTIP awards to help drive
the strategy of the business during the period of this policy, although the Remuneration Committee would
expect to consult with leading shareholders before making material changes to the current performance
measures applied
Awards lapse if performance criteria are not met at the end of the three-year performance period
Element: share retention policy
Purpose and link to strategy
Aligns Directors’ interests with shareholders
Operation
Holding requirements:
CEO – 200% of basic salary
CFO – 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
Maximum opportunity
Performance metrics
Not applicable
Not applicable
Notes:
1
2
3
4
The committee considers that the forward-looking targets for the annual bonus are commercially sensitive and has, therefore, chosen not to disclose them in advance. Details of the targets
will be set out retrospectively in next year’s Remuneration Report. However, the committee considers that the level of performance required for the annual bonus 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.
Performance targets for LTIP awards 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.
Subject to the achievement of the applicable performance conditions, Executive Directors are eligible to receive payment from any award made prior to the approval and implementation of
the Directors’ remuneration policy detailed in this report.
For both annual bonus and LTIP, while performance conditions will generally remain unchanged once set, the Remuneration Committee has the ability to amend the measures, weightings and
targets in exceptional circumstances (such as a major transaction) where the original conditions would cease to operate as intended.
5
The committee retains discretion, consistent with market practice in regard to the operation and administration of the annual bonus and LTIP, including:
– the timing and size of awards (within the overall limits of this policy);
– the determination of performance measures and targets and resultant vesting;
– when dealing with a change of control (e.g. the timing of testing performance conditions) or restructuring of the Group;
– determination of a good/bad leaver based on the rules of each plan and the appropriate treatment chosen; and
– adjustments in certain circumstances, such as rights issues, corporate restructuring events and special dividends.
GovernanceFinancial StatementsOverviewStrategic Report
74
Directors’ Remuneration Report continued
Executive Directors’ remuneration continued
Element: recruitment of Executive Directors
Purpose and link to strategy
Enable recruitment of high-calibre Executive Directors able to contribute to the success of the Group
Operation
Salary will be set to reflect skills and experience of incoming Director and market rate for the role to be
undertaken
Existing benefits and incentives of the Group to be used with participation on the same basis as
existing Directors
Payment of relocation expenses where relevant; each element will be detailed in the relevant
remuneration report
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 a current
employer, such as bonus and share schemes, may be bought out on a like-for-like basis and subject to
comparable performance conditions and time vesting requirements where appropriate. Exceptionally,
where necessary, this may include making a guaranteed bonus payment in the year of joining
Buy-out awards are subject to the maximum value of any outstanding awards forgone by the recruit
Based on existing Treatt performance conditions when appropriate
Maximum opportunity
Performance metrics
Element: clawback
Purpose and link to strategy
To ensure Executive Directors do not benefit from errors or misconduct
Operation
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
Maximum opportunity
Performance metrics
Not applicable
Not applicable
TREATT PLC Annual Report & Accounts 2019 75
Annual Statement of Remuneration Committee
Non-executive Directors’ remuneration
Element: Fees
Purpose and link to strategy
To recruit high-calibre Non-executive Directors
To reward additional responsibility by virtue of position as Chairman of the Board or Chairman
of a committee
Operation
Excluding the Chairman, subject to an aggregate limit within the Articles of Association (currently
£225,000 as approved by shareholders at the Annual General Meeting 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 companies of similar size and complexity at appropriate intervals
Additional fees may be paid in respect of increased responsibility or time commitment required
by the role or in respect of invoiced consultancy fees, where relevant
Maximum opportunity
Any fee increases are applied in line with the outcome of annual reviews
Illustration of remuneration policy
The graph to the right provides estimates of the potential future
reward for each of the Executive Directors based on their current
roles, the remuneration policy outlined on pages 71 to 74 and base
salaries as at 1 October 2019.
The assumptions used in preparing this chart are as follows:
Minimum
• basic salary, pension or cash in lieu of pension and benefits,
no bonus and no vesting of the LTIP;
On target
• basic salary, pension or cash in lieu of pension, benefits, and
• a bonus of 50% and an LTIP of 100% of basic salary (with notional
vesting at 50%); and
Maximum
• basic salary, pension or cash in lieu of pension, benefits, and
• a bonus of 100% and an LTIP of 100% of basic salary (with notional
vesting at 100%).
Maximum plus
• as maximum plus effect of 50% share price growth compared to
share price at the date of grant.
Comparison of Directors’ remuneration policy with
arrangements for employees
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.
£’000
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
Remuneration Policy Illustration
510
340
337
337
172
168
44
337
15
44
337
15
44
337
15
44
337
15
342
228
224
224
18
15
18
15
18
15
224
224
116
112
224
18
15
224
Minimum
On target
Maximum Maximum
Minimum
On target
Maximum
plus
Maximum
plus
Chief Executive Officer
Daemmon Reeve
Chief Financial Officer
Richard Hope
Salary
Benefits
Pension
Bonus
Share Options
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.
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
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.
GovernanceFinancial StatementsOverviewStrategic Report 76
Annual Statement of Remuneration Committee continued
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 12 months’ notice by
either party is appropriate.
Summary of Directors’ service contracts as at 30 September 2019:
Date of contract
Notice period
Daemmon Reeve
6 April 2016
Richard Hope
1 October 2013
12 months
12 months
Summary of the key elements of Directors’ service contracts:
Provision
Summary
Notice period
12 months by either party
Termination
payment
Daemmon Reeve –
No provision for payment in lieu of notice
Salary
Benefits
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.
Future contracts are to provide for remuneration obligations
comparable to those set out above taking into consideration role
and responsibility.
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 the appointment of Non-executive
Directors are available for inspection at the Parent Company’s
registered office during normal business hours.
Payments for loss of office
In accordance with the 2016 UK Corporate Governance Code, notice
periods shall not exceed a maximum of 12 months.
In normal circumstances, it is expected that termination payments for
Executive Directors should not exceed current salary and benefits
for the notice period. When determining termination payments in
the event of early termination, the committee will take into account
a variety of factors including length of service, personal and Group
performance, the Director’s obligation to mitigate their loss, statutory
compensation to which a Director may be entitled and legal fees and
other payments which may be payable under a settlement agreement.
A Director who has been given notice by the Group for any reason
other than on the grounds of injury, disability, redundancy or change
of control shall only be eligible to a payment under the bonus scheme
at the discretion of the committee, which will take into account the
circumstances leading to the notice.
Directors have no entitlement to performance-related share-based
incentives, the unvested portion of which will generally lapse following
termination of employment. However, in certain circumstances, such
as injury, disability or redundancy, share options, which shall be
pro-rated by reference to the proportion of the performance period
completed and subject to performance conditions, may be exercised
within six months of termination. Where termination is for any other
reason, share options may only be exercised at the discretion of, and
to the extent permitted by the committee, acting fairly and reasonably.
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 committee’s first remuneration
policy in 2013 and changes to the Executive Directors’ base
salaries in 2017. The views of these shareholders were taken into
consideration in adopting the share retention policy, clawback and the
two-year holding period for LTIPs. The committee will also consult
with major shareholders prior to any further material changes to the
remuneration policy which might be necessary in the future.
TREATT PLC Annual Report & Accounts 2019 77
Implementation report
Membership and meetings
Membership of the Remuneration Committee was refreshed during
the year following the appointments of Yetunde Hofmann and Lynne
Weedall to the Board. As a result, Tim Jones and Richard Illek stepped
down from the committee and Yetunde Hofmann and Lynne Weedall
were appointed. Current membership is, therefore, David Johnston
(Chair), Jeff Iliffe, Yetunde Hofmann and Lynne Weedall. All members
of the Remuneration Committee are considered independent. As
noted on page 60, it is intended that David Johnston will retire from
the committee on 20 May 2020, when he will have served nine years
on the Board and will therefore no longer be regarded as independent,
and Lynne Weedall will succeed him.
The committee met six times during the course of the year.
Role and responsibilities
The committee operates under terms of reference, which are
reviewed annually and are available on the Group’s website. The main
responsibilities of the Remuneration Committee are to:
• set the remuneration policy for all Executive Directors, the
Chairman and Non-executive Directors
including, where
appropriate, bonuses, share-based incentive schemes and post-
retirement benefits;
• determine the remuneration packages for the Executive Directors,
the Chairman and senior management, which includes the
Company Secretary;
• approve the design of, and determine targets for, any performance-
related incentive schemes operated by the Group and approve the
total annual payments made under such schemes; and
• review the design of all share incentive plans requiring approval by
the Board and shareholders. For any such plans, the committee
shall determine each year, taking into account the recommendations
of the CEO as appropriate, whether awards will be made and, if
so, the amount of such awards to the Executive Directors, senior
management and other key members of staff, and any performance
targets to be used.
Activities since the last report
• approval of the 2019 Directors’ Remuneration Report;
• agreement of the bonuses payable for the 2019 financial year;
• grant of options to Executive Directors, senior management and
other key members of staff under the Treatt LTIP and the setting of
performance conditions;
• receive an update from the Global Head of HR on the Group
remuneration policy;
• reviewing salary levels for the Executive Directors and Chairman
and agreement of salary and fee increases for the 2020
financial year;
• determination of the salary increases of Group senior managers
for the 2020 financial year;
• consideration of 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;
• reviewing the quality of the advice received from FIT Remuneration
Consultants and whether it was objective and independent;
• discussing the new remuneration requirements of the 2018
Corporate Governance Code and The Companies (Miscellaneous
Reporting) Regulations 2018;
• reviewing Executive Directors' shareholdings against
the
requirements of the Share Retention Policy;
• reviewing the terms of reference of the Remuneration Committee; and
• reviewing the performance of the Remuneration Committee.
External advisors
During the year the committee continued to engage the services
of FIT Remuneration Consultants LLP, who were appointed in the
latter stages of 2017 following a selection process undertaken by
the Chairman of the Remuneration Committee. FIT Remuneration
Consultants are a founder member of the Remuneration Consultants’
Group and adhere to its Code of Conduct and do not provide any other
services to Treatt. Fees totalling £24,800 have been paid for their
services during the year for the provision of advice to the committee
on various aspect of remuneration within the FTSE SmallCap sector.
The committee has reviewed the quality of the advice provided and
whether it properly addressed the issues under consideration and
is satisfied that the advice received during the year was objective
and independent.
Effectiveness of the Committee
The effectiveness of the committee was considered as part of the
external evaluation of the Board and its committees, detailed on pages
61 and 62 and the evaluation report for the Remuneration Committee
was reviewed. The committee received positive feedback in respect
of the level of debate taking place and engagement of an external
remuneration consultant to help provide guidance and support in
terms of industry and peer benchmarking, regulatory changes and
best practice.
GovernanceFinancial StatementsOverviewStrategic Report 78
Annual Statement of Remuneration Committee continued
Effectiveness of the Committee continued
Implementation of policy in 2020
Element of remuneration policy
Implementation of policy for 2020
Base salaries
Daemmon Reeve – £336,600 (FY2019: £330,000)
Richard Hope – £224,400 (FY2019: £220,000)
Benefits
Pensions
Represents a 2% increase, in line with the basic annual increase for UK employees
Unchanged from FY2019. Private Healthcare (including Family Cover for Daemmon Reeve);
Life Assurance; Permanent Health Insurance; Car Allowance; All-employee share schemes
Unchanged from FY2019
Daemmon Reeve – 15% of salary (as a former member of the Defined Benefit plan)
Richard Hope – 9% of salary
Contributions are paid as cash and reduced for the impact of Employers’ NICs, giving actual contribution
rates of 13.2% and 7.9% of salary respectively
Annual bonus
Operation is unchanged from FY2019
Maximum is 100% of base salary for Executive Directors
Long Term Incentive Plan
(LTIP)
FY2020 targets are based on Group profit before tax and exceptionals before tax and are calibrated by
reference to the performance of the Group in FY2019
Bonuses are paid in cash after finalisation of the Group’s results for FY2020
The committee considers that the forward-looking targets for the annual bonus are commercially
sensitive and has, therefore, chosen not to disclose them in advance. Details of the targets will be
set out retrospectively in next year’s Remuneration Report
Operation is unchanged from FY2019
Annual LTIP award to Executive Directors of shares worth 100% of base salary (calculated using share
prices at the time of award)
FY2020 awards will be subject to performance conditions measured over three financial years to FY2022
The performance condition will again be based on growth in adjusted basic earnings per share measured
from FY2019 as the base point and with a performance range as follows:
– Threshold (25% vests) – average 3.0% p.a. growth
– Maximum (100% vests) – average 10% p.a. growth
After performance vesting at three years, LTIP awards are subject to a further two-year holding period
Share retention policy
Daemmon Reeve – 200% of basic salary
Richard Hope – 150% of basic salary
At 30 September 2019 Daemmon Reeve and Richard Hope held 531% and 655% of basic salary
respectively
Clawback
Applies to all performance-related elements of Executive Directors’ remuneration
Chairman and Non-executive
Directors’ fees
The base fee for the Chairman and Non-executive Directors for FY2020 has been increased by 2% in line
with the general rate of base pay increase for UK employees. Accordingly, fee levels for the Chairman and
Non-executive Directors in FY2020 are as follows:
Chairman – £102,000 (FY2019: £100,000)
For all other Non-executive Directors:
Base fee – £42,025 (FY2019: £41,200)
Audit Committee Chair fee – £7,880 (FY2019: £7,725)
Remuneration Committee Chair fee – £5,253 (FY2019: £5,150)
Senior Independent Director – £2,627 (FY2019: £2,575)
TREATT PLC Annual Report & Accounts 2019 79
The following section of this report provides details of the implementation of the policy for the year ended 30 September 2019.
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 benefits1
Annual bonus
Share options vesting in the financial year2
Pension3
Daemmon Reeve
Richard Hope
2019
£’000
330
16
206
906
43
1,501
2018
£’000
305
16
282
1,114
40
1,757
2019
£’000
220
16
138
460
17
851
2018
£’000
202
15
187
650
16
1,070
1 Taxable benefits provided to Executive Directors relate to private medical insurance and car allowances.
2
Options which vested in 2019 included those granted in 2015 and in the case of Daemmon Reeve also in 2013, during which times share price growth has been 159% and 189%
respectively. The maximum average adjusted EPS growth required was 10% per annum, and the actual EPS growth achieved was 18.1% and 17.9% per annum respectively. Details of
share options which vested in the year are shown on page 81. The percentage of the value which vested during the year which related to share price growth was 51% for Daemmon
Reeve and 60% for Richard Hope.
3
Pension contributions relate to pay in lieu of pension after deduction of employers’ NI.
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:
Daemmon Reeve
Richard Hope
2019
62.5%
62.5%
2018
92.5%
92.5%
Bonus payments range from 5% of salary at threshold level, being 96% of prior year’s Group profit before tax and exceptionals, rising incrementally to
a maximum of 100% of salary where Group profit before tax and exceptionals is 110% or more of prior year. The proportion of fixed and variable pay,
exclusive of pension, benefits and share options, is shown below for the Executive Directors:
Basic salary
Annual bonus
Daemmon Reeve
Richard Hope
Non-executive Directors:
Tim Jones
Anita Haines
Yetunde Hofmann
Jeff Iliffe
Richard Illek
David Johnston
Lynne Weedall
1
Anita Haines retired on 25 January 2019.
2 Yetunde Hofmann was appointed on 20 March 2019 and Lynne Weedall on 6 April 2019.
2019
62%
62%
2018
52%
52%
2019
38%
38%
Fees
2019
£’000
100
131
222
49
41
49
222
296
2018
48%
48%
2018
£’000
80
40
–
48
40
48
–
256
GovernanceFinancial StatementsOverviewStrategic Report 80
Annual Statement of Remuneration Committee continued
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.
Total shareholder return 2009–2019
1000
e
g
a
t
n
e
c
r
e
P
800
600
400
200
0
Treatt plc
FTSE All-Share
September
2009
September
2010
September
2011
September
2012
September
2013
September
2014
September
2015
September
2016
September
2017
September
2018
September
2019
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)
2019
1,501
2018
1,757
2017
603
Annual bonus as % of maximum1
62.5% 92.5%
100%
Share options vesting as % of maximum 100%
100%
N/A5
2016
580
88%
N/A5
2015
470
92%
2014
436
95%
2013
405
85%
20122
274
11%3
2011
447
104%
2010
281
47%
100%4
100%4
100%4
100%4
100%4
100%4
1 Prior to 2012 there was no cap on the payment of annual bonuses to Executive Directors, therefore the percentage of annual salary is shown by way of comparative.
2 The CEO Remuneration for 2012 is the combined remuneration paid to the current and preceding CEO for the periods when they held that post.
3 The 2012 annual bonus only related to two months of the financial year.
4 All share options vested in full as they were all-employee share options which were not subject to performance conditions.
5 There were no options which vested during the year.
The percentage change in remuneration for 2019 of the Director undertaking the role of CEO, compared to employees as a whole was as
follows:
CEO
Employees1
Salaries
8.2%
6.0%
Bonus
-27.0%
-8.7%2
1 The employees used for comparison are those UK and US employees who, for the salary comparison, were employed for the whole of the 2019 financial year.
2
Employee bonuses are based on a combination of Group performance and the performance of the entity they are employed by. US all staff bonuses were 2.5% of salary (2018: 11.5%) and UK
all staff bonuses were 10.5% of salary (2018: 3.5%).
TREATT PLC Annual Report & Accounts 2019 81
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
2019
£’000
14,739
3,080
1,494
2018
£’000
13,496
2,876
2,999
Movement
+9%
+7%
-50%
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 12.
3
Current tax charge in respect of the financial year as disclosed in note 10. The reduction in current tax resulted from significant first year allowances ('bonus depreciation') on capital
expenditure related to the US expansion project.
Directors’ interests (audited)
The Directors who held office at 30 September 2019 had the following interests in the shares of the Parent Company:
Executive Directors
Daemmon Reeve
Richard Hope
Non-executive Directors
Tim Jones
Anita Haines
Richard Illek
Shares held outright or vested
Unvested share options
with performance conditions
Unvested all-employee
share options
2019
2018
2019
2018
2019
2018
434,632
357,566
137,508
50,680
64,000
302,910
291,615
120,751
50,680
64,000
252,318
166,740
389,446
223,760
4,986
4,718
13,043
7,377
–
–
–
–
–
–
–
–
–
–
–
–
Between 1 October 2019 and 21 November 2019, the latest date practicable to obtain the information prior to publication of this document,
there were no changes in the Directors’ interests.
The table below shows the value of Executive Directors’ interests in shares as at 30 September 2019 as a percentage of their base salary:
Value of shares held1
outright or vested
Base salary2
Value of interest as
% of base salary
2019
£’000
1,765
1,452
2018
£’000
1,463
1,409
2019
£’000
330
220
2018
£’000
305
202
2019
%
535%
660%
2018
%
480%
697%
Target % of
base salary
200%
150%
Daemmon Reeve
Richard Hope
1
Based upon a share price of £4.06 as at 30 September 2019.
2 Base salary is the average basic gross pay for the corresponding year.
GovernanceFinancial StatementsOverviewStrategic Report 82
Annual Statement of Remuneration Committee continued
Share option schemes (audited)
The following share options were granted to Executive Directors during the financial year:
Daemmon Reeve
SAYE 20192
All-staff
10 July 2019
Scheme
Basis
Date of grant
LTIP 20181
Executive
14 Dec 18
Richard Hope
SAYE 20192
All-staff
10 July 2019
LTIP 20181
Executive
14 Dec 18
1 Executive LTIPs are granted at Nil cost, subject to performance conditions.
Share price at
date of grant
Face value
£’0003
Min
performance
award
Performance
end date
£4.51
£4.10
£4.51
£4.10
22
330
7
220
N/A
25%
N/A
25%
N/A
30/9/21
N/A
30/9/21
2
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.
3 Face value is calculated based upon share price at date of grant as shown above.
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 sliding scale: 25% 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:
Granted
during the
year
Exercised
during the
year
Expired
during the
year
At 30 Sept
2019
Daemmon Reeve
Sept 2019 – Feb 2020
Exercise dates
Sept 2022 – Feb 2023
Dec 2018 – Dec 2023
Dec 2018 – Dec 2025
Dec 2019 – Dec 2026
Dec 2020 – Dec 2027
Dec 2021 – Dec 2028
Richard Hope
Sept 2019 – Feb 2020
Sept 2020 – Feb 2021
Sept 2021 – Feb 2022
Sept 2022 – Feb 2023
Dec 2018 – Dec 2025
Dec 2019 – Dec 2026
Dec 2020 – Dec 2027
Dec 2021 – Dec 2028
Exercise
price
138.0p
361.0p
147.2p
Nil
Nil
Nil
Nil
138.0p
413.0p
373.0p
361.0p
Nil
Nil
Nil
Nil
At 1 Oct
2018
13,043
–
(13,043)
–
4,986
–
41,575
175,708
104,354
67,477
–
402,157
4,304
1,481
1,592
–
110,678
68,392
44,690
–
231,137
–
–
–
–
80,487
85,473
–
–
–
1,645
–
–
–
53,658
55,303
(41,575)
(175,708)
–
–
–
(230,326)
(4,304)
–
–
–
(110,678)
–
–
–
(114,982)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,986
–
–
104,354
67,477
80,487
257,304
–
1,481
1,592
1,645
–
68,392
44,690
53,658
171,458
The aggregate amount of gains made by the Directors on the exercise of share options in the year was £1,366,000 (2018: £1,764,000).
There have been no further changes in the interests of the Directors to subscribe for or acquire shares between 1 October 2019 and
21 November 2019, the latest date practicable to obtain the information prior to publication of this document.
The market price of the shares at 30 September 2019 was £4.06 and the range during the financial year was £3.88 to £4.93. All market price
figures are derived from the Daily Official List of the London Stock Exchange.
TREATT PLC Annual Report & Accounts 2019 83
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
Daemmon Reeve
24 Sept 2036
Accrued total pension
2019
£
14,078
2018
£
13,740
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 29.
In addition, contributions to defined money purchase pension plans were made as follows:
Daemmon Reeve
Richard Hope
2019
£’000
43
17
2018
£’000
40
16
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 25 January 2019, the votes cast in respect of the resolution to approve the Directors’ Remuneration
Report, was as follows:
Directors’ Remuneration Report
For 94.71%
Against 5.29%
Votes withheld 1,004,073
The Remuneration Policy was approved at the Annual General Meeting held on 26 January 2018 and the votes cast in respect of the resolution
to approve the Remuneration Policy, was as follows:
Remuneration Policy
For 99.83%
Against 0.17%
Votes withheld 149,909
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 25 November 2019.
Anita Guernari
Group Legal Counsel
and Company Secretary
GovernanceFinancial StatementsOverviewStrategic Report 84
Directors’ Report
Financial statements
The Directors present their report and the audited financial statements
for the Group for the year ended 30 September 2019.
Results and dividends
The results of the Group for the year are set out on page 94. Profit
before tax for the year excluding exceptional items and discontinued
operations was £13,300,000 (2018: £12,642,000).
The Directors recommend a final dividend of 3.80p (2018: 3.50p)
per ordinary share. This, when taken with the interim dividend of
1.70p (2018: 1.60p) per share paid on 15 August 2019, gives a total
dividend of 5.50p (2018: 5.10p) per share for the year ended 30
September 2019.
Corporate governance
The Corporate Governance Statement on pages 58 to 63 forms part
of this Directors’ Report.
Directors
The Directors of the Parent Company are shown on pages 56 and 57.
Appointment and replacement of Directors
The appointment and replacement of Directors is governed by
the Parent Company’s Articles of Association, the UK Corporate
Governance Code, the Companies Act and related legislation. Directors
can be appointed by the Parent Company by ordinary resolution at a
general meeting or by the Board. If a Director is appointed by the
Board, such Director will hold office until the next Annual General
Meeting and shall then be eligible, subject to Board recommendation,
for election at that meeting. All Directors will offer themselves for
re-election annually; further details are provided in the Corporate
Governance Statement on pages 58 to 63.
Details of the Executive Directors’ contracts and notice periods
are given in the Directors’ Remuneration Report on page 76. The
Executive Directors’ contracts are terminable by the Group giving the
required notice period of twelve months. The appointments of the
Non-executive Directors can be terminated by the Parent Company
giving three months’ notice at any time. The Parent Company can
remove a Director from office, either by passing an ordinary resolution
of which special notice has been given or by notice being given by all
the other Directors.
Directors’ interests in shares
The interests of Directors in shares of the Parent Company are shown
in the Directors’ Remuneration Report on page 81.
Substantial shareholders
In accordance with Rule 5 of the Disclosure and Transparency Rules of the Financial Conduct Authority, the Parent Company has been notified
of the following holdings of 3% or more of the voting rights at 21 November 2019 (the latest practicable reporting date prior to publication of
this document).
Blackrock Inc
Discretionary Unit Fund Managers
Canaccord Genuity Group Inc
Hargreaves Lansdown Plc
Premier Miton plc
Danske Bank
Number
5,758,927
4,250,000
3,177,804
2,426,033
2,372,266
1,993,379
Issued %
Voting %
9.57%
7.06%
5.28%
4.03%
3.94%
3.31%
9.73%
7.18%
5.37%
4.10%
4.01%
3.37%
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 interest. 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. Details of
other directorships held by members of the Board can be found in the
Director profiles on pages 56 and 57.
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 14 and 15. 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 sectors. 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 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.
TREATT PLC Annual Report & Accounts 2019 85
The Board has overall responsibility for ensuring that the Group
maintains a system of internal controls and for reviewing its
effectiveness. This covers financial, operational and compliance
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, the Board
considers whether the control systems are appropriate and consults
with those responsible for environmental, insurance, legal and health
and safety compliance as appropriate. There were no significant
internal control issues identified during the year.
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 throughout
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 as part of the
external audit.
Information technology
The Group operates on a common centrally managed computer
platform. This provides common reporting and control systems and
the ability to manage and interrogate businesses remotely. However,
there are associated risks with having the entire Group IT systems on
a common platform, such as IT security, access rights and business
continuity. These risks are mitigated by an on-going focus on IT
security through a process of continuous investment in IT facilities.
Capital investment
The Group has clearly defined guidelines for capital expenditure.
These include annual budgets, appraisal and review procedures, and
levels of authority. Post-investment appraisals are performed for
major investments. In respect of the two major capital investment
projects – the US expansion and the UK relocation – please see the
Financial Review on pages 28 to 34.
Risk management
Details of the risk management system and the principal risks
associated with the Group’s activities are given in the Strategic Report
on pages 8 to 53.
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 32 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 Strategic Report on pages 36 to 41. Information on the principal
risks and uncertainties and how they are managed can also be found
in the Strategic Report.
In accordance with the 2016 UK Corporate Governance Code, the
Directors have assessed the prospects of the Group over a longer
period than the twelve months required by the 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 of a series of theoretical 'stress test' scenarios linked
to the Group’s principal risks, which are shown on pages 36 to 41.
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 36 to 41.
The key factors considered by the Directors within the five-year
review were:
• the implications of the challenging economic environment, the likely
potential outcome of Brexit and future uncertainties on the Group’s
revenues and profits;
• the implications of fluctuating prices of the Group’s strategic raw
materials;
• the implication of the ongoing 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 cash balances;
• the Group’s access to short, medium and long-term borrowing
facilities to meet day-to-day working capital requirements and
capital expenditure on the UK relocation project, 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 and considering the
implications of a number of risks materialising during a short-
term period.
GovernanceFinancial StatementsOverviewStrategic Report 86
Directors’ Report continued
Going concern and viability statement continued
The current expectations regarding the costs of the UK site relocation
and the funding of the project is set out in the Financial Review on
page 33. Given the level of cash balances and debt finance available
to the Group to fund the investment, 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 disclosures on health and safety have been included
within the Working Responsibly section on page 44.
Greenhouse gas emissions
The Group’s disclosures on greenhouse gas emissions have been
included within the Working Responsibly section on page 47.
Employees
The Group’s disclosures on employees have been included within the
Working Responsibly section on page 44.
Structure of share capital
The Parent Company’s share capital comprises 60,170,670 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 25 of the financial
statements. During the year the Parent Company issued 700,000
shares to the Employee Benefit Trust (2018: 1,070,000).
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 Conduct Authority’s Listing
Rules or the City Code on Takeovers and Mergers.
Rights and obligations of ordinary shares
On a show of hands at a general meeting, every holder of ordinary
shares present in person or by proxy and entitled to vote shall have
one vote and on a poll, every member present in person or by proxy
and entitled to vote shall have one vote for every ordinary share held.
Subject to the relevant statutory provisions and the Articles, holders
of ordinary shares are entitled to a dividend where declared or paid
out of profits available for such purposes.
Articles of association
The powers of the Directors are conferred on them by UK legislation
and the Articles of Association. Changes to the Articles must
be approved by shareholders passing a special resolution at a
general meeting.
Powers of the Directors and purchase of own shares
At the forthcoming Annual General Meeting in 2020, 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 so that the Parent Company is able to act at short
notice if circumstances warrant.
A resolution will also be proposed at the 2020 Annual General Meeting
to renew the power given to the Directors to issue new shares up
to an aggregate nominal value in line with the latest Investment
Association guidelines, of which an aggregate nominal value of up to
10% of the existing issued share capital can be issued by disapplying
pre-emption rights, of which 5% can only be issued for the purposes
of financing an acquisition or other capital investment.
It is the Directors’ intention to seek renewal of these general
authorities annually. Further information is set out in the notice of
Annual General Meeting on page 142.
Treatt Employee Benefit Trust (the 'EBT')
The EBT holds ordinary shares in the Parent Company in order to
meet obligations under the Group’s employee share option schemes.
No shares (2018: nil) were purchased by the EBT during the year
ended 30 September 2019. During the year 700,000 (2018: 1,070,000)
shares were issued under a block listing application. 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 nil (2018: 230,000) 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 will be held at Treatt plc, Northern Way,
Bury St. Edmunds, Suffolk, IP32 6NL on 31 January 2020. The Notice
of Meeting and explanatory notes are given on pages 142 to 147. 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.
TREATT PLC Annual Report & Accounts 2019 87
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Treatt plc
website. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
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;
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; and
c. consider the Annual Report, taken as a whole, is fair, balanced
and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance,
business model and strategy.
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 25 November 2019.
Signed on behalf of the Board.
Anita Guernari
Group Legal Counsel
and Company Secretary
Auditors
RSM UK Audit LLP has indicated its willingness to continue in office.
On the recommendation of the Audit Committee, as set out on page
69, resolutions are to be proposed at the Annual General Meeting for
the re-appointment of RSM UK Audit LLP as auditors of Treatt plc and
its subsidiaries, and to authorise the Board to fix their remuneration.
The remuneration of the auditors for the year ended 30 September
2019 is disclosed in note 5 of the financial statements.
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’ Report, the
Strategic Report, the Directors’ Remuneration Report, the Corporate
Governance Statement and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent
Company financial statements for each financial year. The Directors
are required under the listing rules of the Financial Conduct Authority
to prepare Group financial statements in accordance with International
Financial Reporting Standards ('IFRS') as adopted by the European
Union ('EU') and have elected under company law to prepare the
Parent Company financial statements in accordance with IFRS as
adopted by the EU.
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; and
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.
GovernanceFinancial StatementsOverviewStrategic Report
88
Financial Statements
Independent
Auditor’s
Report
90
Group Income Statement
94
Group and
Parent Company
Balance Sheets
Group and Parent
Company Statements
of Cash Flows
98
99
Group Reconciliation
of Net Cash Flow to
Movement in Net Cash
100
TREATT PLC Annual Report & Accounts 2019 89
Group Statement
of Comprehensive
Income
95
Group and
Parent Company
Statements of
Changes in Equity
96
Notes to
the Financial
Statements
101
Notice of Annual
General Meeting1
142
Parent Company
Information and Advisors1
148
Financial
Calendar1
149
1 These sections do not form part of the financial statements.
GovernanceFinancial StatementsOverviewStrategic Report 90
Independent Auditor’s Report
to the members of Treatt Plc
OPINION
We have audited the financial statements of Treatt plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year ended 30
September 2019 which comprise the Group income statement, Group statement of comprehensive income, Group and Parent Company
statements of changes in equity, Group and Parent Company balance sheets, Group and Parent Company statements of cash flows, Group
reconciliation of net cash flow to movement in net debt and notes to the financial statements, including a summary of significant accounting
policies. 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.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 September 2019
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.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We
are independent of the Group and Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
CONCLUSIONS RELATING TO PRINCIPAL RISKS, GOING CONCERN AND VIABILITY STATEMENT
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require us to report
to you whether we have anything material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 36 to 41 that describe the principal risks and explain how they are being managed
or mitigated;
• the Directors’ confirmation set out on page 36 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, solvency or liquidity;
• the Directors’ statement set out on pages 85 and 86 in the financial statements about whether the Directors considered it appropriate
to adopt the going concern basis of accounting in preparing the financial statements and the Directors’ identification of any material
uncertainties to the Group and the Parent Company’s ability to continue to do so over a period of at least twelve months from the date of
approval of the financial statements;
• whether the Directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation set out on pages 85 and 86 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.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Group and Parent
Company financial statements of the current period and include the most significant assessed risks of material misstatement (whether or
not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the
Group and Parent Company financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
TREATT PLC Annual Report & Accounts 2019 91
Group key audit matters
Inventory provisions against obsolete and slow-moving stock to write down to the net recoverable amount as per the policy on page 105 and
charge as note 5 – 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 whether the estimation process 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 to confirm the effectiveness of the estimation process followed by management. No significant matters were noted from
our testing.
Parent Company key audit matters
We did not identify any key audit matters for the Parent Company for the year.
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. When evaluating whether the effects of misstatements, both individually and on the financial statements as a whole, could
reasonably influence the economic decisions of the users we take into account the qualitative nature and the size of the misstatements.
During planning materiality for the Group financial statements as a whole was calculated as £660,000, which was not significantly changed
during the course of our audit. Materiality for the Parent Company financial statements as a whole was calculated as £400,000, which was
not significantly changed during the course of our audit. We agreed with the Audit Committee that we would report to them all unadjusted
differences in excess of £30,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit approach focused on the Parent Company, Treatt Development Company Limited and the two key trading subsidiaries, one
in the UK, R.C. Treatt & Co Limited, and one in the US, Treatt USA Inc. The UK entities are subject to local statutory audits completed to the
Group reporting timetable. The US entity is not subject to local statutory audit and has been subject to full scope audit. The US entity audit
was undertaken by the same team as the UK statutory audits.
These audits covered 100% of revenue from continuing operations, 100% of profit before tax from continuing operations and 99% of total
assets.
In addition, the results for the year from discontinued operations was subject to analytical procedures with specific testing on appropriateness
of the carrying value of the assets classified as held for resale.
OTHER INFORMATION
The other information comprises the information included in the Annual Report set out on pages 1 to 89, other than the financial statements
and our auditor’s report thereon. The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report,
we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to
read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the
other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the
following conditions:
• Fair, balanced and understandable set out on page 87 – the statement by the Directors that they consider the Annual Report and financial
statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the
Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting set out on page 66 to 69 – the section describing the work of the Audit Committee does not appropriately
address matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 58 – the parts of the Directors’ statement
required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions
specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
GovernanceFinancial StatementsOverviewStrategic Report 92
Independent Auditor’s Report continued
to the members of Treatt Plc
OPINIONS 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.
In our opinion, based on the work undertaken in the course of the audit:
• 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 strategic report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the Directors' Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors’ responsibilities statement set out on page 87, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
As part of our audit, we will consider the susceptibility of the Group and Parent Company to fraud and other irregularities, taking account of
the business and control environment established and maintained by the Directors, as well as the nature of transactions, assets and liabilities
recorded in the accounting records. Owing to the inherent limitations of an audit, there is an unavoidable risk that some material misstatements
of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs.
However, the principal responsibility for ensuring that the financial statements are free from material misstatement, whether caused by fraud
or error, rests with management who should not rely on the audit to discharge those functions.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
TREATT PLC Annual Report & Accounts 2019 93
OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS
We were appointed by the Board of Directors of the Parent Company in February 1988 to audit the financial statements for the year ending
30 September 1988 and subsequent financial periods. The period of total uninterrupted engagement is 32 years, covering the years ending
30 September 1988 to 30 September 2019.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee.
USE OF OUR REPORT
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.
Neil Stephenson (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
Abbotsgate House
Hollow Road
Bury St. Edmunds
Suffolk
IP32 7FA
25 November 2019
GovernanceFinancial StatementsOverviewStrategic Report 94
Group Income Statement
for the year ended 30 September 2019
CONTINUING OPERATIONS
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit 1
Other losses
Finance income
Finance costs
Profit before taxation and exceptional items
Exceptional items
Profit before taxation
Taxation
Profit for the year from continuing operations
DISCONTINUED OPERATIONS
(Loss)/profit for the year from discontinued operations
Profit for the year attributable to owners of the Parent Company
Earnings per share
From continuing and discontinued operations:
Basic
Diluted
Adjusted basic2,3
Adjusted diluted2,3
From continuing operations:
Basic
Diluted
Adjusted basic2
Adjusted diluted2
Notes
4
5
7
8
8
9
10
11
13
13
13
13
13
13
13
13
2019
£'000
112,717
(84,060)
28,657
(15,158)
13,499
–
141
(340)
13,300
(755)
12,545
(2,673)
9,872
(1,084)
8,788
14.86p
14.66p
17.38p
17.15p
16.69p
16.47p
17.82p
17.58p
2018
£'000
112,163
(84,407)
27,756
(13,812)
13,944
(734)
36
(604)
12,642
(1,105)
11,537
(2,284)
9,253
2,976
12,229
21.55p
20.99p
19.07p
18.58p
16.30p
15.88p
18.02p
17.56p
1
2
Operating profit is calculated as profit before other losses, net finance costs, exceptional items and taxation.
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 9.
3 Excludes the 2019 impairment and 2018 gain on disposal of subsidiaries as detailed in note 11.
Notes 1 to 33 form part of these financial statements.
TREATT PLC Annual Report & Accounts 2019 Group Statement of Comprehensive Income
for the year ended 30 September 2019
95
Profit for the year attributable to owners of the Parent Company
Items that may be reclassified subsequently to profit or loss:
Currency translation differences on foreign operations
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)/gain on defined benefit pension scheme
Deferred tax on actuarial gain or loss
Other comprehensive (expense)/income for the year
Total comprehensive income for the year attributable
to owners of the Parent Company
Notes 1 to 33 form part of these financial statements.
Notes
10
24
10
29
10
2019
£’000
8,788
2,123
(72)
93
(16)
2,128
(4,230)
719
(3,511)
(1,383)
2018
£’000
12,229
912
(24)
(70)
(27)
791
2,505
(426)
2,079
2,870
7,405
15,099
GovernanceFinancial StatementsOverviewStrategic Report 96
Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2019
Group
1 October 2017
Profit for the year
Other comprehensive income:
Exchange differences
Fair value movement on cash flow hedges
Actuarial gain 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
Total transactions with owners
1 October 2018
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 trusts
Gain on release of shares in share trusts
Issue of share capital
Taxation relating to items recognised
directly in equity
Total transactions with owners
Share
capital
£’000
Share
premium
account
£’000
Own
shares
in share
trusts
£’000
Hedging
reserve
£’000
Foreign
exchange
reserve
£’000
Notes
Retained
earnings
£’000
Total
equity
£’000
1,058
2,757
(175)
(80)
2,627
40,291
46,478
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
131
–
131
1,189
20,727
–
20,727
23,484
–
–
–
–
–
–
–
–
–
–
14
–
14
–
–
–
–
–
–
–
–
–
–
–
–
–
24
29
10
12
28
25
10
24
29
10
12
28
25
10
–
–
–
–
–
–
–
–
–
167
–
(26)
–
141
(34)
–
–
–
–
–
–
–
–
33
–
(14)
–
19
–
–
(70)
–
227
(27)
130
–
–
–
–
–
–
–
50
–
–
93
–
(16)
77
–
–
–
–
–
–
–
–
12,229
12,229
912
–
–
–
(24)
888
–
–
–
–
–
–
–
–
–
912
(70)
2,505
2,505
(227)
(426)
–
(477)
14,081
15,099
(2,876)
(2,876)
1,049
1,049
–
419
167
419
–
20,832
457
457
(951)
20,048
3,515
53,421
81,625
–
8,788
8,788
2,123
–
–
(72)
2,051
–
–
–
–
–
–
–
–
–
2,123
93
(4,230)
(4,230)
719
5,277
631
7,405
(3,080)
(3,080)
653
–
506
–
653
33
506
–
(35)
(35)
(1,956)
(1,923)
30 September 2019
1,203
23,484
(15)
127
5,566
56,742
87,107
Notes 1 to 33 form part of these financial statements.
TREATT PLC Annual Report & Accounts 2019 97
Parent Company
1 October 2017
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
Total transactions with owners
1 October 2018
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
Total transactions with owners
30 September 2019
Notes 1 to 33 form part of these financial statements.
Notes
Share
capital
£’000
1,058
Share
premium
account
£’000
Own shares
in share
trusts
£’000
2,757
(175)
12
16
25
12
16
25
–
–
–
–
–
–
131
131
1,189
–
–
–
–
–
–
14
14
–
–
–
–
–
–
20,727
20,727
23,484
–
–
–
–
–
–
–
–
1,203
23,484
–
–
–
167
–
–
(26)
141
(34)
–
–
–
33
–
–
(14)
19
(15)
Retained
earnings
£’000
7,191
7,945
7,945
Total
equity
£’000
10,831
7,945
7,945
(2,876)
(2,876)
–
1,049
419
–
(1,408)
13,728
2,903
2,903
167
1,049
419
20,832
19,591
38,367
2,903
2,903
(3,080)
(3,080)
–
653
506
–
33
653
506
–
(1,921)
14,710
(1,888)
39,382
GovernanceFinancial StatementsOverviewStrategic Report 98
Group and Parent Company Balance Sheets
as at 30 September 2019
Registered Number: 01568937
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments in subsidiaries
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and bank balances
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Borrowings
Provisions
Trade and other payables
Current tax liabilities
Derivative financial instruments
Liabilities classified as held for sale
Net current assets
Non-current liabilities
Borrowings
Post-employment benefits
Deferred tax liabilities
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 to 33 form part of these financial statements.
Group
Parent Company
Notes
2019
£’000
2018
£’000
2019
£’000
2018
£’000
14
15
16
17
18
19
20
11
21
22
23
24
11
21
29
17
25
26
845
29,485
–
1,400
31,730
36,799
23,020
455
37,187
697
98,158
129,888
(16,860)
(261)
(11,331)
(124)
(315)
(14)
(28,905)
69,253
(4,369)
(7,788)
(1,719)
(13,876)
(42,781)
87,107
1,203
23,484
(15)
127
5,566
56,742
87,107
752
20,038
–
1,073
21,863
39,642
28,829
29
32,304
1,598
102,402
124,265
(19,244)
(58)
(15,298)
(760)
(401)
(20)
(35,781)
66,621
(3,001)
(3,457)
(401)
(6,859)
(42,640)
81,625
1,189
23,484
(34)
50
3,515
53,421
81,625
–
–
7,663
–
7,663
–
86
–
33,210
–
33,296
40,959
–
–
–
–
7,010
–
7,010
–
2,507
–
31,647
–
34,154
41,164
–
–
(1,577)
(2,797)
–
–
–
–
–
–
(1,577)
31,719
(2,797)
31,357
–
–
–
–
–
–
–
–
(1,577)
39,382
(2,797)
38,367
1,203
23,484
(15)
–
–
14,710
39,382
1,189
23,484
(34)
–
–
13,728
38,367
The Parent Company reported a profit for the year of £2,903,000 (2018: £7,945,000).
The financial statements were approved by the Board of Directors and authorised for issue on 25 November 2019 and were signed on its
behalf by:
Tim Jones
Chairman
Richard Hope
Chief Financial Officer
TREATT PLC Annual Report & Accounts 2019
99
Group and Parent Company Statements of Cash Flows
for the year ended 30 September 2019
Cash flow from operating activities
Profit before taxation including discontinued activities
11,477
14,555
2,865
7,901
Group
Parent Company
Notes
2019
£’000
2018
£’000
2019
£’000
2018
£’000
Adjusted for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Profit on disposal of intangible assets
Impairment of discontinued operations
Gain on disposal of subsidiary
Net finance costs/(income)
Share-based payments
Increase in fair value of derivatives
Increase in post-employment benefit obligations
Operating cash flow before movements in working capital
Movements in working capital:
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Cash generated from operations
Taxation (paid)/received
Net cash from operating activities
Cash flow from investing activities
Disposal of subsidiaries
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Cash flow from financing activities
Increase/(repayment) in bank loans
Settlement of financial derivatives
Interest paid
Dividends paid
Proceeds on issue of shares
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 to 33 form part of these financial statements.
14
11
27
8
28
27
14
8
32
8
12
25,26
20
21
1,559
90
–
825
–
199
637
7
101
14,895
3,970
5,293
(3,614)
20,544
(2,208)
18,336
1,033
(10,392)
(178)
141
(9,396)
1,874
–
(340)
(3,080)
14
526
(1,006)
7,934
82
8,016
13,060
21,076
37,187
(16,111)
21,076
1,519
124
(2)
–
(2,382)
610
1,040
638
141
16,243
(1,174)
(9,906)
(1,582)
3,581
(2,978)
603
8,746
(6,190)
(389)
36
2,203
(7,594)
(227)
(646)
(2,876)
20,833
586
10,076
12,882
(102)
12,780
280
13,060
32,304
(19,244)
13,060
–
–
–
–
–
(286)
–
–
–
2,579
–
1,387
(1,219)
2,747
36
2,783
–
–
–
–
(7,229)
(27)
–
–
–
645
–
(951)
2,309
2,003
43
2,046
1,033
8,441
–
–
290
1,323
–
–
(3)
(3,080)
14
526
(2,543)
1,563
–
1,563
31,647
33,210
33,210
–
33,210
–
–
30
8,471
–
–
(3)
(2,876)
20,833
586
18,540
29,057
–
29,057
2,590
31,647
31,647
–
31,647
GovernanceFinancial StatementsOverviewStrategic Report 100
Group Reconciliation of Net Cash Flow to Movement in Net Cash
for the year ended 30 September 2019
Movement in cash and cash equivalents in the year
(Increase)/repayment in bank loans
Cash inflow from changes in net cash in the year
Effect of foreign exchange rates
Movement in net cash in the year
Net cash/(debt) at beginning of year
Net cash at end of year
Notes 1 to 33 form part of these financial statements.
Analysis of movement in net cash during the year:
Cash and bank balances
Bank borrowings
Cash and cash equivalents
Bank loans and overdrafts
Net cash at end of year
Cash and bank balances
Bank borrowings
Cash and cash equivalents
Bank loans and overdrafts
Net (debt)/cash at end of year
Notes 1 to 33 form part of these financial statements.
2019
£’000
8,016
(1,874)
6,142
(243)
5,899
10,059
15,958
2018
£’000
12,780
7,594
20,374
(90)
20,284
(10,225)
10,059
At 1 October 2018
£’000
Cash flow
£’000
Exchange and
other non-cash
movements
£’000
At 30 September
2019
£’000
32,304
(19,244)
13,060
(3,001)
10,059
4,801
3,133
7,934
(1,874)
6,060
82
–
82
(243)
(161)
37,187
(16,111)
21,076
(5,118)
15,958
At 1 October 2017
£’000
Cash flow
£’000
Exchange and
other non-cash
movements
£’000
At 30 September
2018
£’000
4,748
(4,468)
280
(10,505)
(10,225)
27,658
(14,776)
12,882
7,594
20,476
(102)
–
(102)
(90)
(192)
32,304
(19,244)
13,060
(3,001)
10,059
TREATT PLC Annual Report & Accounts 2019 101
Notes to the Financial Statements
for the year ended 30 September 2019
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 148.
2. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
New and amended accounting standards
The consolidated entity has adopted all of the new or amended accounting standards and interpretations issued by the International Accounting
Standards Board ('IASB') that are mandatory for the current reporting period. Any new or amended accounting standards or interpretations
that are not yet mandatory have not been early adopted.
The following new accounting standards and interpretations are relevant to the consolidated entity:
• IFRS 9, 'Financial instruments'
• IFRS 15, 'Revenue from contracts with customers'
The Group has adopted IFRS 9, 'Financial Instruments' and IFRS 15, 'Revenue from Contracts with Customers' with effect from 1 October 2018,
as explained in more detail below. These standards are mandatory for financial periods beginning on or after 1 January 2018 and, therefore,
relevant to the Group for the first time for the financial year ended 30 September 2019. The adoption of these accounting standards has not
had a material effect on the Group consolidated financial statements.
IFRS 15 Revenue from contracts with customers
IFRS 15 establishes a single comprehensive model for revenue recognition based on the transfer of control rather than the risks and rewards
of ownership. The Group adopted IFRS 15 for its year ended 30 September 2019, with a date of initial application of 1 October 2018. The Group
has adopted the modified retrospective approach without restatement of comparatives and has applied the practical expedient available to not
adjust the promised amount of consideration due in respect of sales which are considered to contain a significant financing component, on
the basis that receipts will be expected within a year or less.
The core principle of IFRS 15 is that an entity should recognise revenue when (or as) a performance obligation is satisfied, i.e. when control
of the goods or services underlying a particular performance obligation is transferred to the customer.
Management have considered the nature of contracts and performance obligations with customers at the date of initial application and
determined that the Group has only a single revenue stream for the purposes of the application of IFRS 15, which is the sale of goods at a
point in time.
The adoption of IFRS 15 has had no impact on the financial statements of Treatt plc; the primary statements and performance metrics as
reported under IFRS 15 remain consistent with reporting under previous accounting standards.
IFRS 9 Financial instruments
IFRS 9 introduces new requirements for (1) the classification and measurement of financial assets and financial liabilities, (2) impairment of
financial assets, and (3) general hedge accounting. The Group has adopted IFRS 9 with a date of initial application of 1 October 2018.
(1) Classification and measurement
(i) Financial assets
All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value on
the basis of the entity’s business model for managing the financial assets and the contractual cashflow characteristics of the financial assets.
Financial assets falling under the business model of 'held to collect' are recognised at amortised cost, those under 'held to sell' are recognised
at fair value with changes through the profit or loss and those under 'held to collect and sell' are recognised at fair value with changes through
the other comprehensive income. The Group reclassify debt instruments only when its business model for managing those assets changes.
Accounting for the Group’s financial assets is unchanged from the prior year and changes are in disclosure only.
(ii) Financial liabilities
IFRS 9 requires the portion of the change in fair value of a financial liability that relates to the entity's own credit risk, to be presented in other
comprehensive income. The classification of financial liabilities is unchanged with respect to previous requirements under IAS 39, 'Financial
Instruments: recognition and measurement'.
GovernanceFinancial StatementsOverviewStrategic Report 102
2. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS CONTINUED
(2) Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit loss model
under IAS 39. Under IFRS 9 the Group has assessed recoverability on a forward-looking basis and applied the simplified approach for
measuring the loss allowance for trade receivables which do not contain a significant financing component.
Given the low level of historic debts experienced by the Group, the application of IFRS 9 has not had a material impact on the Group’s financial
statements. Note 19 'Trade and other receivables', provides further details on the measurement of the loss allowance and provision recognised
at the balance sheet date.
(3) General hedge accounting
Greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of
instruments that qualify for hedging and aligning the effectiveness of a hedge more closely to an entity’s risk management activities and
strategy. IFRS 9 also allows an entity to designate only the spot element of a derivative as the hedged item and amortise the time-value over
the life of the hedge.
The Group has updated its hedge accounting policy and hedge documentation to ensure that new hedging relationships are documented
in line with its risk management strategy. The Group continues to assess the effectiveness of its hedging relationships prospectively. The
Group’s qualifying hedging relationships in place at 1 October 2018 also qualified for hedge accounting in accordance with IFRS 9 and were
regarded as continuing hedging relationships. The application of the new hedge accounting requirements has no impact on the Group’s
financial statements.
Accounting standards in issue but not yet effective
With the exception of IFRS 16, 'Leases' which is outlined in more detail below, there are no IFRSs or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on the Group or Parent Company.
IFRS 16 Leases
IFRS 16, 'Leases' was issued in January 2016 to replace IAS 17, 'Leases' and has been endorsed by the EU. The standard is effective for
periods beginning on or after 1 January 2019 and will be adopted for the Group financial statements for the period ending 30 September
2020. The objective of IFRS 16, 'Leases' is to report information that both faithfully represents lease transactions and allows the reader to
assess the amount, timing and uncertainty of cash flows arising from leases. It introduces a single lessee accounting model where a lessee
is required to recognise a right-of-use asset which is capitalised and depreciated over the estimated lease term together with a lease liability
representing its obligation to make lease payments which will reduce over time with an interest charge recognised in the income statement.
The Group intends to adopt the full retrospective approach, including restatement of comparative information. Upon restatement of the
financial statements, the Group will recognise on the balance sheet a right of use asset in the region of £205,000 and a lease liability in the
region of £220,000, the difference will be shown in an adjustment to brought forward retained earnings. The lease liability will also impact
the Group’s net cash or debt position.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies which have been used in the preparation of these financial statements are set out below.
Accounting convention
The Group is required to prepare its annual consolidated financial statements in accordance with International Financial Reporting Standards
(IFRS) as adopted for use by the European Union. The Parent Company has also prepared its own financial statements in accordance with
IFRS as adopted by the European Union. The financial statements have also been prepared under the historical cost convention (unless a fair
value basis is required by IFRS) and are in accordance with the Companies Act 2006 applicable for companies reporting under IFRS.
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.
The financial statements are prepared in Sterling which is the functional currency of the Parent Company and Group.
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.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 103
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 84 to 87.
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, 'Business combinations' are recognised at their fair value at the acquisition date.
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 control transfers to the customer in accordance with IFRS 15,
'Revenue from Contracts with Customers'.
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.
Financial StatementsGovernanceOverviewStrategic Report 104
3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax attributable to current profits.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by
the balance sheet date. Where the Group and/or Parent Company have a net current tax asset in one legal jurisdiction, 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 taxable 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, 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.
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.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 105
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:
• Buildings:
• Plant and machinery:
• Fixtures, fittings and equipment:
• Lab equipment
50 years
4–10 years
4–10 years
5 years
Intangible assets
Intangible assets comprise licences for software, the lease premium on buildings and capitalised development costs. Amortisation (which is
included within administrative expenses) is provided on all intangible assets, using the straight-line basis to write off the cost of the asset, less
estimated residual value, as follows:
• Software licences:
• Lease premium:
• Development costs:
4 years
85 years
7 years
Research costs are expensed as incurred. Expenditure on development activities is capitalised if, and only if, the products are technically and
commercially feasible and the Group intends to complete the intangible asset to use or sell; it is probable the intangible asset will generate
future economic benefit; the expenditure attributable to the intangible asset during its development can be measured reliably; and the Group
has the technical ability and sufficient resources to complete development.
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 carrying amounts of the Group’s non-current assets are reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, the need for an impairment is assessed by comparison of the carrying value of the asset against the
higher of net realisable value and value in use. The value in use is estimated using a discounted cash flow model.
Assets held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be
recovered primarily through sale rather than through continuing use.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on raw material costs plus attributable overheads.
Net realisable value is based on estimated selling price less further costs expected to be incurred through to disposal. Provision is made for
obsolete, slow-moving and defective items.
Onerous contracts
Provisions for onerous contracts are recognised when the expected benefits from a contract are lower than the unavoidable costs of meeting
the contract's obligations.
Financial instruments
Financial assets and financial liabilities are recognised on the Group and/or Parent Company’s balance sheet when the Group and/or Parent
Company have become a party to the contractual provisions of the instrument.
Financial assets
Financial assets held by the Group are classified in accordance with IFRS 9. Financial assets at the reporting date comprise trade receivables,
loans, other receivables and cash and cash equivalents. The classification depends on both the nature of contractual cash flows due from the
instrument, and the business model in which it is expected the cash flows will be realised.
Trade receivables
The Group generally holds trade receivables with the objective to collect the contractual cash flows, and so it measures them initially at fair
value then subsequently at amortised cost using the effective interest method, less an allowance for expected credit losses (ECLs). The Group
may sell trade receivables from some customers before the due date; these sales are true sales of debt that result in derecognition. Any
receivables from such customers not sold at the reporting date are classified as 'held to collect and sell' and held at fair value with changes
recognised in other comprehensive income. The Group has adopted the simplified approach to impairment as permitted under IFRS 9 and
recognises the lifetime ECLs for trade receivables at initial recognition. ECLs have been estimated using the Group’s historical credit loss
experience and the current and anticipated future market conditions at the reporting date.
Financial StatementsGovernanceOverviewStrategic Report
106
3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 include 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.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into, and in
accordance with IFRS 9. 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 32, '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 the Group’s risk management objectives and strategy for undertaking various hedge transactions. Furthermore, at the inception of the
hedge and on an ongoing basis, the Group prospectively documents whether the hedging instrument that is used in a hedging relationship is
effective in offsetting changes in fair values or cash flows of the hedged item. The Group has continued to designate the fair value of the entire
derivative as the hedging instrument consistent with the treatment previously adopted under IAS 39.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge
accounting. If a hedging transaction is no longer expected to occur, the net cumulative gain or loss that was recognised in equity is reclassified
to profit and loss as a reclassification adjustment through reserves. 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.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019
107
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 full 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 ('EBT') 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 the fair value of options
under IFRS. The fair value excludes the effect of non market-based vesting conditions. This expense, which is in relation to share option
schemes for staff in the UK and US, is recognised on a straight-line basis over the vesting period of the scheme, based on the Group’s estimate
of the number of equity instruments that will eventually vest.
At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of
non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to the 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.
Financial StatementsGovernanceOverviewStrategic Report 108
3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 financial year include the following:
Revenue recognition
On adoption of IFRS 15, the Group has considered how it recognises the sale of goods to customers and in particular has exercised
judgement in determining the point at which control is transferred to the customer. The key performance obligation of the consolidated entity
is considered to be satisfied at the point in time that the goods are either collected by or despatched to the customer. At this point the goods
are derecognised by the consolidated entity and are no longer available for sale, therefore management deem that control of the goods has
transferred to the customer and there is a present right to receive payment for the goods.
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 29 'Post-employment benefits'.
Useful economic life and residual value estimates
The Group reviews the useful economic lives and residual values attributed to property, plant and equipment and intangible 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 the information available at the balance sheet date, the Directors make judgements based on experience on the level of provision
required against assets, including inventory and trade receivables, and for liabilities including onerous contracts. 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 28 'Share-based payments'. Changes in
these assumptions could lead to changes in the income statement expense in future periods.
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.
Deferred tax assets
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 the 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 'SIP
Trust'). The shares held in the EBT and SIP 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.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 109
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 the cumulative exchange differences arising from the translation of the financial statements of
overseas subsidiaries.
Retained earnings
Retained earnings comprises the Group’s cumulative 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, 'Operating segments' 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 the profit performance from the Group’s operations.
The Group operates one global business segment engaging in the manufacture and supply of innovative ingredient solutions for the flavour,
fragrance, beverage and consumer product industries 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
2019
£’000
Continuing
2019
£’000
Discontinued
7,920
6,142
7,434
12,846
43,689
7,787
6,766
20,133
112,717
1,496
–
–
–
–
–
–
81
1,577
2019
£’000
Total
9,416
6,142
7,434
12,846
43,689
7,787
6,766
20,214
114,294
2018
£’000
Continuing
2018
£’000
Discontinued
9,363
6,687
8,310
12,661
42,597
8,407
5,441
18,697
112,163
2,051
719
–
1,920
1,030
3
1
409
6,133
2018
£’000
Total
11,414
7,406
8,310
14,581
43,627
8,410
5,442
19,106
118,296
All Group revenue is in respect of the sale of goods, other than property rental income of £23,000 (2018: £27,000). No country included
within 'Other' contributes more than 5% of the Group’s total revenue. The largest customer represented 9.8% of Group revenue (2018: 10.7%).
Non-current assets by geographical location, excluding deferred tax assets, were as follows:
Continuing operations
United Kingdom
United States
2019
£’000
10,412
19,918
30,330
2018
£’000
8,652
12,138
20,790
Financial StatementsGovernanceOverviewStrategic Report 110
5. PROFIT FOR THE YEAR
Profit1 for the year is stated after charging/(crediting):
Group
Depreciation of property, plant and equipment
Amortisation of intangible assets2
Loss on disposal of other intangible assets
Research and development costs
Research and development tax credits
Operating leases
– plant & machinery
– land & buildings
Net foreign exchange gain3
Rent (receivable)/payable
2019
£’000
Continuing
2019
£’000
Discontinued
2019
£’000
Total
2018
£’000
Continuing
2018
£’000
Discontinued
2018
£’000
Total
1,289
82
–
2,128
(149)
6
22
(424)
(23)
60
1,349
–
–
–
–
–
105
–
–
82
–
2,128
(149)
6
127
(424)
(23)
1,254
113
31
1,717
(137)
6
22
(558)
(44)
56
3
–
–
–
1
84
(20)
17
1,310
116
31
1,717
(137)
7
106
(578)
(27)
Cost of inventories recognised as expense4
72,427
889
73,316
73,377
5,285
78,662
Write down of inventories recognised as an
expense
Shipping costs
IT & telephony costs
Insurance costs
Energy & utility costs
516
1,960
737
634
595
4
27
15
25
19
520
1,987
752
659
614
769
1,755
628
581
527
38
112
15
66
38
807
1,867
643
647
565
1
2
3
4
Figures above refer to operating profit and do not include net finance costs, exceptional items as disclosed in note 9.
Included in administrative expenses.
Excludes foreign exchange gains or losses on financial instruments disclosed in note 24.
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:
– other assurance services
Total non-audit fees
2019
£’000
2018
£’000
37
86
123
2
2
40
80
120
2
2
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 111
6. EMPLOYEES
Number of employees
During the year the average number of staff employed by the Group, including Directors, measured on a full time equivalent basis was
as follows:
Group
Technical and production
Administration and sales
2019
Number
Continuing
2019
Number
Discontinued
2019
Number
Total
2018
Number
Continuing
2018
Number
Discontinued
174
138
312
63
5
68
237
143
380
158
129
287
63
10
73
2018
Number
Total
221
139
360
The total number of staff employed by the Group at the year-end date, on an actual basis, is 399 (2018: 376). During the year, the Directors
shown on pages 56 and 57 were employed by R.C. Treatt & Co Limited.
Employment costs
The following costs were incurred in respect of the above:
Group
Wages and salaries
Social security costs
Pension costs (see note 29)
Share-based payments (see note 28)
2019
£’000
Continuing
2019
£’000
Discontinued
13,564
1,400
842
637
16,443
319
1
14
–
334
2019
£’000
Total
13,883
1,401
856
637
16,777
2018
£’000
Continuing
2018
£’000
Discontinued
12,242
1,520
740
1,040
15,542
487
36
27
–
550
2018
£’000
Total
12,729
1,556
767
1,040
16,092
Directors
The information on Directors’ emoluments and share options set out on pages 79 to 83 form part of these financial statements.
7. OTHER LOSSES
Group
Hedge ineffectiveness on cash flow hedges
2019
£’000
–
2018
£’000
734
The ineffectiveness of certain cash flow hedges in the prior year arose as a consequence of increased payment terms with certain
large customers.
Financial StatementsGovernanceOverviewStrategic Report 112
8. NET FINANCE COSTS
Group
Finance income
Bank interest received
Other interest received
Finance costs
Bank overdraft interest paid
Other bank finance costs
Pension finance cost (see note 29)
2019
£’000
Continuing
2019
£’000
Discontinued
2019
£’000
Total
2018
£’000
Continuing
2018
£’000
Discontinued
2018
£’000
Total
139
2
141
26
213
101
340
–
–
–
–
–
–
–
139
2
141
26
213
101
340
–
36
36
221
217
166
604
–
–
–
42
–
–
42
–
36
36
263
217
166
646
9. EXCEPTIONAL ITEMS
The exceptional items referred to in the income statement can be categorised as follows:
Group
Accelerated depreciation and amortisation
UK relocation expenses
Less: tax effect of exceptional items
2019
£’000
2018
£’000
217
538
755
(91)
664
217
888
1,105
(130)
975
The exceptional items all relate to non-recurring items. The accelerated depreciation and amortisation is in relation to the reduction in the
estimated useful lives of UK assets which will not transition to the new UK facility. Relocation expenses relate to one-off costs incurred in
connection with the relocation of the Group’s UK operations which is expected to take place in late 2020, and which in management's view
do not fall to be capitalised.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 2019
£’000
Continuing
2019
£’000
Discontinued
2019
£’000
Total
2018
£’000
Continuing
2018
£’000
Discontinued
10. TAXATION
Analysis of tax charge in income statement:
Group
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 17)
Tax on profit on ordinary activities
685
(298)
1,166
(59)
1,494
1,198
(14)
(5)
1,179
2,673
–
–
–
–
–
16
–
–
16
16
685
(298)
676
(33)
1,166
2,301
(59)
1,494
1,214
(14)
(5)
1,195
2,689
(3)
2,941
(325)
(331)
(1)
(657)
2,284
Analysis of tax (credit)/charge in other comprehensive income:
Group
Current tax:
Foreign currency translation differences
Deferred tax:
Cash flow hedges
Defined benefit pension scheme
Total deferred tax
Total tax (credit)/charge recognised in other comprehensive income
Analysis of tax charge/(credit) in equity:
Group
Current tax:
Share-based payments
Deferred tax:
Share-based payments
Total tax charge/(credit) recognised in equity
113
2018
£’000
Total
734
(33)
2,301
(3)
58
–
–
–
58
2,999
(15)
–
(1)
(16)
42
(340)
(331)
(2)
(673)
2,326
2019
£'000
2018
£'000
72
16
(719)
(703)
(631)
24
27
426
453
477
2019
£'000
2018
£'000
(418)
(576)
453
35
119
(457)
Financial StatementsGovernanceOverviewStrategic Report
114
10. TAXATION CONTINUED
Factors affecting tax charge for the year:
The tax assessed for the year is different from that calculated at the standard rate of corporation tax in the UK of 19.0% (2018: 19.0%).
The differences are explained below:
Profit before tax multiplied by
standard rate of UK corporation
tax at 19% (2018: 19%)
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
Effect of reduced rate on opening
deferred tax
Gain on disposal of subsidiary not taxable
Impairment of discontinued operations
not tax allowable
Total tax charge for the year
2019
£’000
Continuing
2019
£’000
Discontinued
2019
£’000
Total
2018
£’000
Continuing
2018
£’000
Discontinued
2018
£’000
Total
2,384
(203)
2,181
2,192
573
2,765
359
(47)
354
(362)
(15)
–
–
2,673
(6)
–
68
–
–
–
157
16
353
(47)
422
(362)
(15)
–
157
2,689
127
(44)
377
(37)
(331)
–
–
2,284
(170)
–
93
(1)
–
(453)
–
42
(43)
(44)
470
(38)
(331)
(453)
–
2,326
The Group’s effective UK corporation tax rate for the year was 19.0% (2018: 19.0%). The effective tax rate of US-based earnings is 23.0%
(2018: 24.25%). The adjustments in respect of prior years relate to the finalisation of previous year’s tax computations.
11. DISCONTINUED OPERATIONS
On 31 May 2018 the Group completed the disposal of Earthoil Plantations Limited. Following this disposal, the Group retained the former
Earthoil operations based in Kenya, which have since become loss-making. These operations are not considered core to the Group’s existing
business and future growth strategy and consequently have been classified as a disposal group held for sale.
Management has assessed the carrying value of the disposal group’s assets and liabilities against the fair value less costs of disposal and
recognised an impairment of £825,000 within the Income Statement. This impairment is reflected in the earnings per share below and the
earnings per share from continuing and discontinued operations as shown in note 13.
The results of the discontinued operations, which have been included in the income statement, were as follows:
Revenue
Cost of sales
Gross (loss)/profit
Administrative expenses
Operating (loss)/profit
Net finance costs
(Loss)/profit before taxation and exceptional items
Exceptional items – impairment of disposal group
– gain on disposal of subsidiary
(Loss)/profit before taxation
Taxation
(Loss)/profit for the period attributable to owners of the Parent Company
2019
£’000
1,577
(1,587)
(10)
(233)
(243)
–
(243)
(825)
–
(1,068)
(16)
(1,084)
2018
£’000
6,133
(5,164)
969
(291)
678
(42)
636
–
2,382
3,018
(42)
2,976
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 115
Earnings per share from discontinued operations: basic 1.83p loss (2018: 5.25p); diluted 1.81p loss (2018: 5.11p). Adjusted earnings per share
(excluding exceptional items shown above) from discontinued operations: basic 0.44p loss (2018: 1.05p); diluted 0.43p loss (2018: 1.02p).
During the year, the discontinued operations contributed an outflow of £0.3m (2018: £0.7m inflow) to the Group’s net operating cashflow, paid
£nil (2018: £0.2m) in respect of investing activities and received £nil (2018: £2.6m) in respect of financing activities.
The major classes of assets and liabilities, net of the aforementioned impairment, that comprise the operations classified as held for sale are
as follows:
Property, plant and equipment
Inventories
Trade and other receivables
Deferred tax
Current tax
Total assets classified as held for sale
Trade and other payables
Total liabilities classified as held for sale
Net assets of disposal group
12. DIVIDENDS
Equity dividends on ordinary shares:
Parent Company and Group
Interim dividend
Final dividend
1 Accounted for in the year ended 30 September 2017.
2 Accounted for in the year ended 30 September 2018.
3 Accounted for in the year ended 30 September 2019.
2019
£’000
2018
£’000
141
245
303
7
1
697
(14)
(14)
683
2019
£'000
1,009
2,071
3,080
425
610
523
35
5
1,598
(20)
(20)
1,578
2018
£'000
936
1,940
2,876
Dividend per share for years
ended 30 September
2019
Pence
1.70p3
3.80p4
5.50p
2018
Pence
1.60p2
3.50p3
5.10p
2017
Pence
1.45p1
3.35p2
4.80p
4
The proposed final dividend for the year ended 30 September 2019 of 3.80 pence will be voted on at the Annual General Meeting on 31 January 2020 and will therefore be accounted for in
the financial statements for the year ending 30 September 2020.
Financial StatementsGovernanceOverviewStrategic Report 116
13. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year.
The weighted average number of shares excludes shares held by the Treatt Employee Benefit Trust ('EBT'), together with shares held by the
Treatt SIP Trust ('SIP Trust'), which do not rank for dividend.
Group
Profit after taxation attributable to owners of the Parent Company (£’000)
Loss/(profit) from discontinued operations (£’000)
Profit from continuing operations attributable to owners of the Parent Company (£’000)
Weighted average number of ordinary shares in issue (No: ‘000)
Basic earnings per share – continuing and discontinued (pence)
Basic earnings per share – continuing (pence)
2019
8,788
1,084
9,872
59,140
14.86p
16.69p
2018
12,229
(2,976)
9,253
56,758
21.55p
16.30p
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:
Group
Weighted average number of shares
Weighted average number of shares held in the EBT and SIP Trust
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 – continuing and discontinued (pence)
Diluted earnings per share – continuing (pence)
2019
No (‘000)
2018
No (‘000)
59,681
(541)
59,140
639
152
59,931
14.66p
16.47p
57,423
(665)
56,758
1,201
301
58,260
20.99p
15.88p
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 117
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:
Group
Profit after taxation attributable to owners of the Parent Company
Adjusted for:
Exceptional items (see note 9)
Taxation thereon
Impairment of discontinued operations (see note 11)
Less gain on disposal of subsidiary (see note 27)
Earnings for calculating adjusted earnings per share:
From continuing and discontinued operations
Less: loss/(profit) from discontinued operations
Adjusted earnings from continuing operations
Adjusted basic earnings per share (pence)
– Continuing and discontinued operations
– Continuing operations
Adjusted diluted earnings per share (pence)
– Continuing and discontinued operations
– Continuing operations
2019
£’000
8,788
755
(91)
825
–
10,277
259
10,536
17.38p
17.82p
17.15p
17.58p
2018
£’000
12,229
1,105
(130)
–
(2,382)
10,822
(594)
10,228
19.07p
18.02p
18.58p
17.56p
Financial StatementsGovernanceOverviewStrategic Report 118
14. INTANGIBLE ASSETS
Group
Cost
1 October 2017
Exchange adjustment
Additions
Disposals
Disposal of subsidiaries (see note 27)
30 September 2018
Exchange adjustment
Additions
Disposals
30 September 2019
Amortisation
1 October 2017
Exchange adjustment
Charge for year
Disposals
Disposal of subsidiaries (see note 27)
30 September 2018
Exchange adjustment
Charge for year
Disposals
30 September 2019
Net book value
30 September 2019
30 September 2018
Development
costs
£’000
Lease
premium
£’000
Software
licences
£’000
Total
£’000
–
–
–
–
–
–
5
135
–
140
–
–
–
–
–
–
–
–
–
–
343
–
–
–
–
343
–
–
–
343
29
–
4
–
–
33
–
4
–
37
140
–
306
310
745
3
422
(162)
(123)
885
6
43
(228)
706
455
2
120
(131)
(3)
443
6
86
(228)
307
399
442
1,088
3
422
(162)
(123)
1,228
11
178
(228)
1,189
484
2
124
(131)
(3)
476
6
90
(228)
344
845
752
Included in intangible assets are software licences in the course of construction totalling £166,000 (2018: £nil) and ongoing development
projects totalling £140,000 (2018: £nil) which are not yet subject to amortisation.
Intangible assets with a net book value of £146,000 (2018: £18,000) have been pledged as security in relation to all US borrowings as detailed
in note 21.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 119
15. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
1 October 2017
Exchange adjustment
Additions
Disposals
Disposal of subsidiaries (see note 27)
Transfer of assets held for sale (see note 11)
30 September 2018
Exchange adjustment
Additions
Disposals
30 September 2019
Depreciation
1 October 2017
Exchange adjustment
Charge for year
Disposals
Disposal of subsidiaries (see note 27)
Transfer to assets held for sale (see note 11)
30 September 2018
Exchange adjustment
Charge for year
Disposals
30 September 2019
Net book value
30 September 2019
30 September 2018
Analysis of land & buildings
Net book value
Freehold
Long leasehold
Land &
buildings
£’000
Plant &
machinery
£’000
Fixtures,
fittings &
equipment
£’000
Laboratory
equipment
£’000
10,593
304
6,275
(68)
–
(66)
17,038
703
4,185
–
21,926
9,348
200
356
(313)
(4)
(586)
9,001
479
4,926
(634)
1,668
9
152
(268)
–
–
1,561
42
845
(168)
13,772
2,280
1,522
4,788
31
214
(68)
–
(9)
1,690
66
151
–
1,907
102
858
(313)
(4)
(218)
5,213
201
892
(633)
5,673
20,019
15,348
8,099
3,788
900
5
309
(268)
–
–
946
12
330
(168)
1,120
1,160
615
933
9
1
(139)
–
–
804
14
44
(187)
675
511
7
138
(139)
–
–
517
12
126
(187)
468
207
287
Total
£’000
22,542
522
6,784
(788)
(4)
(652)
28,404
1,238
10,000
(989)
38,653
7,721
145
1,519
(788)
(4)
(227)
8,366
291
1,499
(988)
9,168
29,485
20,038
2019
£’000
2018
£’000
19,362
657
20,019
14,674
674
15,348
Included in property, plant and equipment are land and buildings assets in the course of construction totalling £10,513,000 (2018: £6,307,000),
plant and machinery assets in the course of construction of £4,850,000 (2018: £440,000) and fixtures, fittings and equipment in the course
of construction totalling £871,000 (2018: £nil) which are not yet being depreciated.
Included within land and buildings assets is £239,000 (2018: £nil) of interest payments capitalised in accordance with IAS 23, 'Borrowing
Costs'.
Property, plant and equipment with a net book value of £19.8m (2018: £12.1m) has been pledged as security in relation to all US borrowings
as detailed in note 21.
Capital commitments
Contracted but not provided for
2019
£’000
18,145
2018
£’000
3,674
Financial StatementsGovernanceOverviewStrategic Report 120
16. INVESTMENTS IN SUBSIDIARIES
Parent Company
Cost
1 October 2017
Capital contributions to subsidiaries
Inter company transfer of subsidiary
Disposal of subsidiaries
30 September 2018
Capital contribution to subsidiaries
30 September 2019
Parent Company
Subsidiary:
R C Treatt & Co Limited – 50,000 ordinary shares of £1 each, fully paid
Treatt USA Inc – 2,975,000 common stock of US$1 each, fully paid
Treatt Development Company Limited – 2 ordinary shares of £1 each, fully paid
Speciality Oils Holding Company Kenya Limited
2,500 'A' ordinary shares of KES20 each, fully paid
2,500 'B' ordinary shares of KES20 each, fully paid
During the year the Parent Company had the following subsidiary undertakings:
£’000
8,205
1,049
1
(2,245)
7,010
653
7,663
2018
£’000
4,392
2,617
–
1
2019
£’000
4,871
2,791
–
1
7,663
7,010
Subsidiary
Wholly owned by Treatt plc:
R C Treatt & Co Limited
Treatt USA Inc
Treatt SIP Trustees Limited
Treatt Development Company Limited
Speciality Oils Holding Company Kenya Limited
Wholly owned by Speciality Oils Holding Co Kenya Limited:
Athi River Oils EPZ Limited
Nanyuki Oils Limited
Registered office addresses:
1
Northern Way, Bury St. Edmunds, IP32 6NL, UK.
Country of
incorporation Holding
Principal activity
England1
USA2
England1
England1
Kenya3
Kenya3
Kenya3
100%
100%
100%
100%
100%
100%
100%
Supply of flavour and fragrance ingredients
Supply of flavour and fragrance ingredients
Employee share trust
Property development
Intermediate holding company
Supply of organic & fair trade vegetable oils
Supply of organic & fair trade essential oils
2 The Prentice-Hall Corporation System Inc., 1201 Hays Street, Suite 105, Tallahassee, FL 32301, USA.
3
LR. No. 3734/1018 Lavington, Insecta Building, Braeside Gardens off Muthangari Road, P. O. Box 76618-00508, Yaya Centre, Nairobi, Kenya.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 17. DEFERRED TAXATION
Group
UK deferred tax asset
Overseas deferred tax liability
Net deferred tax (liability)/asset
A reconciliation of the net deferred tax liability is shown below:
2019
£’000
1,400
(1,719)
(319)
Charge to other comprehensive income
(426)
Group
1 October 2018
Disposal of subsidiaries
Exchange differences
Credit/(charge) to income statement
For the year
For change in tax rate
Charge to equity
Transfer to assets held for sale
30 September 2018
Exchange differences
Credit/(charge) to income statement
For the year
For change in tax rate
Credit/(charge) to other comprehensive
income
Charge to equity
30 September 2019
UK deferred tax
Overseas deferred tax
Post-
employment
benefits
£’000
Fixed
assets
£’000
Cash flow
hedge
£’000
Share-based
payments
£’000
Fixed
assets
£’000
Other
temporary
differences
£’000
989
(133)
–
–
24
–
–
–
587
–
18
–
719
–
(4)
–
54
–
–
–
(35)
(118)
–
27
–
–
–
1,324
(91)
(13)
–
–
109
–
(27)
–
–
69
–
–
–
(16)
–
53
537
(1,338)
–
–
3
–
–
(5)
–
535
–
–
(19)
216
366
–
–
–
(775)
(84)
(56)
(1,162)
–
–
(365)
17
–
–
114
(2,004)
574
–
13
(64)
(35)
–
(114)
–
374
22
(20)
(3)
–
(88)
285
121
2018
£’000
1,073
(401)
672
Total
£’000
616
(4)
(6)
342
331
(453)
(119)
(35)
672
(62)
(1,193)
14
703
(453)
(319)
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% (2018: 17%) as legislation has been substantively enacted which
reduces the main rate of UK corporation tax from 19% to 17% from 1 April 2020. The impact of estimating the timing of deferred tax reversals
in the intervening years before the rate reaches 17% is not considered to be material. The deferred tax rate applicable to the Group’s US
subsidiary was 21% (2018: 24%).
Financial StatementsGovernanceOverviewStrategic Report 122
18. INVENTORIES
Group
Raw materials
Work in progress and intermediate products
Finished goods
2019
£’000
14,531
19,145
3,123
36,799
2018
£’000
19,463
16,939
3,240
39,642
Inventories are stated net of provisions for impairment of £2.7m (2018: £2.5m).
Inventory with a carrying value of £19.4m (2018: £19.9m) has been pledged as security in relation to all US borrowings as detailed in note 21.
19. TRADE AND OTHER RECEIVABLES
Current
Trade receivables1
Amounts owed by subsidiaries
Other receivables
Prepayments
Group
Parent Company
2019
£’000
2018
£’000
2019
£’000
21,412
24,682
–
388
1,220
23,020
–
3,412
735
28,829
–
52
34
–
86
2018
£’000
–
181
2,326
–
2,507
1
This includes £99,000 (2018: £nil) of trade receivables which are classified under the business model of 'held to collect and sell' and are measured at fair value with changes through Other
Comprehensive Income.
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 prospective
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
2019
75
2018
70
The Group has adopted the simplified approach permitted by IFRS 9 for impairing trade receivables and recognises the lifetime expected
credit losses ('ECL's) based on the difference between the contractual cash flows due and the cash flows the Group expects to receive over
the life of the receivable. The carrying amount of receivables is reduced by the value of the provision, as determined by applying the ECL loss
rate and providing for any specific provisions. A specific provision for impairment is made when there is objective evidence of impairment
which is usually indicated by a significant delay in the expected cash flows or non-payment from customers.
An impairment review has been undertaken at the balance sheet date to assess whether the carrying amount of financial assets is deemed
recoverable. An ECL loss rate has been applied based on the historical credit losses of the past five accounting years and adjusted to reflect
current and forward-looking information. Due to historically low default rates of trade receivables, there was no material change in the
impairment provided against Group receivables on the transition to IFRS 9.
The ECL model is also applied to amounts owed by subsidiaries of the Parent Company. Application of the model did not result in the
recognition of an impairment in the Parent Company accounts against amounts owed by subsidiaries.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 123
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
2019
£’000
2018
£’000
258
(170)
188
9
285
314
(133)
75
2
258
The Group’s top five customers represent 33% (2018: 35%) of the Group’s turnover. These customers have favourable credit ratings and
consequently reduce the credit risk of the Group’s overall trade receivables. The Directors consider that the carrying amount of trade and
other receivables approximates to their fair value. The Group holds no collateral against these receivables at the balance sheet date.
The ageing profile of trade receivables which are past their due date but not impaired is as follows:
Group
Number of days past the due date:
1–30
31–60
Over 60
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
2019
£’000
1,201
33
911
2018
£’000
2,395
256
1,147
2019
£’000
2018
£’000
–
3
2
280
40
3
7
208
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 32 and the Financial Review on pages 28 to 34. The currency exposure within trade
receivables of the principal foreign currencies, was as follows:
Group
US Dollar
Euro
2019
£’000
15,890
1,897
2018
£’000
18,979
2,096
Trade receivables with a carrying value of £8.6m (2018: £10.8m) have been pledged as security in relation to US borrowings as detailed in
note 21.
20. CASH AND BANK BALANCES
Group and Parent Company
Cash and bank balances of £37,187,000 (2018: £32,304,000) comprise cash held by the Group and short term deposits with an original
maturity of three months or less. The Parent Company held cash and bank balances of £33,210,000 (2018: £31,647,000). The carrying amount
of these assets approximates to their fair value.
A detailed analysis of net cash balances by currency is shown in note 32. 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.
Financial StatementsGovernanceOverviewStrategic Report 124
21. BORROWINGS
Current
Group
Term loans
UK bank borrowings
Non-current
Group
Term loans
US line of credit
US construction loan
Loans and borrowings
Term loans comprise the following:
Group
Treatt USA term loan – US
2019
£’000
749
16,111
16,860
2019
£’000
4,369
–
–
4,369
2018
£’000
–
19,244
19,244
2018
£’000
–
621
2,380
3,001
2019
£’000
5,118
2018
£’000
–
The Group has a US Dollar overdraft facility ('US line of credit') of $6.0 million expiring in 2020. At the year-end date the overdrawn balance
was £nil (2018: £0.6 million).
During the prior year the Group entered into an agreement with Bank of America to finance the expansion of the Group’s US facility through
a construction line of credit for up to $7.5 million ('US construction loan'). On 14 August 2019, this finance facility was converted to a seven-
year term loan of $6.5 million. The US line of credit and the term loan, both held by Treatt USA Inc, are secured by a fixed and floating charge
over Treatt USA’s current and non-current assets.
The Group’s UK facilities are unsecured and include revolving credit facilities of $12.0 million and £4.5 million expiring in 2023 and 2020
respectively, and overdraft facilities of $3.0 million and £2.0 million. The Group's UK-based US Dollar denominated revolving credit facility and
overdraft are operated on a pooling basis, whereby interest is only charged on the net overdrawn balance of the Group's UK-based accounts,
at the year-end none of these facilities were attracting interest. During the prior year all UK term loans were repaid in full.
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
2019
£’000
16,860
749
2,247
1,373
21,229
2018
£’000
19,244
621
–
2,380
22,245
Further information on Group borrowing facilities is given in notes 31 and 32, including a detailed analysis of cash balances by currency.
Borrowing facilities
At 30 September 2019 the Group had total borrowing facilities of £28.7m (2018: £25.0m) of which £9.3m (2018: £4.3m) expires in one year
or less at the balance sheet date. At 30 September 2019 the Group had access to £44.7m (2018: £34.4m) of financing facilities including its
own cash balances at that date.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 22. PROVISIONS
Group
Onerous contract provision:
At start of year
Utilised in year
Additional provision in year
Foreign exchange
Balance at end of year
125
2019
£’000
2018
£’000
58
(55)
254
4
261
57
(53)
52
2
58
Onerous contract provisions relate to losses which are or were expected to materialise in the future on fixed price contracts as a result of
raw material price increases or market pressure on selling prices. The onerous contract provision expense is included in cost of sales within
the income statement and is expected to be utilised in the following financial year.
23. TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts owed to subsidiaries
Other taxes and social security costs
Accruals and other creditors
Group
Parent Company
2019
£’000
7,858
–
415
3,058
11,331
2018
£’000
10,006
–
551
4,741
15,298
2019
£’000
199
1,308
–
70
1,577
2018
£’000
18
2,427
–
352
2,797
Trade payables principally comprise amounts for trade purchases and on-going costs. The Directors consider that the carrying amount of
trade and other payables approximates to their fair values.
The currency risk in respect of trade payables is managed in conjunction with the other currency risks faced by the Group as part of its overall
hedging strategy. For further details see note 32 and the Financial Review on pages 28 to 34. The currency exposure within trade payables
of the principal foreign currencies, was as follows:
Group
US Dollar
Euro
2019
£’000
4,368
512
2018
£’000
5,972
452
Financial StatementsGovernanceOverviewStrategic Report 126
24. DERIVATIVE FINANCIAL INSTRUMENTS
Group
Derivative financial liabilities:
Current:
Foreign exchange contracts
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
2019
£’000
2018
£’000
315
401
2019
£’000
2018
£’000
(1,266)
(1,633)
–
93
93
176
(246)
(70)
Further details on the Group’s hedging policies and derivative financial instruments are disclosed in note 32.
25. SHARE CAPITAL
Parent Company and Group Called up, allotted and fully paid
At start of year
Issued in year
At end of year
2019
£'000
2019
Number
2018
£'000
2018
Number
1,189
59,470,670
1,058
52,905,170
14
700,000
1,203
60,170,670
131
1,189
6,565,500
59,470,670
The Parent Company has one class of ordinary shares with a nominal value of 2p each, which carry no right to fixed income.
During the year the Parent Company issued nil (2018: 230,000) ordinary shares to the Treatt SIP Trust for the purpose of meeting its
obligations under an HMRC-approved share incentive plan in the UK as well as 700,000 (2018: 1,070,000) ordinary shares to the Employee
Benefit Trust for the purpose of meeting obligations under employee share option schemes.
26. SHARE PREMIUM ACCOUNT
Parent Company and Group
Balance at 1 October 2018 and 30 September 2019
£'000
23,484
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 27. DISPOSAL OF SUBSIDIARY
As referred to in note 11, on 31 May 2018 the Group disposed of its interest in Earthoil Plantations Limited.
The net assets of Earthoil Plantations Limited at the date of disposal were as follows:
Intangible assets
Inventories
Trade and other receivables
Bank balances and cash
Deferred tax assets
Current tax liability
Trade and other payables
Attributable goodwill
Cost incurred during disposal
Gain on disposal
Total consideration
Satisfied by:
Cash and cash equivalents
Completion settlement post year-end
Deferred consideration
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents
Less:
Cost incurred during disposal
Cash and cash equivalents disposed of
127
31 May 2018
£’000
120
4,382
1,633
3
4
(58)
(1,678)
2,727
7,133
544
2,382
10,059
9,293
(267)
1,033
10,059
9,293
(544)
(3)
8,746
There were no disposals of subsidiaries in 2019. The deferred consideration of £1,033,000 was settled in full on 12 August 2019.
The impact of the sale of Earthoil Plantations Limited on the Group’s results in the prior period is disclosed in note 11.
Financial StatementsGovernanceOverviewStrategic Report 128
28. SHARE-BASED PAYMENTS
The Group has applied the requirements of IFRS 2, '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
2019
£’000
467
186
653
(16)
637
2018
£’000
780
269
1,049
(9)
1,040
(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:
Number of share
options outstanding
–
Number
exercised in year
4,643
Exercise
price per share
132.0p
UK SAYE1 Scheme 2015
UK SAYE1 Scheme 2016
UK SAYE1 Scheme 2017
UK SAYE1 Scheme 2018
UK SAYE1 Scheme 2019
US ESPP2 Scheme 2018
US ESPP2 Scheme 2019
UK LTIP3 Scheme 2014
UK LTIP3 Scheme 2015
UK LTIP3 Scheme 2016
US LTIP3 Scheme 2016
UK LTIP3 Scheme 2017
US LTIP3 Scheme 2017
UK LTIP3 Scheme 2018
US LTIP3 Scheme 2018
UK LTIP3 Scheme 2019
US LTIP3 Scheme 2019
US Executive4 Options 2013
UK Executive4 Options 2015
US Executive4 Options 2015
UK Executive4 Options 2016
UK Executive4 Options 2017
UK Executive4 Options 2018
–
78,825
102,236
128,789
–
21,270
12,565
17,484
19,336
–
32,018
50,160
38,647
54,229
47,588
69,401
–
–
–
172,746
112,167
134,145
203,398
1,088
–
–
16,733
–
–
–
74,473
119,248
1,977
–
–
–
–
–
51,965
110,678
175,708
–
–
–
Date option exercisable
Sep 2018 – Feb 2019
Sep 2019 – Feb 2020
Sep 2020 – Feb 2021
Sep 2021 – Feb 2022
Sep 2022 – Feb 2023
July 2019
July 2020
Jun 2017 – Jun 2024
Jun 2018 – Jun 2025
Jun 2019 – Jun 2026
Jun 2019 – Mar 2020
Jun 2020 – Jun 2027
Jun 2020 – Mar 2021
Jun 2021 – Jun 2028
Jun 2021 – Mar 2022
Jun 2022 – Jun 2029
Jun 2022 – Mar 2023
138.0p
413.0p
373.0p
361.0p
370.0p
391.0p
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
147.2p
Dec 2018 – Dec 2023
Nil
Nil
Nil
Nil
Nil
Dec 2018 – Dec 2025
Dec 2018 – Mar 2019
Dec 2019 – Dec 2026
Dec 2020 – Dec 2027
Dec 2021 – Dec 2028
1
2
3
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.
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.
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.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 129
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:
Share price at date of grant
Contractual life
Expected life
Expected volatility
Risk-free interest rate
Dividend yield
Expected cancellations
Expected forfeitures
Fair value per option at date of grant
SAYE
2016
SAYE
2017
SAYE
2018
SAYE
2019
US ESPP
2018
US ESPP
2019
172.5p
516.3p
466.3p
451.0p
435.3p
3.5 years
3.5 years
3.5 years
3.5 years
3 years
3 years
3 years
3 years
20.7%
0.36%
2.4%
10.0%
14.0%1
31.7p
25.6%
0.49%
0.9%
10.0%
17.0%
123.0p
27.3%
0.71%
1.1%
10.0%
13.0%
114.2p
31.1%
0.53%
1.2%
10.0%
13.0%
117.0p
1 year
1 year
28.2%
0.71%
1.1%
10.0%
4.4%1
74.8p
451.0p
1 year
1 year
32.4%
0.53%
1.1%
10.0%
5.0%
82.6p
Key-employee share schemes:
UK LTIP
2016
US LTIP
2016
UK LTIP
2017
US LTIP
2017
UK LTIP
2018
US LTIP
2018
UK LTIP
2019
Share price at date of grant
170.0p
170.0p
503.5p
516.3p
483.0p
483.0p
455.0p
Contractual life
Expected life
Expected volatility
Risk-free interest rate
Dividend yield
Expected cancellations
Expected forfeitures
10 years
3.2 years
10 years
3.2 years
10 years
3.2 years
10 years
5 years
3.2 years
5 years
3.2 years
5 years
3.2 years
5 years
20.7%
0.86%
2.4%
0.0%
5.1%1
20.7%
0.86%
2.4%
0.0%
4.4%1
157.3p
25.6%
0.51%
0.9%
0.0%
9.0%
25.6%
0.49%
0.9%
0.0%
4.0%
27.3%
0.68%
1.0%
0.0%
100%
27.3%
0.68%
1.0%
0.0%
100%
31.1%
0.62%
1.1%
0.0%
100%
481.7p
502.2p
458.9p
467.4p
429.7p
Fair value per option at date of grant
150.7p
Share price at date of grant
Contractual life
Expected life
Expected volatility
Risk-free interest rate
Dividend yield
Expected cancellations
Expected forfeitures
US LTIP
2019
455.0p
3.2 years
3.2 years
31.1%
0.62%
1.1%
0.0%
100%
Fair value per option at date of grant
438.6p
1 Actual forfeiture experienced.
Financial StatementsGovernanceOverviewStrategic Report 130
28. SHARE-BASED PAYMENTS CONTINUED
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
1 Actual forfeiture experienced.
US Exec
2013
UK Exec
2015
US Exec
2015
UK Exec
2016
UK Exec
2017
UK Exec
2018
147.2p
164.5p
164.5p
273.5p
452.0p
404.0p
10 years
10 years
23.3%
1.70%
2.5%
0.0%
0.0%1
29.6p
10 years
10 years
10 years
10 years
10 years
5 years
5 years
5 years
5 years
5 years
23.3%
1.25%
2.5%
0.0%
0.0%1
145.5p
23.3%
1.25%
2.5%
0.0%
0.0%1
20.7%
0.57%
1.6%
0.0%
0.0%
25.6%
0.51%
1.1%
0.0%
100%
27.3%
0.73%
1.3%
0.0%
100%
145.5p
252.3p
428.6p
379.3p
Expected volatility was determined by calculating the historical volatility of the Group’s share price over a period equivalent to the vesting
period of the respective options prior to their date of grant.
The risk-free interest rate was based on the simple average of the historical daily gilt yields quoted for five year benchmark gilts during the
month in which a grant of options is made.
Details of movements in share options during the year were as follows:
Group
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
2019
Number
of options
1,471,647
401,193
(19,897)
(759,911)
–
(1,426)
1,091,606
49,385
2019
Weighted
average
exercise price
£0.82
£1.37
£2.97
£0.57
£0.00
£3.83
£1.15
£0.00
2018
Number
of options
2,055,870
341,392
(41,235)
(873,084)
(5,523)
(5,773)
1,471,647
34,821
2018
Weighted
average
exercise price
£0.60
£1.38
£1.38
£0.49
£0.00
£3.24
£0.82
£0.18
Forfeiture arises when the employee is no longer entitled to participate in the savings-related share option scheme as a consequence of
leaving the Group whereas cancellation arises when a participant voluntarily chooses to cease their membership of a scheme within the
vesting period.
The options outstanding had a weighted average remaining contractual period of 5.4 years (2018: 5.1 years). The weighted average actual
market share price on the date of exercise for share options exercised during the year was 431.9 pence (2018: 471.1 pence) and the weighted
average fair value of options granted during the year was 295.6 pence (2018: 316.6 pence).
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 131
(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 £600 (2018: £575) of 'Free Shares', and US employees $900 (2018: $875) 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 and a half (2018: one and a half) 'Matching Shares' were
awarded under the rules of the SIP. Matching Shares are subject to the same forfeiture rules as Free Shares.
Details of the SIP shares not yet vested were as follows:
Group
Outstanding at start of year
Granted during the year
Vested during the year
Forfeited during the year
Released during the year
Outstanding at end of year
Number of free
and matching shares
Number of
nil cost RSUs
2019
2018
2019
2018
184,845
58,110
(74,499)
(7,691)
(2,264)
158,501
180,854
69,809
(44,831)
(6,676)
(14,311)
184,845
44,617
13,050
(17,928)
(1,099)
(3,110)
35,530
54,904
10,439
(19,032)
(1,694)
–
44,617
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.
At 30 September 2019 the number of shares held by the EBT was 454,000 (2018: 542,000), and the number of shares held by the SIP was
507,000 (2018: 540,000) shares of which 369,000 (2018: 326,000) relates to shares beneficially held by employees (including those not yet
vested shown above).
29. POST-EMPLOYMENT BENEFITS
The Group’s UK subsidiary R.C. Treatt & Co Limited (the 'Company') operates a wholly-funded defined benefit pension scheme for certain
current and former 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 throughout the Group, 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:
Group
Defined contribution schemes
Other pension costs
2019
£’000
2018
£’000
832
24
856
743
24
767
The defined contribution schemes pension charge includes £14,000 (2018: £27,000) in respect of discontinued operations.
Financial StatementsGovernanceOverviewStrategic Report 132
29. 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') for the current and prior period
has been based on the most recent actuarial valuation at 1 January 2018 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 2019. 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 Group 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 advisors 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 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:
Group
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
2019
1.90%
3.30%
2.30%
2.25%
1.95%
1.80%
2.30%
2018
2.90%
3.35%
2.35%
2.30%
2.00%
1.85%
2.35%
100% of S2PxA table with CMI_2016
projections with a long term average
rate of improvement of 1.25% pa
100% of S2PxA table with CMI_2016
projections with a long term average
rate of improvement of 1.25% pa
20%
75%
N/A
23.7
25.7
22.2
24.1
20%
75%
N/A
23.6
25.6
22.2
24.0
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 133
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 full valuation which must be carried
out at least once every three years. The latest valuation of the scheme took place as at 1 January 2018. The valuation revealed that there
was a funding surplus in the scheme as at that date of £473,000, being a funding level of 103%. It has been agreed with the trustees that,
consequently, the Company could continue not to make 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 2019 revealed an actuarial deficit of £2,538,000 (2018: surplus of £694,000), being a funding
level of 90% (2018: 103%). The Company therefore expects to make on-going contributions to its defined benefit pension scheme in 2020 of
£300,000 (2019: £nil). The weighted average duration of the defined benefit obligation is approximately 20 years.
Group
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 gains on obligation
Actuarial (loss)/gain arising from changes to demographic assumptions
Actuarial (loss)/gain 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
2019
£’000
2018
£’000
10,292
6,818
4,589
153
21,852
(29,640)
(7,788)
1,324
(6,464)
11,515
5,492
4,172
106
21,285
(24,742)
(3,457)
587
(2,870)
(24,742)
(26,790)
(710)
542
–
(181)
(4,549)
(29,640)
(756)
548
1,272
399
585
(24,742)
21,285
20,969
609
–
(542)
500
21,852
590
25
(548)
249
21,285
Financial StatementsGovernanceOverviewStrategic Report 134
29. POST-EMPLOYMENT BENEFITS CONTINUED
Group
Amount charged to finance costs
Interest on scheme assets
Interest on scheme liabilities
Net finance cost recognised in income statement
Amount recognised in statement of comprehensive income
Gain on scheme assets in excess of interest
Gain on obligation
(Loss)/gain from changes to demographic assumptions
(Loss)/gain from changes to financial assumptions
Remeasurement (loss)/gain recognised in statement of comprehensive income
Actual return on scheme assets
2019
£’000
2018
£’000
609
(710)
(101)
500
–
(181)
(4,549)
(4,230)
1,109
590
(756)
(166)
249
1,272
399
585
2,505
839
Cumulative remeasurement loss recognised in statement of comprehensive income
(8,705)
(4,475)
Approximate effect of change of assumptions on liability values at 30 September 2019:
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
1,388
373
1,267
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.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 135
30. COMMITMENTS UNDER OPERATING LEASES
The Group as lessee
As at 30 September 2019, the Group had total commitments for future minimum lease payments under non-cancellable operating leases
which fall due as follows:
Group
Within one year
In one to two years
In two to five years
In more than five years
2019
£’000
2018
£’000
67
34
84
109
294
85
42
25
–
152
The Group as lessor
As at 30 September 2019, the Group had contracted with tenants for the following future minimum lease payments which fall due as follows:
Group
Within one year
2019
£’000
9
2018
£’000
9
Details of lease payments under operating leases recognised as an expense in the year are disclosed in note 5.
31. CONTINGENT LIABILITIES
Parent Company
The Parent Company has guaranteed the borrowings for Treatt USA Inc. At the balance sheet date the liability covered by this guarantee
amounted to US$4,808,000 (£3,902,000) (2018: US$3,914,000 (£3,001,000)).
The Parent Company has also guaranteed certain bank borrowings of its UK subsidiaries R C Treatt & Co Limited and Treatt Development
Company Limited. At the year-end the liabilities covered by this guarantee amounted to £13,618,000 (2018: £19,018,000).
Financial StatementsGovernanceOverviewStrategic Report 136
32. 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 £4.5m (2018: £4.5m) three year revolving credit facility with
Lloyds Banking Group and a $12m (2018: $12m) four year revolving credit facility with HSBC in the UK, together with a $6m four year line of
credit facility with Bank of America in the US. During the year the Group entered into a further agreement with Bank of America to convert
a $7.5m construction loan facility into a $6.46m term loan over seven years. 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 Financial Review on pages 28 to 34.
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
Measured at amortised cost:
Trade receivables1, 2
Cash and cash equivalents
Financial liabilities
Measured at amortised cost:
Trade payables
Bank borrowings
US term loans
Measured at fair value:
Forward currency contracts (level 2)
Group
Parent Company
2019
£’000
2018
£’000
2019
£’000
2018
£’000
21,412
37,187
58,599
24,682
32,304
56,986
–
33,210
33,210
–
31,647
31,647
Group
Parent Company
2019
£’000
2018
£’000
2019
£’000
2018
£’000
7,858
16,111
5,118
315
29,402
10,006
19,865
2,380
401
32,652
199
–
–
–
199
18
–
–
–
18
1 Trade receivables at amortised cost are shown net of lifetime expected credit losses.
2
This includes £99,000 (2018: £nil) of trade receivables which are classified under the business model of 'held to collect and sell' and are measured at fair value with changes
through Other Comprehensive Income.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 137
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 19. 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 20. 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.
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 21.
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 settled all outstanding interest rate swaps during the year ended 30 September 2018. The gain on interest rate swaps in the prior
year was as follows:
Group
Other comprehensive income
2019
£’000
–
2018
£’000
176
The Group has facilities denominated in various currencies, all of which attract floating rate interest. Interest on floating rate bank deposits is
based on UK base rates or currency LIBOR as applicable. Interest on bank overdrafts is charged at 1.2% - 1.85% (2018: 1.2% - 1.85%) above
bank base or currency LIBOR rates.
The Group's cash/(debt) position by currency at year-end, is as follows:
Group
Bank facilities:
US Dollars
Sterling1
Other1
Total net cash
1
Bank borrowings are shown net of positive cash balances where rights of set-off exist.
The Parent Company bank balances were all held in Sterling.
Floating rate financial liabilities
2019
£’000
2018
£’000
(2,215)
17,202
971
15,958
(2,982)
13,733
(692)
10,059
Financial StatementsGovernanceOverviewStrategic Report 138
32. FINANCIAL INSTRUMENTS CONTINUED
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 2019 would have decreased or increased as follows:
Impact on profit before tax of 1% interest rate movement
Group
Parent Company
2019
£’000
(52)
2018
£’000
(101)
2019
£’000
–
2018
£’000
–
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. The Group has a risk
management strategy with regards to the hedging of foreign currency transactions which is approved by the Audit Committee. The policy
for the UK business is to mitigate foreign currency transactional exposures by holding borrowings in US Dollars as well as by entering into
foreign currency forward contracts and options on a rolling basis with the aim to match the value of the contracts, the hedging instrument, to
the expected amount of foreign currency receipts or purchases in the period, the hedged item.
Where the hedged item and hedging instrument are aligned economically and matched on a 1:1 ratio, a hedge is considered effective and is
accounted for using the principles of hedge accounting. Ineffectiveness can occur as a result of a mismatch between the hedged item and
instrument, for example as a result of credit risk deterioration in the Group or the counterparty’s credit risk, or more likely a shortfall in the
amount of expected receipts or payments.
Further details of the Group’s foreign currency risk management can be found in the Financial Review on pages 28 to 34.
Foreign currency contract assets and liabilities are shown under the heading of 'derivative financial instruments', in current assets and
liabilities respectively within the Group balance sheet. The following table details the forward and option contracts outstanding at the year-end
as well as information regarding their related hedged items:
Group - as at 30 September 2019
US Dollars:
Forward contract to sell USD within 1–3 months
Forward contract to sell USD within 4–6 months
Euros:
Forward contract to sell EUR within 1–3 months
Forward contract to sell EUR within 4–6 months
Swiss Francs:
Average
contract rate
Nominal
currency
‘000
Contract GBP
£’000
Fair value
gain/(loss)
£’000
1.307
1.216
1.146
1.077
$10,750
$10,000
€2,500
€700
8,223
8,224
2,181
650
(484)
152
(34)
28
23
(315)
Option to purchase SFr within 4–6 months
1.302
SFr475
365
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 139
Group – as at 30 September 2018
US Dollars:
Forward contract to sell USD within 1–3 months
Forward contract to sell USD within 4–6 months
Euros:
Forward contract to sell EUR within 1– 3 months
Forward contract to sell EUR within 4–6 months
Average
contract rate
Nominal
currency
‘000
Contract GBP
£’000
Fair value
gain/(loss)
£’000
1.360
1.278
1.138
1.114
$21,000
$14,700
€2,000
€1,800
15,445
11,503
1,758
1,616
(661)
281
(27)
6
(401)
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 or receive in
order to close these contracts at the balance sheet date.
The gain/(loss) recognised in the Group statement of comprehensive income on cash flow hedges of foreign currency receipts during the
year, is as follows:
Group
Revenue
Other losses (as a result of hedge ineffectiveness)
Other comprehensive income
2019
£’000
(1,266)
–
70
(1,196)
2018
£’000
(899)
(734)
(246)
(1,879)
The gain on financial instruments used for the cash flow hedges of foreign currency asset purchases, to be recognised as a reduction in the
carrying amount of a purchased asset, is as follows:
Group
Other comprehensive income
2019
£’000
23
2018
£’000
–
Financial StatementsGovernanceOverviewStrategic Report 140
32. FINANCIAL INSTRUMENTS CONTINUED
The reconciliation of the hedging reserve per the statement of changes in equity is as follows:
Group
1 October 2017
Fair value movement on:
– Cash flow hedges of probable future receipts
– Interest rate swaps
Transfer from hedging reserve to:
– Profit and loss account
Taxation relating to items above
30 September 2018
Fair value movement on:
– Cash flow hedges of probable future receipts
– Cash flow hedges of probable future purchases
Taxation relating to items above
30 September 2019
Currency forwards
£’000
Interest rate swaps
£’000
Hedging Reserve
£’000
255
(246)
–
–
41
50
70
23
(16)
127
(335)
–
176
227
(68)
–
–
–
–
–
(80)
(246)
176
227
(27)
50
70
23
(16)
127
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:
Group - net foreign currency financial assets
US Dollar
Other
2019
£’000
6,833
2,778
9,611
2018
£’000
4,907
1,471
6,378
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 Pound Sterling
2019
£’000
759
2018
£’000
545
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.
Notes to the Financial Statements continuedfor the year ended 30 September 2019TREATT PLC Annual Report & Accounts 2019 141
33. 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 70 to 74.
Group
Salaries and other short-term employee benefits
Employers’ social security costs
Pension contributions to money purchase schemes
Share-based payments
2019
£’000
1,222
168
60
477
1,927
2018
£’000
1,262
108
56
440
1,866
No Directors were active members of a defined benefit pension scheme as the scheme was closed to future accrual with effect from
31 December 2012. Further details on Directors’ pensions are given in the Directors’ Remuneration Report on page 83.
Parent Company
Transactions with subsidiaries:
Parent Company
Interest received from:
Earthoil Plantations Limited
Dividends received from:
R C Treatt & Co Limited
Treatt USA Inc
Balances with subsidiaries:
Parent Company
Amounts owed to/(by) Parent Company:
Athi River Oils EPZ Limited 1
R C Treatt & Co Limited
2019
£’000
2018
£’000
–
29
1,545
1,539
1,600
1,302
2019
£’000
2018
£’000
52
(1,308)
181
(2,427)
Amounts owed to the Parent Company are unsecured and will be settled in cash.
1 The amount owed by Athi River Oils EPZ Limited was impaired by £2,000,000 in the prior year, as on a stand-alone basis they would not have had sufficient funds to have met the balance.
Financial StatementsGovernanceOverviewStrategic Report 142
Notice of Annual General Meeting
for the year ended 30 September 2019
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 ADVISOR 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 31 January 2020 at 10.30 am at Treatt plc, Northern Way, Bury St.
Edmunds, Suffolk, IP32 6NL is set out below.
Shareholders are requested to complete and submit their proxy appointment online by using the Signal Shares share portal service at www.
signalshares.com as soon as possible and, in any event, by no later than 10.30 am on 29 January 2020, being 48 hours before the time
appointed for the holding of the Annual General Meeting. To do so, you will need to log in to your Treatt plc Signal Shares account, or register
if you have not previously done so. To register you will need your Investor Code, which is detailed on your share certificate or is available
from our registrars, Link Asset Services. For those who hold their shares in uncertificated form in CREST, proxy appointments may be made
via the CREST system.
Proxy appointments can also be made by completing a paper proxy form and returning it to Link Asset Services in accordance with the
instructions printed on the form. If you require a paper proxy form, please contact Link Asset Services by email at enquiries@linkgroup.co.uk
or by telephone on 0871 664 0300 if calling from the United Kingdom or +44 371 664 0300 if calling from outside of the United Kingdom. Calls
cost 12p per minute plus your phone company’s access charge. Calls outside the United Kingdom will be charged at the applicable international
rate. Lines are open between 09:00 and 17:30, Monday to Friday excluding public holidays in England and Wales.
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 31 January 2020, at 10.30 am for the transaction of the following business:
ORDINARY RESOLUTIONS
Resolution 1 – Annual accounts and Directors' Report
1.
To receive the audited accounts and related reports of the
Directors and Auditors for the year ended 30 September 2019.
Explanatory note
Under the Companies Act 2006 (the 'Act') the Directors of the
Company must present the accounts to the meeting.
Resolution 2 – Directors' Remuneration Report
2. To approve the Directors’ Remuneration Report.
Explanatory note
The Act, 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 Remuneration Policy is only required to be approved
by shareholders every three years or in the intervening period if
amendments are proposed. The Company’s Remuneration Policy
was approved at the 2018 Annual General Meeting and accordingly,
since no amendments are proposed, it will not be put before
shareholders at the Annual General Meeting in 2020. Resolution 2 is
an advisory resolution on the Implementation Section of the Directors’
Remuneration Report, which details the remuneration packages paid
to Directors during the year ended 30 September 2019. You can find
the Implementation Section of the Directors’ Remuneration Report
on pages 77.
Resolution 3 – Final dividend
3.
To approve a final dividend of 3.8p per share on the ordinary
shares of the Company for the year ended 30 September 2019
Explanatory note
A final dividend can only be paid after the shareholders at a general
meeting have approved it. A final dividend of 3.8 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
7 February 2020. If approved, the date of payment of the final
dividend will be 19 March 2020. An interim dividend of 1.7 pence
per ordinary share was paid on 15 August 2019. This represents an
increase of 0.4 pence per share, or 7.84%, on the total 2018 dividend.
Resolutions 4 to 11 – Re-election of Directors
4. To re-elect Tim Jones as a Director of the Company.
5. To re-elect Daemmon Reeve as a Director of the Company.
6. To re-elect Richard Hope as a Director of the Company.
7.
To re-elect David Johnston as a Director of the Company.
8. To re-elect Jeff Iliffe as a Director of the Company.
9. To re-elect Richard Illek as a Director of the Company.
10. To re-elect Yetunde Hofmann as a Director of the Company.
11. To re-elect Lynne Weedall as a Director of the Company.
Explanatory note
In accordance with the 2018 Corporate Governance Code all Directors
will retire and stand for re-election annually. Short biographies of
the Directors are given on pages 56 and 57 Having considered the
performance of, and contribution made, by each of the Directors,
the Board remains satisfied that the performance of each of the
Directors continues to be effective and to demonstrate commitment
to the role and, as such, recommends their re-election.
TREATT PLC Annual Report & Accounts 2019 143
comprising equity securities (as defined in Sections 560 of
the Act) up to an aggregate nominal amount of £802,194 (such
amount to be reduced by any allotments or grants made under
paragraph (a) above) in connection with an offer by way of a
rights issue in favour of ordinary shareholders in proportion
(as nearly as may be practicable) to the respective number
of ordinary shares held by them on the record date for such
allotment (and holders of any other class of equity securities
entitled to participate therein or if the Directors consider it
necessary, as permitted by the rights of those securities),
but subject to such exclusions or other arrangements as the
Directors may consider necessary or appropriate to deal with
fractional entitlements, treasury shares, record dates or legal,
regulatory or practical difficulties which may arise under the
laws of, or the requirements of any regulatory body or stock
exchange in, any territory or any other matter whatsoever,
provided that this authority shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2021, or at
close of business on 30 April 2021 (whichever occurs first) save
that the Company may before such expiry make an offer or enter into
an agreement which would or might require shares to be allotted,
or rights to subscribe for or to convert securities into shares to be
granted, after such expiry and the Directors may allot shares or grant
such rights in pursuance of such an offer or agreement as if the
authority conferred hereby had not expired.
Explanatory note
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 to subscribe for, or
convert other securities into, shares and will expire at the conclusion
of the next Annual General Meeting of the Company in 2021 or, if
earlier, on 30 April 2021 (the date which is 15 months after the date of
passing of the resolution). Whilst the Board has no present intention
of exercising these authorities, the Board believes it is in the best
interests of the Company to have these authorities so that, if the need
arises, the Board can allot securities at short notice and without the
need to hold a general meeting of the Company.
The authority in paragraph (a) of the resolution will allow the Directors
to allot new shares and grant rights to subscribe for, or convert other
securities into, shares up to an aggregate nominal value of £401,097
(representing approximately one-third (33.33%) of the total issued
ordinary share capital of the Company as at 21 November 2019, the
latest practicable date prior to publication of this Notice).
The authority in paragraph (b) of the resolution will allow the
Directors to allot new shares and grant rights to subscribe for, or
convert other securities into, shares only in connection with a rights
issue up to an aggregate nominal value of £802,194 (representing
approximately two-thirds (66.66%) of the total issued ordinary share
capital of the Company as at 21 November 2019, the latest practicable
date prior to publication of this Notice (such amount to be reduced
by the amount of any relevant securities issued under the authority
conferred by paragraph (a) of resolution 15).
Resolution 12 – Re-appointment of auditors
12.
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.
(b)
Explanatory note
At each general meeting at which the Company’s Annual Report
and Accounts are presented to its ordinary shareholders, the
shareholders are required to appoint an auditor to serve until the next
such meeting. Following a recommendation by the Audit Committee,
the Board is proposing the reappointment of RSM UK Audit LLP as
auditors of the Company.
Resolution 13 – Auditors remuneration
13.
To authorise the Directors to determine the remuneration of the
Auditors of the Company.
Explanatory note
The remuneration of the Company’s auditors must be fixed by the
Company in general meeting or in such manner as the shareholders
may determine in general meeting. This resolution gives authority
to the Directors to determine the remuneration of the auditors
of the Company.
Resolution 14 – Increase in aggregate fees of
Non-executive Directors
14.
THAT the maximum aggregate fees permitted to be paid to the
Non-executive Directors’ of the Company, pursuant to article
18.3 of the Company’s articles of association, be and is hereby
increased from £225,000 to £300,000.
Explanatory note
Article 18.3 provides that the ordinary remuneration of the Non-
executive Directors, excluding the Chairman, shall not exceed
£150,000 per annum in aggregate, unless a higher sum is determined
by ordinary resolution of the Company. This limit was increased to
£225,000 at the Annual General Meeting in 2014. The ordinary
fees of the Non-executive Directors total £210,125. The proposed
increase in the maximum aggregate fees to £300,000, will provide
the Board with sufficient flexibility to ensure that the skills, expertise
and diversity of the Board remain appropriate for the future and that
the Board is sufficiently balanced to enable it to fulfil its obligations
to shareholders.
Shareholders should note that increasing the maximum aggregate
fees for Non-executive Directors does not mean that shareholders
are approving an increase in the fees payable to each current Non-
executive Director. Increases in individual Non-executive Directors
fees will be subject to the Company’s Remuneration Policy.
Resolution 15 – Authority to allot securities
15.
THAT 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:
(a)
up to an aggregate nominal amount of £401,097 (such amount
to be reduced by the nominal amount allotted or granted under
paragraph (b) below in excess of such sum); and
Financial StatementsGovernanceOverviewStrategic Report 144
Notice of Annual General Meeting continued
for the year ended 30 September 2019
Resolution 16 – Authority to disapply
pre-emption rights
16.
THAT subject to the passing of resolution 15 above and in
accordance with Sections 570 and 573 of the Act, the Directors
be and are hereby given power to allot equity securities (within
the meaning of Section 560 of the Act) for cash pursuant to the
authority conferred by resolution 15 above and to sell ordinary
shares (as defined in Section 560(1) of the Act) held by the
Company as treasury shares for cash, as if Section 561 of the
Act did not apply to any such allotment of equity securities for
cash or sale of treasury shares, such power to be limited:
(a)
in connection with or pursuant to an offer of, or invitation
to acquire, equity securities (but in the case of the authority
granted under paragraph (b) of resolution 15, by way of a rights
issue only) in favour of holders of ordinary shares in proportion
(as nearly as practicable) to the respective number of ordinary
shares held by them on the record date for such allotment or
sale (and holders of any other class of equity securities entitled
to participate therein or if the Directors consider it necessary, as
permitted by the rights of those securities) but subject to such
exclusions or other arrangements as the Directors may consider
necessary or appropriate to deal with fractional entitlements,
treasury shares, record dates or legal, regulatory or practical
difficulties which may arise under the laws; and
(b)
in the case of the authority granted under paragraph (a) of
resolution 15 and/or in the case of any sale of treasury shares,
(and otherwise than under paragraph (a) of this resolution) up
to an aggregate nominal amount of £60,170,
provided that this power shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2021 or at
close of business on 30 April 2021 (whichever occurs first), save
that the Company may before such expiry make an offer or enter
into an agreement which would or might require equity securities
to be allotted, or treasury shares to be sold, after such expiry and
the Directors may allot equity securities or sell treasury shares in
pursuance of such an offer or agreement as if the power conferred
hereby had not expired.
Explanatory note
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 16 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 £60,170 (which includes the
sale on a non pre-emptive basis of any shares held in treasury),
which is equivalent to approximately 5% of the Company’s issued
ordinary share capital as at 21 November 2019, the latest practicable
date prior to publication of this Notice. 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 2021 or, if earlier,
30 April 2021 (the date which is 15 months after the date of passing
of the resolution).
The Directors intend to adhere to the provisions in the Pre-Emption
Group’s Statement of Principles (the 'Statement of Principles') and
to not allot shares for cash on a non pre-emptive basis pursuant to
the authority in Resolution 16 (i) in excess of an amount equal to 5%
of the total issued ordinary share capital of the Company; or (ii) in
excess of an amount equal to 7.5% of the total issued ordinary share
capital of the Company within a rolling three-year period, without
prior consultation with shareholders.
Resolution 17 – Authority to disapply pre-emption
rights for the purposes of acquisitions or capital
investments
17.
THAT subject to the passing of resolutions 15 and 16 above
and in addition to the power granted under resolution 16, the
Directors be and are hereby given power pursuant to Sections
570 and 573 of the Act to allot equity securities (within the
meaning of Section 560 of the Act) for cash pursuant to the
authority conferred by resolution 15 above and to sell ordinary
shares (as defined in Section 560(1) of the Act) held by the
Company as treasury shares for cash, as if Section 561 of the
Act did not apply to any such allotment of equity securities for
cash and sale of treasury shares, such power to be:
(a)
(b)
limited to the allotment of equity securities for cash and sale of
treasury shares up to an aggregate nominal amount of £60,170;
and
used only for the purposes of financing (or refinancing, if the
authority is to be used within six months after the original
transaction) a transaction which the Directors have determined
to be an acquisition or other capital investment of a kind
contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-Emption
Group prior to the date of this Notice, or for any other purposes
as the Company in general meeting may at any time by special
resolution determine,
provided that this power shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2021 or at
close of business on 30 April 2021 (whichever occurs first), save
that the Company may before such expiry make an offer or enter
into an agreement which would or might require equity securities
to be allotted, or treasury shares to be sold, after such expiry and
the Directors may allot equity securities or sell treasury shares in
pursuance of such an offer or agreement as if the power conferred
hereby had not expired.
Explanatory note
The purpose of resolution 17 is to seek 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 Statement of Principles for the disapplication
of pre-emption rights.
TREATT PLC Annual Report & Accounts 2019 145
Accordingly, resolution 17 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 £60,170, being approximately 5% of the
Company’s issued ordinary share capital as at 21 November 2019,
the latest practicable date prior to publication of this Notice. This is in
addition to the 5% referred to in resolution 16. If given, the authority
will expire at the conclusion of the next Annual General Meeting of
the Company in 2021 or, if earlier, 30 April 2021 (the date which is
15 months after the date of passing of the resolution). 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 an acquisition or
other capital investment (of a kind contemplated by the Statement of
Principles from time to time) which is announced contemporaneously
with the announcement of the issue, or which has taken place in the
preceding six-month period and is disclosed in the announcement
of the issue.
The Directors have no present intention of exercising these powers
but believe that this resolution will assist them in taking advantage of
business opportunities as they arise.
Resolution 18 – Authority to purchase own shares
18.
THAT the Company be generally and unconditionally authorised
to make market purchases (within the meaning of Section 693
of the Act) of up to a maximum of 6,017,067 ordinary shares in
the capital of the Company, subject to the following conditions:
(a)
(b)
the minimum price (excluding expenses) which may be paid for
an ordinary share is the nominal amount of that share; and
the maximum price which may be paid for an ordinary share so
purchased is an amount equal to 5% 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.
The authority hereby conferred shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2021, or if
earlier 30 April 2021, save that in relation to the purchase of ordinary
shares the contract for which is concluded before such date and
which would or might be executed wholly or partly on or after such
date, the Company may purchase ordinary shares pursuant to any
such contract under this authority.
Explanatory note
In certain circumstances, it may be advantageous for the Company
to purchase its own shares and resolution 18 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% of the Company’s issued
ordinary share capital as at 21 November 2019, the latest practicable
date prior to publication of this Notice) 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 21 November 2019, the latest practicable date
prior to publication of this Notice, was 1,091,606. The proportion of
issued share capital that they represented at that time was 1.81% 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 2.02%.
If given, the authority will expire at the conclusion of the next Annual
General Meeting of the Company in 2021 or, if earlier, 30 April
2021 (the date which is 15 months after the date of passing of the
resolution).
Resolution 19 – Notice of general meetings
19.
THAT a general meeting (other than an Annual General
Meeting) of the Company may be called on not less than 14 clear
days’ notice.
Explanatory note
Under the Companies Act 2006, the notice period required for
all general meetings of listed companies is 21 days; however, it is
possible to reduce this period to 14 days (other than for Annual
General Meetings), provided that the following two conditions are
met: (i) that a company offers facilities for shareholders to submit
proxy appointments by electronic means; and (ii) that there is an
annual resolution of shareholders approving the reduction in the
minimum notice period from 21 days to 14 days. This resolution would,
if passed, allow the Company flexibility to call general meetings, other
than Annual General Meetings, on not less than 14 clear days’ notice.
This additional flexibility would not be used as a matter of routine
for such meetings but would be used where the Board considers it
appropriate in the circumstances. The approval will be effective until
the Company’s next Annual General Meeting, at which meeting it is
intended to propose a similar resolution for approval.
By order of the Board
Anita Guernari
Group Legal Counsel
and Company Secretary
Registered Office:
Bury St. Edmunds
Suffolk
IP32 6NL
10 December 2019
The note on voting procedures and general rights of shareholders,
together with explanatory notes on the resolutions to be put to the meeting
form part of this notice.
Financial StatementsGovernanceOverviewStrategic Report 146
Notice of Annual General Meeting continued
for the year ended 30 September 2019
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 29 January 2020
(the Record Date) shall be entitled to attend or vote at the Annual
General Meeting 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 Annual
General Meeting. Should the Annual General Meeting be adjourned
to a time no 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 Annual General Meeting.
Should the Annual General Meeting 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 Annual General
Meeting (excluding weekends and public holidays) or, if the Company
gives notice of the adjourned Annual General Meeting, at the time
specified in such notice.
Voting at the meeting will be conducted by poll rather than on a
show of hands, which the Board believes provides a more accurate
reflection of shareholder views and takes into account the number of
shares held by each member. Those shareholders who are unable to
attend the meeting should submit a form of proxy as detailed below.
Shareholders attending the meeting may also wish to vote in advance
of the meeting by submitting a form of proxy. Members who have
done so will not need to vote at the meeting unless they wish to
change their vote or the way in which the proxy is instructed to vote.
A member entitled to attend and vote at this meeting may appoint
a proxy or proxies to attend and vote instead of him or her. The
proxy need not be a member of the Company. Shareholders are
requested to complete and submit their proxy appointment online by
using the Signal Shares share portal service at www.signalshares.
com as soon as possible and, in any event, by no later than 10.30
am on 29 January 2020, being 48 hours before the time appointed
for the holding of the Annual General Meeting (or in the case of an
adjournment, no later than 48 hours (excluding non-business days)
before the time fixed for the holding of the adjourned meeting). To do
so, you will need to log in to your Treatt plc Signal Shares account, or
register if you have not previously done so. To register you will need
your Investor Code, which is detailed on your share certificate or is
available from our registrars, Link Asset Services.
Proxy appointments can also be made by completing a paper proxy
form and returning it to Link Asset Services in accordance with the
instructions printed on the form. If you require a paper proxy form,
please contact Link Asset Services by email at enquiries@linkgroup.
co.uk or by telephone on 0871 664 0300 if calling from the United
Kingdom or +44 371 664 0300 if calling from outside of the United
Kingdom. Calls cost 12p per minute plus your phone company’s
access charge. Calls outside the United Kingdom will be charged
at the applicable international rate. Lines are open between 09:00
and 17:30, Monday to Friday excluding public holidays in England and
Wales. 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 31 January 2020 and any
adjournment(s) of the meeting by using the procedures described
in the CREST Manual. CREST personal members or other CREST
sponsored members, and those CREST members who have
appointed a voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf. Please note the following:
(a)
(b)
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
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.
Members may change proxy instructions by submitting a new proxy
appointment using the methods set out above. Note that the cut-
off time for receipt of proxy appointments also apply in relation to
amended instructions; any amended proxy appointment received
after the relevant cut-off time will be disregarded.
TREATT PLC Annual Report & Accounts 2019 147
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
Annual General Meeting, the total voting rights members are entitled
to exercise at the Annual General Meeting 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 21 November 2019 the Company’s issued share capital consists
of 60,170,670 ordinary shares. The total number of voting rights in
the Company as at 21 November 2019 (the latest practicable date
prior to publication of this Notice) is 59,210,383.
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.
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 Annual
General Meeting. In accordance with the provisions of the Companies
Act 2006 (as amended by the Companies (Shareholders’ Rights)
Regulations 2009), each such representative may exercise (on
behalf of the corporation) the same powers as the corporation could
exercise if it were an individual member of the Company, provided
that they do not do so in relation to the same shares. It is therefore no
longer necessary to nominate a designated corporate representative.
Pursuant to Section 319A of the Companies Act 2006, the Company
must cause to be answered at the Annual General Meeting any
question relating to the business being dealt with at the Annual
General Meeting 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 Annual General Meeting,
notice of a resolution which those members intend to move (and
which may properly be moved) at the Annual General Meeting. A
resolution may properly be moved at the Annual General Meeting
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 Annual
General Meeting 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 no later than six weeks before the date of
the Annual General Meeting.
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 Annual General Meeting any matter (other
than a proposed resolution) which may properly be included in the
business at the Annual General Meeting. A matter may properly be
included in the business at the Annual General Meeting 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 no later than six weeks before the date
of the Annual General Meeting.
Financial StatementsGovernanceOverviewStrategic Report 148
Parent Company Information and Advisors
Directors
Tim Jones
(Chairman and Non-executive Director)
Brokers
Investec Bank plc
30 Gresham Street, London, EC2V 7QP
Public Relations
DRD Partnership
35 King Street, London, WC2E 8JG
Auditors
RSM UK Audit LLP
Abbotsgate House, Hollow Road,
Bury St. Edmunds, Suffolk, IP32 7FA
Tax Advisors
KPMG LLP
Botanic House, 98–100 Hills Road,
Cambridge, CB2 1JZ
Crowe Howarth LLP
124 South Florida Avenue, Suite 201, Lakeland,
Florida 33801–4629
Solicitors
Greene and Greene
80 Guildhall Street, Bury St. Edmunds,
Suffolk, IP33 1QB
Bankers
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
Registrars
Link Asset Services
The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU
Share Price
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
Daemmon Reeve
(Chief Executive Officer)
Richard Hope
(Chief Financial Officer)
Jeff Iliffe
(Non-executive Director)
Richard Illek
(Non-executive Director)
David Johnston
(Senior Independent Non-executive Director)
Yetunde Hofmann
(Non-executive Director – from 20 March 2019)
Lynne Weedall
(Non-executive Director – from 6 April 2019)
Anita Haines
(Non-executive Director – until 26 January 2019)
Company
Secretary
Anita Guernari
Registered Office Northern Way, Bury St. Edmunds,
Suffolk, IP32 6NL
Tel: + 44 (0) 1284 702500
Email: cosec@treatt.com
Website
www.treatt.com
Registered Number 01568937
Audit
Committee
Jeff Iliffe
(Chairman)
David Johnston
Tim Jones
Yetunde Hofmann
Remuneration
Committee
David Johnston
(Chairman)
Jeff Iliffe
Yetunde Hofmann
Lynne Weedall
Nomination
Committee
Tim Jones
(Chairman)
Daemmon Reeve
Richard Illek
Lynne Weedall
Yetunde Hofmann
TREATT PLC Annual Report & Accounts 2019
Financial Calendar
2019/20
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2019 goes "ex-dividend"
Record date for 2019 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2019 paid
2020/21
Interim results to 31 March 2020 announced
Interim dividend for 2020 goes "ex-dividend"
Record date for 2020 interim dividend
Last day for dividend reinvestment plan election
Interim dividend for 2020 paid
Financial year ended
Results for year to 30 September 2020 announced
Final dividend for 2020 paid
1
These dates are provisional and may be subject to change.
Carbon Balancing by the World Land Trust tackles climate change
through projects that both offset carbon dioxide (CO2) emissions
and conserve biodiversity.
30 September 2019
26 November 2019
10 December 2019
31 January 2020
6 February 2020
7 February 2020
27 February 2020
19 March 2020
12 May 20201
2 July 20201
3 July 20201
23 July 20201
13 August 20201
30 September 2020
24 November 20201
18 March 20211
149
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Treatt plc
Northern Way, Bury St. Edmunds, Suffolk, IP32 6NL
www.treatt.com
cosec@treatt.com
+ 44 (0) 1284 702500