ANNUAL REPORT & ACCOUNTS 2020
TREATT PLC Annual Report & Accounts 2020
OUR PURPOSE
Working at the cutting edge of the
FLAVOUR &
FRAGRANCE
industry, we create outstanding sustainable
ingredients, designed around our customers’ needs
Our culture
Our culture is made up of the values, beliefs and behaviours that characterise
our Company and guide our practices.
We have a supportive and collaborative culture that differentiates us in a competitive
marketplace. This is why our customers choose to work with us time and time again. It’s also
why exceptional people, who are genuinely passionate about what they do, join Treatt. We are
proud of all that we do to nurture and develop our people, uncovering their true potential and
allowing them to thrive in an open, fun and inviting environment.
Our purpose, alongside the talent, commitment and drive of our people, shapes our culture.
Investing in our culture is embedded in our business strategy.
CONTENTS
OVERVIEW
Highlights
At a Glance
Why Invest in Treatt?
Chairman’s Statement
STRATEGIC REPORT
Market Overview
Our Business Model
Our Ambition & Strategy
Chief Executive’s Review
Key Performance Indicators
Working Responsibly
26
Stakeholder Engagement and S172 28
48
Financial Review
56
Principal Risks and Uncertainties
CORPORATE GOVERNANCE
Board of Directors
Corporate Governance Statement
Nomination Committee Report
Audit Committee Report
Directors’ Remuneration Report
Directors’ Report
66
68
74
76
80
97
01
02
04
06
10
14
16
20
24
110
104
109
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
116
Notes to the Financial Statements 117
115
113
111
OTHER INFORMATION
Notice of Annual General Meeting 155
Parent Company Information
and Advisors
Financial Calendar
163
164
For more information view
www.treatt.com/about-us
REVENUE1
£109.0m
m
2
.
2
1
1
£
m
7
.
2
1
1
£
m
0
.
9
0
1
£
m
3
.
1
0
1
£
m
0
.
8
8
£
HIGHLIGHTS
PROFIT BEFORE TAX AND
EXCEPTIONAL ITEMS1
£14.8m
m
8
.
4
1
£
m
3
.
3
1
£
m
6
.
2
1
£
m
7
.
1
1
m £
8
.
8
£
DIVIDEND
PER SHARE2
6.00p
p
0
0
.
6
p
0
5
.
5
p
0
1
.
5
p
0
8
.
4
p
5
3
.
4
2016 2017 2018 2019
2020
-3.3%
2016 2017 2018 2019
2020
11.3%
2016 2017 2018 2019
2020
9.1%
NET OPERATING MARGIN 3,4,5
RETURN ON CAPITAL EMPLOYED 3,5
NET CASH/(DEBT)6 BALANCE
13.8%
%
4
.
2
1
%
4
.
2
1
%
8
.
0
1
%
8
.
% 1
3
0
.
2
1
16.7%
%
6
.
4
2
%
1
.
2
2
%
5
.
8
1
%
0
.
9
1
%
7
.
6
1
£1.1m
m
0
.
6
1
£
m
1
.
0
1
£
2016 2017 2018 2019
2020
1.8%
2016 2017 2018 2019
2020
-2.3%
m
1
.
1
£
2016 2017 2018 2019
2020
-£14.9m
)
m
7
.
1
£
(
)
m
2
.
0
1
£
(
1 Excluding discontinued operations, details of which are provided in note 11 of the financial statements.
2 The dividend per share relates to the interim dividend declared and final dividend proposed in relation to the corresponding financial year – see note 12.
3 Excluding exceptional items, details of which are provided in note 9 of the financial statements.
4 Operating profit is calculated as profit before other gains, net finance costs, exceptional items and taxation.
5 The methods of calculating key performance indicators are shown on pages 24 and 25.
6 Excluding IFRS 16 lease liabilities, details of which are given in note 16.
Robust performance in spite
of global uncertainty
Increased profits and stronger margins, exceeding
pre COVID-19 Board expectations.
OPERATIONAL HIGHLIGHTS
Margin growth driven by
non-citrus performance
Despite citrus remaining our largest category,
strong performance was delivered from a
strategic focus across our non-citrus portfolio
and added-value products, decoupling
our dependence on traded and minimally
processed citrus.
Navigating the challenges of
COVID-19 through our values
Teamwork and commitment proved central to
how we responded and adapted as a business
to keep our staff safe, whilst ensuring our
facilities remained fully operational and our
customers’ needs were met.
Continued investment to
drive our future growth
We are approximately 75% of the way through our overall
capital investment programme announced in 2017, with the US
expanded facility now fully operational and the transition to
the new UK facility expected to commence mid-2021.
Embedding sustainability
throughout our business
We have begun the journey to widen our vision for sustainability,
seeking increased engagement across our supply chain and
embedding this into every decision we make.
Look out for this symbol throughout the report to see how
we are responding to the COVID-19 pandemic
01
OVERVIEWOVERVIEW AT A GLANCE
We manufacture and supply a
DIVERSE AND
SUSTAINABLE
portfolio of natural extracts and ingredients for the
global beverage, flavour and fragrance industries
Who we are
We are a global team of creative thinkers, innovative scientists and ground-breaking
technologists, passionate about creating flavour and fragrance ingredients unlike any other.
What we do
We make the world taste better by creating and supplying stand-out flavour
ingredients enjoyed by millions of people, every day.
With over 130 years’ experience, the world’s biggest beverage, consumer goods and flavour companies trust our people
to re-imagine what is possible. Whether it’s a natural extract for a hard seltzer in North America, a water-soluble citrus
emulsion for a flavoured water in China, or a sugar reduction solution for a fruit juice in Europe, we know what it takes to
shape, create and deliver something that consumers will love now and in the future.
EMPLOYEES1
367
CUSTOMERS
746
SALES
£109m
NATURAL PRODUCTS
74%
PRODUCTS SOLD IN 75+ COUNTRIES
1,848
1 Actual number of employees at the year-end date. This differs from the headcount in note 6
to the financial statements which is the average number of employees during the year.
02
TREATT PLCAnnual Report & Accounts 2020 AT A GLANCE
We service customers in
MORE THAN
75 COUNTRIES
from our facilities in the UK,
the US and China
Where we operate
Our global footprint with our integrated supply chain, whereby we
manufacture as well as process sourced material, gives us flexibility
and agility that is valued by customers.
See our Market Overview on page 10
Our products
Product categories
Our portfolio is the result of over a century of knowledge and innovation.
We offer a diverse product portfolio of natural extracts and ingredients across a range of product categories: citrus, tea, coffee, health
& wellness, fruit & vegetables, herbs, spices & florals, and high impact & aroma chemicals. Our product portfolio comprises of 100%
natural products to tailor-made blends and price-stable synthetics. With a strong background in citrus, our capabilities, expertise, and
technical acumen are recognised and valued by those who need the best quality products at each level.
This year, we have invested in our product infrastructure by establishing a Product Category Management Team, as well as bolstering
the resources across each of our product categories. These positive changes have brought the management of our product categories
closer to our integrated commercial function, allowing us to significantly amplify our response to our customers’ needs.
PRODUCT CATEGORIES
7
03
OVERVIEWOVERVIEW WHY INVEST IN TREATT?
Our clear strategy aims to create
SUSTAINABLE
VALUE
for all our stakeholders
Sustainable
practices
Recognised
expertise
Diversified
business
We are continually looking at ways
to minimise our impact on the
environment and build upon the
positive impacts we have on those
that work for us, and the communities
in which we operate. Working in a
responsible manner is an important
aspect of our ability to deliver
strategic objectives and create long-
term shareholder value.
We are recognised as a leader in our
field, renowned for our technical
expertise, knowledge of ingredients
and their origins, and global
market conditions.
Utilising our broad portfolio of
ready-made or tailored solutions, we
collaborate with our customers to
deliver their required specification.
Our value-added products are
sold around the world through our
diversified customer base and far-
reaching geographical presence.
0%
130+
75+
OF GENERAL WASTE
IS SENT TO LANDFILL IN THE UK
YEARS OF KNOWLEDGE
AND INNOVATION
COUNTRIES IN WHICH OUR
PRODUCTS ARE SOLD
92%
OF OUR PURCHASED
ARE NATURAL
3
48%
SITES ACROSS THREE
CONTINENTS
OF OUR REVENUE IS FROM
OUR TOP TEN CUSTOMERS
See our Working Responsibly section on page 26
See our Business Model section on page 14
See our Business Model section on page 14
04
TREATT PLCAnnual Report & Accounts 2020 WHY INVEST IN TREATT?
A large majority of our portfolio is now natural, a segment which has been growing in
recent years as we successfully help our customers to drive calories from their beverage
products, particularly in our health & wellness category. This focus, alongside a track
record of doing the right thing by our employees, customers, suppliers and all of our
stakeholders, means we are developing a business we can be proud of and one that is
hungry to deliver sustainable value for every stakeholder.”
Daemmon Reeve
Group CEO
Clear and
proven strategy
Track record
of profit growth
Experienced
management
Our 2022 growth plan includes a
renewed focus on our three core
product categories of citrus, health
& wellness and tea, which together
represent 63% of revenues. Other
notable growth categories include
fruit & vegetables which strongly
aligns with better-for-you, authentic
differentiators in beverage.
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
extensive experience of the sector
and are supported by a talented and
ambitious senior leadership team
within the business.
63%
OF REVENUES REPRESENTED BY
OUR THREE CORE CATEGORIES
13%
COMPOUND ANNUAL GROWTH
IN PROFIT BEFORE TAX AND
EXCEPTIONAL ITEMS1 OVER THE
LAST FIVE YEARS
46 years’
COMBINED SECTOR EXPERIENCE
See our Strategy section on page 16
See our KPIs on page 24
See our Board of Directors on pages 66 and 67
1 Excluding discontinued operations, details of which are provided in note 11 of the financial statements.
05
OVERVIEWOVERVIEW CHAIRMAN’S STATEMENT
I am extraordinarily proud of the
COMPANY’S
RESPONSE
to the COVID-19 crisis and its resilience
The first half saw good
strategic progress and
strong performance with
volumes holding up well.”
I am extraordinarily proud of Treatt’s response
and its resilience in a year which saw the
COVID-19 pandemic impact our markets and
dominate our focus. The health, safety and
wellness of our employees has rightly been
our absolute priority and despite multiple
challenges presented by the virus, the
Company has increased its profit before tax
and exceptional items by 11.3% to £14.8m;
the eighth consecutive year of growth. To
have met our pre COVID-19 expectations
without needing to call upon any government
assistance is an outstanding result.
I am very grateful for the outstanding
commitment of our colleagues in the US,
UK and China. From the onset of the crisis,
the whole Treatt team has worked diligently
to keep our plants fully operational and our
customers served. Whether having to adjust
to working from home, or to abiding by
new safety measures in our manufacturing
facilities, everyone at Treatt has had to
adapt to new ways of working and has
demonstrated remarkable resilience and
dedication in doing so.
p
0
0
.
6
p
0
5
.
5
p
0
1
.
5
p
0
8
.
4
p
5
3
.
4
2016 2017 2018 2019
2020
9.1%
DIVIDEND
PER SHARE1
6.00p
Performance
The first half saw good strategic progress and
strong performance with volumes holding up
well. Stockpiling of certain products may have
contributed to strong sales as the pandemic
loomed. Then, as expected, volumes were
hit during the second half, largely due to the
drop in on-trade sales in the US and disrupted
operations for the hospitality sector, but the
impact has not been anything like we feared
when our markets first went into lockdown.
Treatt has long been proud of its global
expertise in citrus markets and, as we
anticipated, the orange oil price recovered
from last year and our margins improved as
a result, which helped to further offset the fall
in demand caused by the pandemic.
We continue to diversify the business, building
on its defensive characteristics, and we saw
ongoing strength in our growing health &
wellness (up 16.1%) and fruit & vegetables
(up 9.9%) categories, partly as a result of the
increasing consumer appetite for natural and
‘better-for-you’ products.
People, culture and
stakeholder engagement
In the face of many new challenges, Treatt’s
supportive and collaborative culture has
been central to our ability to respond. The
willingness of our people to work as a team,
as well as their desire to rise to a challenge,
has really come to the fore across the
business and played a significant role in our
strong performance.
1
The dividend per share relates to the interim dividend declared and final
dividend proposed in relation to the corresponding financial year.
06
TREATT PLCAnnual Report & Accounts 2020 CHAIRMAN’S STATEMENT
Our 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 are championed by all our 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 & PASSION
Our people love what they do and
are driven by the desire to delight
everyone they work with.
and
effective
Structured
stakeholder
engagement has become more vital than ever
during the pandemic. We have worked in close
partnership with our customers and suppliers
to understand and meet their changing
needs. Gaining a better understanding of our
suppliers and the issues that are important to
them will continue to be a focus during the
coming year.
See our Strategy section on page 16
Board changes during the period
I am delighted to welcome Vijay Thakrar to
the Board as an independent Non-executive
Director. Vijay is a Chartered Accountant
with extensive strategy, commercial and
governance experience in fast-moving
consumer goods (FMCG) and I am confident
he will prove a strong addition to the team.
This year has certainly demonstrated the skill
and dedication of our people, the strength
of our culture, our ability to adapt, and the
ongoing market demand for our products
even in uncertain times. Reflecting on those
fundamentals gives me confidence that the
business is ready to thrive in the face of
future challenges.
Tim Jones
Chairman
23 November 2020
As the designated employee representatives
on the Board, David Johnston and I continued
with our Employee Voice sessions this year;
they remain an excellent channel for gathering
employee feedback and answering questions.
With the open door policy I always try to
promote, many employees have come to me
to identify the colleagues that the Company
has been able to provide additional support
to during the crisis, and I appreciate everyone
taking good care of each other.
We have also been mindful of our local
communities in Suffolk and Florida. We were
delighted to be able to use our facilities to
produce hand sanitiser for local care homes
and other organisations helping those most at
risk. We were also proud to assist COVID-19
care at Bury St. Edmunds hospital by
enabling our Health & Safety Manager, who is
a qualified nurse, to return to the NHS.
the wake of
In
the pandemic, ESG
(environmental, social and governance)
matters remain high on the Board agenda, with
a formal strategy currently in development.
Dividend
The Directors are pleased to propose a final
dividend of 4.16p per share (2019: 3.80p),
which represents an increase in the total
dividend for the year of 9.1% to 6.00p (2019:
5.50p). If approved by shareholders at the
Annual General Meeting, the final dividend
will be payable on 18 March 2021 to all
shareholders on the register at the close of
business on 5 February 2021.
Outlook
We will continue to do all we can to safeguard
the health and safety of our colleagues whilst
meeting the requirements of our customers
and end consumers.
Notwithstanding COVID-19 related market
uncertainty, we remain optimistic for the
coming year. Our resilient business model
and strategy for growth are delivering good
results and we have further opportunities to
pursue. In particular, the current trends in
coffee, natural extracts, and the burgeoning
hard seltzer market play to our strengths
and provide us with opportunities to further
innovate and diversify our portfolio.
Our resilient business model and strategy
for growth are delivering good results and
we have further opportunities to pursue.”
07
OVERVIEWOVERVIEW TREATT PLC Annual Report & Accounts 2020
08
STRATEGIC REPORT
STRATEGIC
REPORT
STRATEGIC REPORT
Market Overview 10
Our Business Model 14
Our Ambition & Strategy 16
Chief Executive’s Review 20
Key Performance Indicators 24
Working Responsibly 26
Stakeholder Engagement and S172 28
Financial Review 48
Principal Risks and Uncertainties 56
19
Reducing our
dependence on citrus
35
Committed to
developing our culture
41
Embedding sustainability
throughout the business
09
09
STRATEGIC REPORT MARKET OVERVIEW
Sustainably growing our
business with a
DIVERSIFIED
PORTFOLIO
aligned to consumer behaviours
We utilise customer data and
market insights to grow our
global footprint in key markets.”
Introduction
By using market data and customer insights
to expand our footprint, we are well-placed to
navigate shifting consumer trends.
Over the last year, we have worked to bring
our commercial functions closer together.
Our efforts have resulted in a notable
strengthening of our sales, marketing and
product category management functions.
We have become more agile at responding to
emerging trends, as well as better prepared
for long-term market movements.
Our robust market intelligence continues to
drive our commercial strategy, effectively
improving our understanding of the markets
we operate in and how we can best serve our
customers within them.
COVID-19
COVID-19 is first and foremost a human
tragedy, one that continues to affect millions of
people globally. It has presented our industry
with extraordinary challenges and will make a
lasting mark on the sectors we serve.
Understanding the immediate and future
shifts in consumer attitudes has never
been more important as every player in our
supply chain has been impacted in one way
or another. Almost every current indicator
suggests that consumers over the world will
significantly adjust their long-term buying
behaviour in the months and years to come
in response to COVID-19.
For many, concerns around job security and
income will drive the shift in spending habits.
Some will trade down and focus their spend
on ‘essentials’ rather than high-end products,
services or experiences. Trusted familiar
brands are likely to fare well.
However, it is not as simple as saying that
consumers will spend less because they have
less. Due to the unique circumstances that
have brought this recession about, including
imposed restrictions on peoples’ lives, the
threat of illness and the loss of loved ones,
how consumers assign value to what they
spend money on will also change.
Health and wellbeing, stability, trust, and
consistency are all going to be increasingly
important drivers that inform consumer
spending.
Our insights team continue to stay close to
all relevant market movements. By sharing
actionable learnings with our internal teams,
customers and suppliers, we can readily
respond to this evolving situation.
Mel Cooksey
Vice President of
Global Procurement
1010
TREATT PLCAnnual Report & Accounts 2020 MARKET OVERVIEW
The impact of COVID-19 on consumers' attitudes to health
In a recent survey carried out by Global Data, across 11 countries, respondents were asked how their lifestyle
choices and shopping behaviour are likely to change as a result of the COVID-19 pandemic. The results demonstrate
a drive towards ‘better-for-you’ products, with an increasingly health conscious global consumer base switching to
natural and clean-label beverages.
Which of the following best describes your attitude to health?
I proactively seek products which improve my health
I react to health problems when they arise
I am not worried about my health
58%
36%
6%
Source: GlobalData's COVID-19 Recovery Tracker Survey, Week 1–3
Product portfolio
Our diverse and growing product range allows us to maximise commercial opportunities across the world.
HERBS, SPICES & FLORALS
Botanical ingredients are growing in popularity in
several markets as ‘naturalness’ continues to be an
increasing priority.
CITRUS
With a strong and established background in citrus,
our range of natural and synthetic products are
well aligned with consumer tastes.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
AROMA & HICS
Our chemicals business continues to perform
well as our ability to deliver a consistent and
high-quality service stands us apart
from other players.
COFFEE
Coffee has become one of the fastest growing
beverage categories in the world and we are
well positioned to take advantage.
HEALTH & WELLNESS
Consumers continue to look for ‘better-for-
you’ products and our clean-label solutions
are performing well in this space.
TEA
Tea is the second most widely consumed
beverage in the world, after water, and our
natural range of tea products continue to win.
FRUIT & VEGETABLES
Our natural distillates deliver on impact and
clean-label requirements, both of which are
increasingly important to consumers.
11
11
STRATEGIC REPORT
MARKET OVERVIEW
We remain in a
STRONG
POSITION
to support our customers in responding to
the evolving priorities of consumers
North America
Global trends
UK and Europe
As the world continues to grapple
with a global pandemic, clean-label
beverages with functional ingredients
have become a priority for North
American consumers across almost
every pillar.
Europe is continuing to follow trends
first seen in North America, as functional
beverages, low and no alcohol beverages
and ready-to-drink (RTD) coffee brands
continue to innovate and bring new
products to market.
While the US beverage market declined
by 22.7%1 during the lockdowns, links
between obesity-related diseases and
COVID-19 have caused consumers to
become increasingly health-conscious
and this has driven the clean-label
category forward.
Consumers across North America
are continuing to cut back on alcohol,
and the low and no alcohol beverage
category is enjoying great success as
a result. The non-alcoholic beverage
market is predicted to be worth
$280.5bn next year and is expected to
grow annually by 6.9%
(CAGR 2020–2025).2
On the back of meteoric success in the US,
hard seltzers hit the supermarket shelves
across the UK and Europe earlier this year
and growth of this category looks very
promising. The low and no alcohol market
continues its growth with Germany and
Spain holding a 30% share of Europe’s zero
alcohol beverage market.
Reduced sugar solutions are continuing
to drive innovation across the pillars as
health-conscious consumers seek out
clean-label beverages. Demand for natural
ingredients has also seen a rise in the use
of botanicals. The functional beverage
market is projected to record a CAGR
of 6.5% by 20253 and continues to be
dominated by sports and energy drinks.
Asia
While COVID-19 has led to some
beverage brands delaying new product
launches, the Asian beverage market
is full of opportunities as the average
disposable income continues to rise.
The Chinese market is being impacted
by an increase in health-conscious
consumers and this has allowed the
non-alcoholic drinks market to expand.
As a category, the revenue generated
from non-alcoholic beverages in China
is over $36.5bn in 2020 to date and it is
expected to grow annually by 7.2%4.
RTD tea and coffee continue to rise
in popularity, alongside performance-
based beverages with functional
ingredients. Classic flavours including
orange, lemon, peach and jasmine
remain popular, but brands are also
adding novel ingredients to attract
Millennials and Gen-Z consumers.
GLOBAL NON-ALCOHOLIC BEVERAGE MARKET SIZE FORECAST TO REACH
$1,257 billion5
BY 2027
1 22.7% Decline (Global Data – Trend Sights Analysis – August 2020).
2 6.9% CAGR (Statista – Non-alcoholic Drinks Report – July 2020).
3 6.5% CAGR (Mordor Intelligence Report – Functional Beverage Market – Growth, Trends and Forecast).
4 7.2% Growth (Statista – Non-alcoholic Drinks Report – July 2020).
5 $1,257bn (Fortune Business Insights – August 2020).
12
TREATT PLCAnnual Report & Accounts 2020 MARKET OVERVIEW
Trends in action
Evolving health and wellness
Sustainability and consumer ethics
Prioritising quality
According to a recent consumer trends report by
Mintel, wellbeing has moved beyond simply wanting
to look after oneself in broad terms. It’s also moved
away from extreme lifestyle changes or a fleeting
commitment to an intense regime. Instead, a more
holistic approach is becoming a key motivator of
consumer behaviour, underpinned by convenience,
transparency, and value.
Health and sustainability-conscious consumers
are looking to make smarter, feel-good choices
by opting for products that are better for them
and better for the world in which they live. As an
extension of the health and wellness movement,
this growing interest in the sustainability credentials
of a product continues to gain traction with
consumers across North America and Europe.
As a result of the increased traction of products
with positive sustainability credentials and a
healthy value proposition, we continue to see
consumers prioritise and seek products with a
premium look and feel. There is also an increasing
appetite for unusual or new trending flavours
within the premium space, particularly with
Millennial and Gen-Z consumers.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
While it is feasible that there will be disruption
to this space, as consumers trade down due to
financial pressures caused by the fallout from
COVID-19, there is still notable growth potential.
Many will continue to make premium products part
of their weekly shop as they look to mitigate the
fact that they may not be taking an exotic holiday
that year or have put off buying a new car or
moving home.
For premium products, there is a cachet
associated with being produced in the right
way. The appeal of authenticity is reflected by
an escalating interest in, and consumption of,
premium beverages. A minimal list of ingredients
on pack, coupled with a supporting brand identity
is increasingly appealing to tap into this trend.
Here, naturalness is also a key consumer concern.
In a recent study from Global Data, across all
age groups, around half of respondents were
encouraged to purchase products that are from
natural sources or contain natural ingredients.
Opportunities
Customers increasingly value our in-depth
knowledge of our raw materials, as well as
our ability to provide robust evidence relating
to the traceability of our supply chain. Many
of our product categories have a heavy
natural weighting, allowing us to readily
serve this significant market.
In an environment where consumers have become
highly sceptical, they want deeper, more authentic
reassurances from brands. Importantly, this
includes greater transparency about how products
are produced.
The climate emergency has heightened consumer
expectations for corporate social responsibility,
with the emergence of the low carbon diet fuelling
demand for increased information regarding the
environmental impact of products.
Consumers are becoming more familiar with
products and ingredients that promise previously
niche or unheard-of benefits. They are now more
likely to question these claims, pushing brands to
better define their products and their outcomes.
At the same time, there is growing demand
for products that enhance one’s life rather
than simply make superficial changes. We are
seeing the roles of mindfulness and increased
discussion around mental health become more
prevalent in busy lifestyles, as barriers to talking
about and understanding emotional wellbeing are
being torn down.
The study from Mintel shows significant
opportunity for brands to become ‘wellbeing
partners’ with their customers. While the
mass-market and ‘one-size-fits-all’ approach
will still have value, we will see the emergence
of bespoke products that aim to fit the many
disparate needs of the consumer. As lifestyles
become more fluid and non-linear, we will
see products targeted at different life stages
instead of those that reframe or address specific
wellbeing needs based solely on age.
Opportunities
With an established and growing health
and wellness portfolio, we are in a strong
position to continue to serve this dynamic
and opportunity-rich market.
The further widening of this already
expanding sector presents Treatt with
significant growth opportunities as
consumers look for ‘better-for-you’ products
in every beverage pillar. Our natural, clean-
label ingredients continue to perform well
as a result.
Opportunities
This shift will demand more accountability
throughout the supply chain from cultivation
to manufacture and distribution. Treatt is in
a strong position to respond to this evolving
market need. We are proud to have stable,
transparent, and traceable supply chains
across all of our product categories, as part of
our continued commitment to improving our
sustainability credentials.
To learn more, please go to page 26
13
STRATEGIC REPORT
OUR BUSINESS MODEL
DELIVERS
VALUE
for all our stakeholders
What we do
We manufacture and supply a portfolio of natural extracts, flavour and fragrance ingredients.
Our products…
Treatt has a wide range of products made up of the following
categories: citrus, coffee, tea, health & wellness ingredients, as well
as fruit & vegetable extracts, herbs, spices & floral ingredients and
high impact and aroma chemicals. Our wide range covers 100%
natural products to tailor-made blends and price-stable synthetics.
…and how we sell them
We supply manufacturers of consumer goods directly and indirectly
via 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.
FMCG and other customers
We work closely with many global fast-moving consumer goods
(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.
Flavour and fragrance houses
These organisations buy our products and sell them
on to FMCG customers. They look for competitive pricing
and our technical, regulatory and application knowledge.
SALES
46%
SALES
54%
Underpinned by our purpose
Creating outstanding sustainable ingredients, designed around our customers’ needs.
We have worked with:
Five of our top ten customers > 25 years
Two of our top ten customers > 20 years
Three of our top ten customers > 10 years
with new relationships forming each year.
14
TREATT PLCAnnual Report & Accounts 2020 OUR BUSINESS MODEL
Why our customers choose Treatt
DIVERSE PORTFOLIO
We have a diverse product portfolio that enables us to meet a wide
spectrum of customer requirements, with particular expertise in citrus,
tea and sugar reduction. Our natural extracts differentiate us from many
competitors, and our flavour and fragrance ingredients are the result of
over a century of knowledge and innovation.
RESPONSIBLE
MANUFACTURING
From our facilities in the UK and
US we manufacture and process
sourced materials to create consistently
high-quality products.
CUSTOMER CENTRICITY
AND SERVICE
Our business is structured around effectively
understanding and meeting the complex,
evolving needs of our global food, beverage and
fragrance customers. Every department is driven
by a common goal of delivering excellent
products and fantastic service.
SUSTAINABLE SOURCING
Working directly with growers, 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.
TECHNICAL EXCELLENCE
Our knowledge and skills across research and
development, applications, quality assurance and
quality control deliver unrivalled technical solutions
for our customers, challenging what is possible
in our industry. Over 75% of our revenues are
from value-added products, with the remainder
generated through trading in raw materials.
DIVERSE ROUTES TO
GROWING MARKETS
We have a presence on three continents and our more than
1,800 products are enjoyed by consumers in over 75 countries.
The broad appeal of our product offering allows us to capitalise
on growth opportunities in several competitive markets.
How we share value with our stakeholders
EMPLOYEES
Empowering culture,
opportunities for training
and development, and a safe
working environment.
INVESTORS
Our business model,
supported by our strategy,
aims to deliver sustainable
long-term growth and
returns to our shareholders.
CUSTOMERS
Tailored product range and
service, built on our technical
and regulatory expertise,
quality standards and market
intelligence.
SUPPLIERS
Sustainable, fair and
rewarding outcomes for
growers and processors.
COMMUNITIES
Donations of time, expertise
and money to charities and
causes that matter to our
employees and their families.
HOURS OF TRAINING
FOR EMPLOYEES
DIVIDEND GROWTH
OVER FIVE YEARS
5,242
49% (8.2% p.a.)
equivalent annual dividend
growth rate over the last
five financial years
POSITIVE EXPERIENCE
AND GREAT SERVICE
AT THE FOREFRONT
OF OUR QUALITATIVE
CUSTOMER FEEDBACK
OUR SUPPLIERS
We have worked with:
Five of our top ten
suppliers > 20 years
Four of our top ten
suppliers > 10 years
One of our top ten
suppliers > 5 years
GROUP
DONATIONS
£54,875
15
STRATEGIC REPORTSTRATEGIC REPORT OUR AMBITION & STRATEGY
Delivering sustainable growth for our stakeholders
1
Engaging with our
communities
2
Investing in
our culture
3
Reducing our
environmental impact
Undertaking a wide range of fundraising and
volunteering activities, Treatt is an active
contributor to our local communities as well
as to national causes.
Treatt’s supportive, collaborative culture
is integral to the Group’s success, and we
are proud of all that we do to nurture and
develop our people.
What we did in 2020
Our community support during the COVID-19
crisis included making and supplying hand
sanitiser to local care homes.
We helped a number of local charities who
were unable to fundraise due to the lockdown.
We enabled one of our employees, a trained
nurse, to return to the NHS and provide much
needed support during the peak of the crisis.
What we did in 2020
We demonstrated the importance of our
culture in our response to COVID-19, with the
wellbeing of our employees being our number
one priority.
We protected staff who remained on site with
robust health and safety protocols.
We invested in technology and support
to allow many of our staff to work from
home effectively.
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.
What we did in 2020
We’re currently developing a formal ESG
strategy to build on the existing and long-
standing sustainability already present in
the business.
Plans for 2021
Adapt our approach to community
collaboration in the wake of the pandemic.
Plans for 2021
Prioritise the mental health of our team during
the ongoing pandemic and beyond.
Plans for 2021
Major strategic push on sustainability
as a core thread in the business.
Align our charitable activity to selected ‘UN
Sustainable Development Goals’ such as, ‘to
improve mental health in our community’ and
‘to improve basic health’.
Harness the excitement about the UK
relocation and the potential the new facilities
will bring.
Work with a leading sustainability
consultant to build upon our already
strong foundations.
Encourage staff to think sustainably in
everything they do.
See our Working Responsibly section on page 47
See our People section on page 32
See our Working Responsibly section on page 38
NUMBER OF
COMMUNITY PROJECTS
UK EMPLOYEE ENGAGEMENT IN
PERFORMANCE REVIEW PROCESS
TONNES OF WASTE RECYCLED/
REUSED/ENERGY RECOVERED
21
100%
16
862
TREATT PLCAnnual Report & Accounts 2020 OUR AMBITION & STRATEGY
4
Investing in our
core categories
5
Diversifying into
new categories
6
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.
What we did in 2020
The expansion of our US site came fully on
stream, with additional manufacturing capacity
and expanded R&D facilities.
We continue to deliver growth in the
fruit & vegetables, tea and health &
wellness categories.
Category management was fully
embedded in the business.
Plans for 2021
Align R&D with our core categories,
bringing science into new processes
and products.
Develop citrus differentiators to support
growth in beverage.
We continue to broaden our portfolio,
pursuing opportunities that align with
our capabilities.
An important focus is on enhancing our
operations to provide a sound platform
for growth.
What we did in 2020
We made good progress towards decoupling
our dependence on traded and minimally
processed citrus. Citrus now accounts for
50% of revenues.
We see exciting opportunities in hard seltzers,
a developing beverage category in which
we’re already working with a number of
leading brands.
We continue to build our offering in coffee to
meet the needs of the technically complex cold
brew coffee market.
Our new product development programme is
progressing well and market entry points are
currently being explored.
Plans for 2021
Build offering in rapidly growing
hard seltzer market.
Evolve our coffee platform.
Develop customer relationships
in the cold brew coffee market.
Target opportunities for coffee in beer,
stouts, and porters.
What we did in 2020
The expansion of our US site became
fully operational.
We commenced a $1.5million investment in
plant and machinery in the US to capitalise on
exciting opportunities in hard seltzers.
The new UK Headquarters build progressed
well despite the lockdown. The building work
was completed in October ahead of the
planned move mid-2021.
Plans for 2021
Leverage and maximise the significant
additional capacity and operational efficiencies
the new UK Headquarters will bring.
See our Chief Executive's Review on page 20
See our Markets section on page 10
See our Chief Executive's Review on page 20
INCREASE IN R&D AND
COMMERCIAL HEADCOUNT
GROWTH IN NON-CITRUS
REVENUES
10.7%
4.4%
17
INVESTMENT IN
US OPERATIONS
$5.8m
STRATEGIC REPORTSTRATEGIC REPORT TREATT PLC Annual Report & Accounts 2020
DECOUPLED THE HISTORIC
LINK OF GROUP PROFITS TO
THE ORANGE OIL PRICE
NON-CITRUS REVENUE
INCREASED BY
4.4%
WELL POSITIONED AS
A CLEAN-LABEL AND
NATURAL EXTRACTS
BUSINESS
NON-CITRUS PERCENTAGE OF
TOTAL REVENUE INCREASED
FROM
46% to 50%
GOOD PROGRESSION IN
THE NATURAL PORTFOLIO
– SUPPORTED BY HEALTH
AND WELLNESS INNOVATION
18
STRATEGIC REPORT
STRATEGY IN ACTION
Diversifying into new categories
REDUCING
OUR DEPENDENCE
ON CITRUS
The growth of our non-citrus business in the fruit
& vegetables and health & wellness categories is
because our clean-label innovations continue to
resonate with consumer demand for 'better-for-you'
options, particularly in our core beverage market.
Getting closer to customers, decoupling our dependency on minimally-
processed citrus, and driving success from other categories, all
demonstrate our strategy in action and help us deliver on our goal
of sustained increases in profits.
TREATT HAS SUCCESSFULLY DECOUPLED THE HISTORIC LINK
OF GROUP PROFITS TO THE ORANGE OIL PRICE
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
s
m
e
t
i
l
a
n
o
i
t
p
e
c
x
e
d
n
a
x
a
t
e
r
o
f
e
b
t
fi
o
r
p
p
u
o
r
G
£16.0m
£14.0m
£12.0m
£10.0m
£8.0m
£6.0m
£4.0m
£2.0m
£0.0m
Group profit
Orange oil price
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$16/kg
$14/kg
$12/kg
$10/kg
$8/kg
$6/kg
$4/kg
$2/kg
$0/kg
O
r
a
n
g
e
o
i
l
p
r
i
c
e
DEMONSTRATING OUR S172 DUTIES
As we transition to a more value-added business model, reducing our reliance on citrus and increasing
the contribution of our other product categories, our ability to make longer-term commitments to our
stakeholders through investment in sustainable technologies, the expansion of strategic goals and the
reduction of financial risk is enhanced.
See our Our Ambition & Strategy on pages 16 and 17
19
CHIEF EXECUTIVE’S REVIEW
An excellent performance in extraordinary
times and well-positioned for
FUTURE
GROWTH
Summary
underlying
• The
strongly
business
and
performed
delivered profit before tax and
exceptional items ahead of pre
COVID-19 expectations
• We responded to significant
disruption in our markets, and
to our people, demonstrating
the resilience of our business
model
• The UK relocation project
remains on budget with the
build complete and fit-out now
underway
It’s been quite a year for all of us. We had a
strong first half, in line with our expectations,
with performance driven by momentum
across several categories and progress made
against a number of our strategic goals. Then,
just as the first half ended, the COVID-19
crisis spread across our key markets and,
of course, impacted all of our lives, and we
experienced the largest disruption to demand
that our business has ever seen.
Ultimately, we are very pleased both with
our performance for the year and with our
response to a situation few people saw
coming; our recent strategic initiatives have
proven successful in building added resilience
into the business model. I am, however, left in
a dichotomy of being pleased with our results
in light of COVID-19 but also reflecting on the
year this would have been for the business
had COVID-19 not occurred.
Despite the impact this disruption inevitably
had on sales, the underlying business has
performed strongly; delivering revenue of
£109.0m (2019: £112.7m) and a profit before tax
and exceptional items for the year of £14.8m
(2019: £13.3m) which is better than our pre
COVID-19 expectations and represents an
increase of 11.3% compared with the prior year.
I would like to thank all of our colleagues for
their dedication and agility in the face of these
unprecedented circumstances. The whole
Treatt team has risen to the challenge and
performed to a higher level than ever before
to maintain our momentum. I would also like
to thank our customers and suppliers for their
support during a testing time.
A strong first half
the strong
The year began well with
performance driven by particular momentum
across our tea, health & wellness and fruit
& vegetables categories. Citrus markets
recovered as we expected, and though we
had some important wins in the category, we
also made good progress against our strategic
objective of reducing our dependence on
citrus. Citrus has fallen to 50% of revenue
from 54% in 2019, and our other categories
are growing faster, meaning the business
is developing a more diversified and higher
value portfolio, which our new facilities will
further support.
I would like to thank all of our
colleagues for their dedication
and agility in the face of these
unprecedented circumstances. The
whole Treatt team has risen to the
challenge and performed to a higher
level than ever before to maintain
our momentum.”
20
TREATT PLCAnnual Report & Accounts 2020 CHIEF EXECUTIVE’S REVIEW
We have achieved strong results
which is testament to the remarkable
RESILIENCE
in our people, culture and business model
Investing for future growth
We continued to invest in our infrastructure
to increase capacity and efficiency whilst also
improving our R&D capabilities to ensure we
are able to provide cutting edge solutions in the
growth markets we serve. The US expansion
was fully up and running in the first half of the
year. Our capacity for products in our fruit &
vegetables, health & wellness and tea product
categories doubled and came on stream in
time for the new crop season, and we’ve
immediately benefitted from the additional
investment has provided,
capacity
with further growth expected to continue
from both existing and new customers. In
addition, we have enhanced the customer
experience on site as well as expanded and
modernised our scientific infrastructure and
office facilities, which were at full capacity.
We are also investing an additional $1.5million
in plant and machinery in the US to capitalise
on exciting opportunities in hard seltzers1, a
developing beverage category in which we’re
already working with a number of leading
global FMCG brands
that
The new UK Headquarters build progressed
well in the first half. It did suffer a slow-down
as a result of the UK’s national lockdown, but
the building work completed in October ahead
of the planned move which will begin in mid-
2021. We have a capable and experienced
team leading the project and relocation will be
a key focus for the coming year. In addition to
significantly increasing our capacity, the new
site will allow us to accelerate the important
partnership-based model through an enhanced
technical collaboration infrastructure to drive
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 years
after completion. In addition, the modular
design will enable us to add further capacity in
the future as demand dictates.
Responding to COVID-19
The various restrictions implemented across
many of our key markets in the second half of
our financial year significantly reduced away-
from-home consumption as the food service
industry largely shut down and consumers
were confined to their homes. Some of the
world’s largest beverage companies have
estimated
that market demand reduced
by as much as 15–20% at the height of the
pandemic during the April to June period,
and inevitably Treatt felt that decrease in
demand. At-home consumption volumes do
not equal consumption in the away-from-
home channels although we did benefit from
growth in our customers’ supermarket and
retail sales channels.
That we’ve still been able to achieve
such a strong set of results, despite this
extraordinary disruption, is testament to
the remarkable and increasing resilience
in our people, culture and business model.
The diversity of our portfolio yielded
benefits as we saw enhanced demand for
fragrances used in hand soaps and cleaning
products, with strict cleaning protocols and
hand washing becoming an essential part
of global efforts to combat the pandemic.
Our exposure to fine fragrance, severely
impacted by a dramatic slowdown in global
travel, is minimal.
An example that effectively illustrates the
two sides of demand is within our tea extract
business where one customer who formulates
our product into a system for the cruise line
industry has clearly suffered a complete halt
in business. On the other hand, a supermarket
business in a similar product has seen positive
growth throughout the pandemic.
Despite some rather minimal supply chain
disruption, we were able to keep supplying our
customers, supported by our inventory holding,
which held us in good stead throughout the
worst of the crisis. Our partnership model with
our customers has also worked particularly
well, with strong communication playing a
vital role in understanding their challenges.
Helping our customers to recover from the fall
in demand will be another key focus for us in
the near future.
21
STRATEGIC REPORTSTRATEGIC REPORT CHIEF EXECUTIVE’S REVIEW
The importance of ESG is fundamental to our
SUSTAINABLE
growth strategy
Strategic priorities
and progressively
successfully
Having
repositioned ourselves as a natural extracts
business, with over 70% of our business
now from natural products, we’re well
placed to capitalise on growing consumer
trends around products that are better for
consumers and for the planet. We believe that
these trends will only be strengthened by the
COVID-19 pandemic.
to diversify
As we continue
into new
categories, we will maintain our focus on
increasing our provision of added-value
solutions across our portfolio, leveraging
our close customer partnerships, technical
capabilities, and new facilities. We anticipate
that this will drive further margin improvement
over the medium-term.
We see many strong opportunities in the North
American market, including the continuing
optimisation of our coffee platform, as well as
the growing alcoholic seltzer market which
is already valued at over $4bn1 globally, and
expected to further penetrate Europe. We
are also encouraged by a number of exciting
opportunities in China, where our business
continues to perform very well.
From the onset of the crisis we’ve taken our
responsibility to our key stakeholder groups very
seriously. I’m proud of how we’ve demonstrated
our long-standing supportive and collaborative
culture in our response to COVID-19, with
stakeholder engagement a central part of our
decision-making process. An example of this
engagement saw us introduce temperature
checks on arrival for staff at our US facility, a
suggestion that originated internally and we
were happy to facilitate.
We took the decision not to furlough any
UK staff during the crisis, feeling that the
scheme was not designed for a business like
ours, where we have been able to remain
fully operational. Around 50% of our staff
have been successfully working from home
since March, showing amazing flexibility and
commitment. Our Operations, Technical,
IT and HR teams stepped up and made it
an almost seamless transition, with digital
presentations, meetings and initiatives held
over video to stay in touch and keep staff
informed of our ongoing response to the
situation. In order to protect staff who have
remained on site, our health and safety
protocols have been robust, with various
systems in place including one-way systems,
hand sanitising stations and the wearing of
face coverings. We’ve supported staff in many
other ways too, even helping to get hold of
basic essentials as they became unavailable
in shops.
With close ties to our local communities
from many years of activities and initiatives,
we were keen to help out where we could.
Our community support during the crisis
included making and supplying hand sanitiser
to local care homes, and helping a number of
charities who were unable to fundraise.
Reflecting on the importance of ESG
The pandemic has reiterated the importance
of ESG matters for Treatt, and we’re currently
developing a formal strategy to build on the
existing and
long-standing sustainability
initiatives already present in the business.
The importance of ESG issues is nothing
new to Treatt and is part of our DNA
and fundamental to our approach for an
increasingly sustainable growth strategy.
COVID-19 and Treatt’s response to it has
proved that again, but there’s work to do on
improving our reporting and communication
in this area, and we are committing to this in
the coming year.
Brexit
Brexit uncertainty remains in our thoughts as
the UK's transition period after Brexit comes
to an end this year. Potential trade tariff
changes are the main cause for concern, but
we have strategic manufacturing agility in the
business to mitigate any new tariffs. Though
we’re not downplaying the potential disruption
that Brexit could cause, we’ve experienced
turbulence before and are comfortable that
we’re well prepared.
Our community support during the
crisis included making and supplying
hand sanitiser to local care homes,
and helping a number of charities who
were unable to fundraise.”
1 The global alcoholic seltzer market size was valued at USD 4.4 billion in 2019 and is expected to grow at a compound
annual growth rate (CAGR) of 16.2% from 2020 to 2027. (Source: Grand View Research www.grandviewresearch.com)
22
TREATT PLCAnnual Report & Accounts 2020 The prospect of moving into our new UK
Headquarters in the next financial year, after
nearly 50 years at our current facility, is
another major development for the business.
Having a purpose-built, world-class facility
to reflect the science-led, customer partner
model we are practicing today, we hope will
have a big impact on what we can achieve in
the short, medium and long-term.
Looking beyond COVID-19 and the relocation,
our focus will be on filling capacity at our
expanded global facilities, embedding all the
advantages
infrastructure projects
bring and continuing to build upon the various
strategic opportunities we see to provide
important taste differentiators to our growing
customer base.
those
CHIEF EXECUTIVE’S REVIEW
Outlook
As economies begin to reopen and lockdown
restrictions ease across our key markets,
we expect to see demand and consumption
slowly improve and we began to see this
during our fourth quarter, albeit from a low
base. Though it’s very difficult to predict, it
would be a surprise if demand across all
segments returned to normal levels before
the end of 2021 or into 2022. However,
should ongoing subdued demand prove to
be the case, I’m confident we’re in the best
possible shape to endure it and I am looking
forward with cautious optimism.
fundamentals
the excellent
Building on
of our business and broad added-value
product offering, we have made a strong
start to our new financial year ending 30
September 2021 and the Group continues to
perform in line with the Board’s expectations.
Daemmon Reeve
Chief Executive Officer
23 November 2020
In addition to significantly
increasing our capacity,
the new site will allow us
to accelerate the important
partnership-based model
through an enhanced
technical collaboration
infrastructure to drive
innovation, together with
our customers, in line with
our strategy.”
Our new UK Headquarters
23
STRATEGIC REPORTSTRATEGIC REPORT 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.
GROWTH IN PROFIT BEFORE
TAX AND EXCEPTIONAL ITEMS1
GROWTH IN ADJUSTED1
BASIC EARNINGS PER SHARE
11.3%
32.2%
10.7%
27.8%
NET OPERATING
MARGIN1
13.8%
12.4% 12.4% 12.0%
10.8%
13.8%
11.3%
11.3%
8.1%
5.2%
9.8%
10.7%
7.5%
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
(1.1)%
Profit before tax and exceptional
items is considered the most
appropriate measure of the
underlying performance of
the Group.
Profit before tax shows the
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.
As shown in the Group
income statement.
Adjusted earnings per share is
considered the most appropriate
measure of performance which is
aligned with shareholder value.
Net operating margin is considered
an important measure of the
profitability of the Group.
Why we measure it
Earnings per share is widely
considered one of the most
important metrics used by investors
in order to place a value on a
company and therefore in turn
impact upon the share price. It lets
shareholders know how much profit
was made for each share they own.
Calculation
As shown in the Group
income statement.
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.
Page 109
Page 109
Page 109
1 All KPIs are calculated excluding exceptional items (see note 9).
They also exclude discontinued operations in 2017, 2018, 2019 and 2020 – 2016 has not been restated for discontinued operations.
24
TREATT PLCAnnual Report & Accounts 2020 KEY PERFORMANCE INDICATORS
Growth in adjusted1 basic
earnings per share
10.7%
RETURN ON CAPITAL
EMPLOYED1
AVERAGE NET CASH/
(DEBT) TO EBITDA1
NUMBER OF REPORTABLE
ACCIDENTS ACROSS GROUP
AVERAGE NUMBER OF
SICK DAYS PER EMPLOYEE
16.7%
24.6%
22.1%
18.5% 19.0%
16.7%
0.48
0.87
1
4
5
4.29
0.48
3
2
1
2.81
3.06
2.86
3.00
2.81
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
(0.01)
(0.35)
(0.42)
Return on capital employed is
an important measure used to
assess the profitability of the
Group relative to the capital
being utilised.
Average net cash/(debt) is
used to ensure that the level
of debt is appropriate relative
to the profits generated by the
business.
The number of reportable
accidents is used to monitor
the safety of our working
environment.
Average number of sick days
enables us to monitor the
welfare of our workforce
and the effectiveness of our
absence policies.
Why we measure it
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.
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 year.
The health and safety of our
employees is of paramount
importance to us. Recording
accidents, which includes those
that are reportable, assists with
their prevention and encourages
a focus on safety.
The recording of sickness is
essential for proactive absence
management, which can help
to reduce sickness absence
and ensure that employees are
healthy and working effectively.
Calculation
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).
We divide the average net
cash or debt in the year 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 from continuing
operations as shown in note 5 to
the financial statements.
We record the number of
reportable accidents, which
have occurred across the
Group. Reportable accidents are
work-related accidents, which
legally have to be reported to
a statutory body or have to be
recorded in a specific format.
We divide the total number of
sick days recorded across the
Group by the total number of
employees.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
25
STRATEGIC REPORT
WORKING RESPONSIBLY
REACHING
BUSINESS
GOALS
is critical to the Group’s success –
how we achieve them is equally important
At Treatt, we take our social responsibility seriously and have a reputation for behaving ethically
and in a socially responsible way. This has become increasingly important since the outbreak of
COVID-19, which has tested the sustainability of businesses across the world, exposing them to
a multitude of issues including staffing, health and safety, supply chain resilience and decreasing
revenue. Operating with COVID-19 in mind we have protected our people and helped our local
communities, whilst meeting customer needs and delivering on our strategic objectives.
92%
74%
OF OUR PURCHASED
KGS ARE NATURAL
OF OUR PRODUCT
PORTFOLIO IS NATURAL
Throughout COVID-19, Treatt has continued to take proactive steps to look
after our peoples' needs, and ensure we support the local community. The
wellbeing and safety of our people is extremely important and we are
exceptionally proud of the way in which strong team connections have been
maintained, and staff have operated to protect and support each other. We
expect Treatt to emerge from the pandemic, resilient and stronger together.”
Jo Mapston
Global Head of HR
2626
TREATT PLCAnnual Report & Accounts 2020 WORKING RESPONSIBLY
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
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
Material issues
Our activities are focused where we feel we
can make a real difference in the following
areas:
• our employees
• diversity and inclusion
• health and safety
•
the environment
• business integrity and ethics
• community
Embedding sustainability throughout
the business
Recognising the need to accelerate the good
work that has already been done, Treatt has
engaged a specialist independent consultancy
to work with management to further develop
our sustainability strategy and embed it
throughout the business. They will assist us
in identifying the areas we need to focus on,
which are the most important to the business
and our stakeholders. The engagement took
place late in the financial year and we look
forward to reporting our progress in our 2021
Annual Report.
How we measure and report
The Group is committed to providing greater
transparency of critical issues, specifically
environmental, social and governance (ESG)
factors and we have continued to build on
our reporting with reference to the Global
(GRI) Sustainability
Reporting
Reporting Standards 2016. GRI
is an
independent international organisation that
has pioneered sustainability reporting since
1997 and a GRI Standards index is available
on our website.
Initiative
27
STRATEGIC REPORTSTRATEGIC REPORT
WORKING RESPONSIBLY
Stakeholder engagement and S172
Under section 172 of the Companies Act 2006,
Directors must act in the way which they
consider, in good faith, would be most likely to
promote the success of the Company for the
benefit of its stakeholders, having regard to
the matters listed A-F below. Further details
of where the Board incorporates consideration
of these matters into its decision-making are
referenced below:
A
B
C
D
E
F
The likely consequences of any
decision in the long term
A practical example of consideration of
the long term consequences of Board
decisions can be found on page 31.
The interests of the Company's
employees
See pages 29 and 31.
The need to foster the Company's
business relationships with suppliers,
customers and others
See pages 29 and 30.
The impact of the Company's
operations on the community
and the environment
See pages 30 and 31.
The desirability of the Company
maintaining a reputation for high
standards of business conduct
See page 42 and 43.
The need to act fairly as between
members of the Company
See page 73.
and maintaining
Developing
strong
relationships with all of our stakeholders is
key to the success of the Group. By engaging
with stakeholders, listening to their feedback
and understanding their perspective, the
Board is able to ensure that there is sufficient
consideration of the impact of its decisions
on stakeholders and that their interests are
balanced with corporate objectives. However,
sometimes it may be necessary to make
decisions that not all stakeholder groups find
favourable. Thorough consideration is given
to such decisions and steps to mitigate any
negative impacts are sought and implemented
as far as possible.
Not all engagement with stakeholders is made
directly by the Board; engagement takes
place at an operational level and is reported
to the Board via the Executive Directors or
through written reports from the Senior
Leadership Team. Reports submitted to the
Board highlight the impact of the subject
matter, both positive and negative, and any
long-term consequences, on a range of key
stakeholders. This provides the Board with
greater insight into the effect of our business
on our stakeholders. The Board recognises
that further visibility in respect of the
engagement that takes place with customers
and suppliers would be helpful and this will be
an area of focus during the course of FY2021.
We have listened carefully to the views and
feedback we have received from existing
and prospective shareholders in respect
of the Group’s approach to ESG. The tone
of this feedback over the last year has
been to welcome the Group’s approach to
ESG, to encourage the business to create a
greater awareness of its ESG activities as
part of its investor communications and to
further accelerate our existing sustainability
initiatives, including those which form part of
our capital investment programme.
COVID-19
Following the COVID-19 lockdown in March
2020 our Senior Leadership Team and
operational teams regularly updated all our
key stakeholders regarding the actions we
were taking and how it affected them. We
maintained close contact with our suppliers
and customers to ensure continuity of supply
to our customers, who were experiencing
increased consumer demand as supermarket
shelves emptied.
Swift action was taken by our Senior
Leadership Team at our sites in the UK and
US, and our office in China, to ensure the
health and safety of those reduced numbers
of employees continuing to work on site and
frequent communication with all employees
took place via email to keep them updated on
developments as the crisis progressed.
provided
information
The Board
to
shareholders on the effects of COVID-19 in
our trading updates on 7 April and 9 October,
our half year results statement on 12 May and
at subsequent investor presentations.
We worked with our local communities to
provide a range of support measures through
the pandemic, further details of which are on
page 46.
Whilst COVID-19 remains a risk we will
continue to engage with our key stakeholders,
ensuring that the Board remains cognisant of
their concerns and the effect of the issue on
them.
Pages 29 and 30 sets out those we consider
to be our key stakeholders and provides
examples of how we have engaged with them
during the course of the year.
In response to the pandemic emerging, our immediate
priorities were the safety of our people and the
continuation of our operations
28
TREATT PLCAnnual Report & Accounts 2020 WORKING RESPONSIBLY
Stakeholder engagement and S172
Employees
Shareholders
Customers
Why we engage:
Employees are essential to the success of our business;
our culture drives business performance. Further
details on our culture can be found on page 35
Why we engage:
Shareholder views inform our decision-making
and engagement enables us to explain our
strategic goals
Why we engage:
It is important that we understand our customers’
requirements to allow us to deliver the products and
service they need and to develop innovative solutions
for beverage and flavour and fragrance applications
Key issues:
Regular, clear communication
Key issues:
Timely information on performance
Health and well-being
Opportunities for engagement with management
Remuneration Policy
Sustainability
Key issues:
Customer service
Innovative products
Product quality
Competitive pricing
Sustainability
Training and development opportunities
Pay, benefits and share schemes
Open dialogue with the Board and management
and opportunities to provide feedback
Details of all employee share schemes
are on page 142
How we engaged:
Direct engagement took place through a variety of
forms. The Board engaged via open door Employee
Voice sessions led by the Chairman and designated
Non-executive Director. The Executive Directors
engaged through results presentations and the
employee representative committee
Indirect engagement, reported to the Board via the
Executive Directors and Senior Leadership Team,
took the form of:
Site relocation open days
Regular leadership briefings and
Town Hall meetings
Employee magazine
Wellbeing workshops and mental
health awareness week
Employee of the quarter awards
Employee surveys
How we engaged:
The Board met with shareholders at the
Annual General Meeting in January
How we engaged:
The Board indirectly engages with
customers at an operational level:
Our Executive Directors met with current and
prospective shareholders and presented annual
and half year results
The Chair of the Remuneration Committee consulted
with large shareholders on our remuneration policy
for 2021 and the tenure of the Chairman (see
pages 72 and 80 for further details)
Further details on our relationship with
shareholders is on page 73
Listening to our customers and their needs to tailor
our innovation and products
Working with them on technical and regulatory
matters that concern them, such as agricultural
residues
Providing customers with our Market Intelligence
Reports which provide comprehensive information on
the raw material markets that are relevant to them
Visits and calls with customers with relevant Treatt
specialists in attendance enables us to discuss market,
technical, marketing and regulatory information
Webinars providing educational updates
on certain raw materials
Updates through our website and
direct communication
What we discussed:
COVID-19, ensuring customers were aware of our
ability to meet their requirements through lockdown
Citrus and other raw material markets
Relocation to our new UK Headquarters in 2021
Impact of Brexit on customer deliveries
How we considered their interests:
The Board received regular updates from the
CEO on the citrus markets, beverage sector
performance and significant customers
Monthly business reviews provided details on
customers and geographies and summaries of
customer interactions
What we discussed:
Information on customer wins and Group results
Mental, physical and financial wellbeing
What we discussed:
Our financial results, providing opportunities for our
shareholders to ask questions to better understand
our business
COVID-19
Sustainability
Core values
Flexible working
Executive remuneration
How we considered their interests:
The creation of a culture which promotes employee
engagement and encourages questions and feedback
throughout the management structure
Directors attended the UK and US sites and
engaged with employees, although COVID-19 has
prevented this engagement since March
Feedback received on any matter through Employee
Voice sessions, further details of which are on page 69
Summaries of employee surveys are provided to the
Board by HR
COVID-19
Our new remuneration policy and the
Chairman’s tenure
Our approach to sustainability and their
desire for its acceleration
How we considered their interests:
The Board was kept informed of all responses
received as part of shareholder consultation
Feedback received from shareholders to our
brokers following results presentations was shared
with the Board
The Board considered and discussed the
dividend policy
29
STRATEGIC REPORTSTRATEGIC REPORT WORKING RESPONSIBLY
Stakeholder engagement and S172
Engaging with our stakeholders
Suppliers
Communities
Environment
Why we engage:
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
Key issues:
Ethical conduct and integrity of
our business practices
Payment practices
Why we engage:
We care deeply about the communities in which we
operate and have spent time developing relationships
with our local communities to provide support and
opportunities where we are able to do so
Key issues:
Support local and national charities and initiatives
Contribute positively to local communities
Create opportunities to recruit and
develop local people
Health and safety standard of our facilities
Why we engage:
We aim to make a positive contribution to our
environment and the sustainability of our products
Key issues:
Controlling the environmental impact of
the Group’s operations
Improving the sustainability of the business
and its operations
Further details, including emissions data,
can be found on page 42
Virtual citrus global roadshow enabling
suppliers to ‘visit’ our sites
Provision of work experience, internships and
sponsorship of academic and careers events
How we engaged:
The Board indirectly engages with suppliers through
our Procurement Team, who are responsible for our
supply chain relationships. They engaged with our
suppliers through:
Supplier visits and regular virtual meetings
Our Supplier Code of Conduct makes
clear our expectations of suppliers when it
comes to ethical behaviour and social and
environmental responsibility
Initial qualification process and
requalification every three years
What we discussed:
COVID-19; working together to maintain
continuity of the supply chain and logistics
routes through lockdown
Knowledge sharing
Strengthening relationships with key suppliers
Provenance and traceability
How we engaged:
Community relationships are managed locally with
involvement of the CEO, with each business focusing
on communities important to them
How we engaged:
Embedding sustainable practices throughout the
Group was a central theme during the Board's
strategy sessions
Providing financial and non-financial donations
to community projects and charities
Workforce volunteering
Local press releases
Further details of our work with local
communities can be found on pages 30 to 47
Other engagement has taken place indirectly with
members of the UK relocation project team working
hard to ensure that the project delivers a building
with good environmental credentials
Research is being undertaken on fruit and vegetable
waste streams and how waste might be reduced,
reused or recycled
What we discussed:
Providing assistance during COVID-19
lockdown through financial donations, food donations
and by manufacturing and donating hand sanitiser
to care homes
Proactive support for local schools and colleges
to create STEM resources and careers guidance
that students could access from home
Providing volunteer hours, donations, and equipment
to assist local charities through the COVID-19
pandemic
What we discussed:
The project team engaged with local planners on the
landscaping scheme at the new UK Headquarters and
the provision of appropriate facilities to encourage
employees to consider their environmental impact
from travel to work
The Senior Leadership Team has engaged a
consultant to work with us on our sustainability
strategy and the embedding of sustainable practices
throughout the Group
How we considered their interests:
The Board is committed to high standards of ethical
business conduct and has a zero-tolerance approach
to bribery and corruption
How we considered their interests:
The Board recognises the importance of contributing
to our communities and considered the long-term
impact of our operations on them
The Board reviewed the Group’s Anti-Slavery &
Human Trafficking Policy
The Board was made aware of our work
with our communities
How we considered the environment:
The Board is conscious of the Group’s impact on
the environment and the recent US expansion and
current UK relocation provided an opportunity to
improve the environmental impact of the buildings
from which the Group will operate
30
TREATT PLCAnnual Report & Accounts 2020 WORKING RESPONSIBLY
Stakeholder engagement and S172
Board decision-making in practice
One of the decisions made during the course of the year was the disposal of the Kenyan businesses to local management for a nominal sum.
The former Earthoil businesses, which had not been included as part of the sale of Earthoil Plantations Limited in May 2018, were loss-
making and not considered core to Treatt’s activities. In making this decision the Board took into account the interests of all stakeholders. To
provide an example of how the Board considers stakeholders, a summary of stakeholder views in respect of this matter is set out below:
Employees
Shareholders
Customers
Employees want Treatt to provide security and
opportunities for the future. They want to be kept
informed of changes in the business and to be listened
to where changes affect them.
Our shareholders want us to act responsibly
in maximising returns, making decisions that
support our strategic objectives to grow our
business in a sustainable way.
The Kenyan operations employ approximately 70
people. In order to try and secure the future of these
operations, management made a proposal to Treatt,
which provided an opportunity to turn the businesses
around and secure the employment of many of the
Kenyan employees. By leaving the Treatt Group there
was an opportunity to grow the customer base to
increase the likelihood of making the businesses
profitable.
The Kenyan operations were relatively standalone
so the majority of employees in the rest of the Treatt
Group were not significantly impacted by the disposal
but those who worked closely with Kenya were aware
of the aim to dispose of the businesses to enable them
to focus on their core functions.
The remaining Kenyan operations were no
longer core to our strategy and did not support
our business model or product categories,
which precluded further investment in them.
They had been considered as a disposal group
since the sale of Earthoil Plantations Limited and
were loss-making. We had been unsuccessful
in finding a commercial buyer for the group and
transfer to management for a nominal fee would
prevent further losses and enable focus on
Treatt’s core business.
Our customers want us to deliver the products
they need and to develop innovative solutions
for beverage and flavour and fragrance
applications whilst acting in a responsible way.
There is little overlap between the customers of
Treatt and those of the Kenyan business, where
products are primarily for the personal care
industry. The disposal allows Treatt to focus on
its core business and invest in areas which will
support customer needs. It will also allow the
Kenyan operations to grow their customer base
and provide an alternative source of products to
support customer requirements.
Suppliers
Communities
Environment
Our suppliers want us to treat them fairly, to pay
an appropriate price for the raw materials we
purchase and to act ethically.
Our communities want us to continue to support
them with local causes and issues and provide
opportunities for people within the community.
The Kenyan operations support over 900
farmers through the purchase of their oil and
through the Fair Trade Fund and partnership
with KOOFA (Kenyan Organic Oil Farmers
Association). The longevity of the Kenyan
operations was vital to the farmers and
their families and the disposal enabled local
management to work with its stakeholders
to secure the future of the businesses.
The suppliers of Treatt are unaffected by
the disposal.
The partnership with KOOFA and the Fair
Trade Fund not only assists the farmers but
also provides support to the local community
through various initiatives including the
provision of water tanks and educational
scholarships. Providing local management
with an opportunity to secure the future of the
operations and expand the customer base will
ultimately benefit the local communities.
This calls for us to minimise the impact of the
Group’s operations on the environment by
working to ensure greater energy efficiency and
sustainable working practices.
By enabling local management to buy-out the
operations the local fair trade and organic
operations can continue.
31
STRATEGIC REPORTSTRATEGIC REPORT WORKING RESPONSIBLY
We give
EXCEPTIONAL
PEOPLE
the freedom to do great things
People and culture
Treatt’s supportive, collaborative culture
is integral to the Group’s success, and we
take pride in our commitment to nurture
and develop our employees. We attract
exceptional people who are genuinely
passionate about what they do. Our values
are the fuel that drives the culture and
success of our growing business. They are
the bedrock of our organisation as they
were created, owned and championed by
our team of over 350 employees over three
continents. This has shaped a culture where
our employees are excited about their career
and work together in an inclusive, diverse and
inviting environment where they can uncover
their true potential and thrive. Investing in our
culture is integral to our business strategy. It
differentiates us in a competitive marketplace
and we believe investing in it is a critical part
of why our customers choose to work with us
time and time again.
Committed to developing our culture
A great place to work
At Treatt we try to think holistically and
consider the whole person when we make
decisions relating to our people; we want
to be a great all-round employer. Our size
makes us more agile, able to respond with
ease and pace to the changing needs of our
workforce. Most importantly, we want to get
it right; we want to ensure that employees
have the best experience of working at Treatt.
With an engaged and motivated workforce,
our customers will have an exceptional
experience, and they will keep coming back
for more. Our drive for a continuous cycle of
employee engagement remains a key focus.
in
to
of
invest
employees
Committed to developing our people
the
The Group continues
development
and
our
recognises the huge value we add to the
business when we grow and nurture our own
people. The successful introduction of a global
performance management programme has
created the opportunity to explore individual
performance by evaluating and aligning each
employee’s potential with individual future
development plans.
A wide variety of training programmes are
available to develop the skills required to
be successful at Treatt, ranging from those
needed for mandatory compliance and
formal professional qualifications to targeted
personal development. £125,000 was
invested in staff training and development
in 2020. Fortunately, during the COVID-19
pandemic, it has not been necessary for
Treatt to furlough any employees or make
redundancies or lay-offs. In fact, we have
experienced an increase in vacancies due
to additional headcount requirements within
our sales and operations teams to support
business demand, particularly in the US, and
the relocation to our new UK Headquarters.
Wellbeing
A healthy workforce is important to Treatt,
and we acknowledge our duty of care in
supporting staff with their wellbeing. The
Group is committed to providing everyone
with effective education, support and
signposting, to help them understand their
own wellbeing and the positive part they
can play in supporting their colleagues. Our
Wellbeing Action Plan was formally created
last year with a primary goal – think well,
live well and be well. We strive to create
the conditions where all team members
can thrive, by challenging behaviours that
undermine wellbeing and by educating the
entire Treatt community. This is a holistic
programme that focusses on the multiple
factors affecting wellbeing: physical health,
financial health, emotional health, attitudes at
work, relationships and self-esteem.
In the UK we are piloting an intensive
programme, which includes the introduction
of wellbeing staff representatives, and activity
weeks focusing on particular areas of the
programme. Much of the programme for 2020
has been delivered remotely and has proven to
be an extremely effective support for our staff
through the COVID-19 lockdown. The wide
variety of wellbeing initiatives includes external
speakers, a packed social calendar of events,
dedicated wellbeing resources and nutritional
advice alongside the provision of free fresh
fruit and subsidised exercise opportunities.
PHYSICAL HEALTH
FINANCIAL HEALTH
EMOTIONAL HEALTH
ATTITUDES AT WORK
RELATIONSHIPS
SELF-ESTEEM
32
TREATT PLCAnnual Report & Accounts 2020 WORKING RESPONSIBLY
Teamwork and remote knowledge sharing have been the key
factors that have contributed to our success during this period, and
our capacity to pull together with key personnel and departments
epitomises the pride and passion of Treatt as a whole.
in
shift
the
through
Flexibility
employee
Recognising
expectations
the pandemic, we
know that success can be achieved through
a wider variety of working styles. Being
cognisant of business needs and different
roles within the business we are accelerating
the flexible working agenda across the Group,
to maximise opportunities for employees to
choose their working arrangements, whilst
ensuring we protect our Treatt culture and
values. We recognise that there are many
benefits of working flexibly, both to our
people and the Group, and we will continue
to explore these fully. Our family friendly
policies and supportive work environment
support the attraction and retention of talent.
Voluntary employee turnover across the
Group for 2020 is at 6.3%.
See our Strategy section on page 16
Benefits
At Treatt, we have always recognised that
the benefits we offer are an important part
of looking after our people and we are
committed to creating the best employee
experience. We offer our employees a wide
range of benefits globally to enhance their
work and home life as well as financial
stability, which are tailored to the needs
of employees at each location. We see
wellbeing as a very important element of our
benefits package and many of our offerings
have been developed with our employee’s
wellbeing at the forefront of our mind. We
are continually reviewing the effectiveness
of our benefits to ensure they meet the
changing needs of our people.
Community matters
Treatt has a very genuine responsibility to the
communities in which we operate; to support
them both financially and with resource. We
also recognise that by enabling our staff to do
something for the community in which they
live and work, it will aid their sense of greater
purpose and community spirit. We recognise
the importance of providing our people with
the opportunity to make a difference to our
local communities and we actively encourage
the exploration of opportunities to lend a
helping hand to local causes. We continue to
partner with local organisations and schools
to enhance the educational opportunities to
the future working generation. In the UK we
have two members of staff fulfilling the role
of Enterprise Network Advisors, partnered
to support a local high school in Bury St.
Edmunds; this work is so pivotal to preparing
children for the working world, and giving
something back to the community.
Our benefits include:
Wellbeing and health benefits
• Responsibility-based flexibility allows
our employees to work flexibly while
supporting the needs of the business
• Wellbeing initiatives
• Annual leave plus additional leave
for Christmas shutdown and Holiday
Purchase Scheme
• Health cover and health cash plans
alongside generous sick pay and Group
Income Protection schemes
Financial and recognition benefits
• Competitive salary and annual bonus
based on performance of the Group
• UK Share Incentive Plan providing
free/partnership/matching/dividend
shares and equivalent free stock for
US employees alongside UK and US
Share Save schemes
• Competitive pension and 401K
schemes
• Tax efficient cycle to work and
technology schemes
Development benefits
• Annual performance review
programme to support development
within the business, including
succession planning and personal
development plans
• Company-wide mentoring scheme to
share valuable expertise within the
business
• Extensive training and development
budget to support the ongoing
development of our employees
including a wide variety of professional
qualifications and short courses
33
STRATEGIC REPORTSTRATEGIC REPORT TREATT PLC Annual Report & Accounts 2020
No one could have predicted the significant impact COVID-19
would have on our lives. At Treatt, we are proud of the way
in which we promptly responded to the pandemic, with a
methodical and practical approach, focusing on our staff needs
first, and carefully considering ways the pandemic would affect
our business operations.
3434
TREATT PLCAnnual Report & Accounts 2020 STRATEGIC REPORT
STRATEGY IN ACTION
Investing in our culture
COMMITTED
TO DEVELOPING
OUR CULTURE
Throughout the pandemic Treatt has remained focused on our staff welfare, protecting
our business, and supporting the local communities in which we operate. Our staff have
responded seamlessly to the changes in the way we work, innovatively creating new
ways to undertake their normal duties, demonstrating adaptability and a great deal of
resilience. We are very proud of the contribution our staff make to ensure we continue
to deliver an exceptional service to our customers.
DEMONSTRATING OUR S172 DUTIES
To be an employer of choice, offering something different from other employers with wellbeing, flexibility and work-
life balance a priority, is central the culture of our business. That our shared values encourage our employees to go
the extra mile for each other and for our customers has been compellingly evidenced during COVID-19. In our UK
employee pandemic experience survey, 91% of employees felt cared for at Treatt and 94% recognised the steps we
have taken to look after their health and wellbeing.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
LEVERAGING STRONG AND
COLLABORATIVE CULTURE
DURING COVID-19 PANDEMIC
STAFF SUPPORTED WITH
WELLBEING, FOOD, AND
ESSENTIAL ITEMS
NO STAFF
FURLOUGHED
CULTURE AT THE HEART
OF EVERYTHING WE DO
REGULAR REMOTE VIDEO
MEETINGS ACROSS GLOBAL
OPERATIONS
MANUFACTURED HAND
SANITISER DONATED TO
LOCAL COMMUNITY
EMPLOYEE RETURN
TO NURSING – TREATT
FUNDING SALARY
SUPPORTING STAFF
DEVELOPMENT
See our Our Ambition & Strategy on pages 16 and 17
35
35
STRATEGIC REPORTSTRATEGIC REPORT
WORKING RESPONSIBLY
Diversity and inclusion
Diversity is a key aspect of our approach
to resourcing the needs of the business,
developing our colleagues and recruiting new
talent. We truly believe that a performance
culture that promotes understanding and
appreciation of all perspectives, backgrounds
and experiences is integral to creativity
and competitive advantage. Our approach
to diversity and inclusivity underpins our
culture and sets out the standards for
building inclusive behaviours. We aim to
create an inclusive environment that values
all differences in people, as diverse teams are
more likely to be innovative when drawing
from cultural differences and experiences.
We also feel that a diverse and inclusive
environment ensures that everyone feels
valued and can perform at their best.
Gender diversity across the Group shows
the strong representation of women in
management and senior roles. At Treatt,
we recognise the importance of improving
women’s visibility in roles such as chemical
engineering that have traditionally reflected
societal stereotypes. Making these sectors
more inclusive will provide role models
and encourage the future generations of
engineers to pursue careers in these fields.
Whilst acknowledging
the benefits of
diversity, individual appointments are made
irrespective of personal characteristics such
as race, disability, gender, sexual identification
and orientation, religion or age.
Position
Male Female
Total
Group Directors
Senior Managers
Direct reports of
Senior Managers
Other Employees
Total Employees¹
7
5
27
181
220
2
4
31
110
147
9
9
58
291
367
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.
Health and safety
Health and Safety continues to be a priority
with all areas of the business striving to
improve their safety risk control. The Group’s
ongoing investment in health and safety
continued during the financial year, despite
obvious challenges and this has remained
at the forefront of all site operations. We
have continued our programme of general
and process safety audits; and have shared
findings across both the UK and US sites.
Our plan of competency training for high
risk procedures has also continued. This
competence framework allows us to monitor
individual staff attainment and progress,
which feeds into our staff performance
management programme.
We have Health & Safety Committees in the
UK and US, which meet regularly and are
attended by senior management. All areas of
the business are involved with minutes and
agendas published internally. The formation
of health and safety policies and procedures
is done in collaboration with employees across
the Group who provide feedback concerns
and questions, as well as contribute to the
identification of engineering and administrative
controls that could potentially reduce or
eliminate possible accidents. Where employees
are required to be competent in a skill or
procedure (safety critical), they are assessed
by a trained competence assessor and the
dialogue and outcome recorded. All policies
and procedures are document controlled and
accessible via our online portal.
All employees have training requirements
identified related to their role. This includes
general induction to health and safety and
COMAH (Control of Major Accident Hazards).
CASE STUDY
A Story from the Front-Line
I have worked at Treatt for over four years
as the Health and Safety Manager based in
the UK. I started my working career initially
as an engineer and then as an NHS Nurse in
London, specialising in Acute, Emergency
and Intensive Care. After 13 years on
the front-line I moved into Occupational
Health and Workplace Wellbeing. I have
since worked in manufacturing and the
public sector but maintained my nursing
registration over the last 30 years.
During the initial, overwhelming, phase
of the recent pandemic I was contacted,
(along with all qualified nurses) to support
the NHS. With the support of Treatt and my
colleagues I retrieved my stethoscope and
commenced a short induction course at the
local NHS hospital in Bury St. Edmunds.
Although it had been 20 years since I worked
in intensive care I found that I had retained a
lot of the underlying knowledge of patient care
and supportive treatments. The technology
has changed and is more computer-based; a
change from the big patient paper charts that
we used to fill in with different colour pens!
During the pandemic I worked at West Suffolk
Hospital in the intensive care unit and at the
new Papworth Hospital in Cambridge, looking
after COVID-19 patients. It was hard, hot and
stressful work, self-isolating from my family
and friends. You spend the whole 12 ½ hour
shift wearing a mask, gown, one or two pairs
of gloves and a visor or safety glasses.
I have been amazed at my fellow nurses,
doctors and all other NHS and key workers.
They all put themselves on the front-line
during this crisis.
36
Treatt supported my return to the NHS and
my colleagues covered my role for me. If
we can take one small positive from this
year – it is how we all did what we could,
whether it was continuing to do our job,
isolating, shielding or helping others.
Ken Ferguson
Health & Safety Manager
TREATT PLCAnnual Report & Accounts 2020 STRATEGIC REPORT
WORKING RESPONSIBLY
CASE STUDY
SUSTAINABLE FIELD CROP GROWTH – NATURAL WATERMELON EXTRACT
The pulp and wastewater is
collected from our plant for use as
a fertiliser, returning nutrients to
the soil.
100%
ORGANIC WASTE
RETURNED TO
FIELD
IRRIGATION
OF FIELD
CROPS
Shipping a concentrated extract
enables us to ship all over the world
with a lower impact on emissions
compared to shipping an entire truck
of fruit or a less concentrated extract.
SIZE OF
SHIPMENTS
SIGNIFICANTLY
REDUCED
CROPS
GROW
SUSTAINABLE
FIELD CROP
GROWTH
Our unique solvent-free processes are
used to ensure maximum flavour is
achieved in minimum quantity.
CROP
CONDENSED
DOWN TO
FLAVOUR
ESSENCE
FIELD CROPS
TRANSPORTED
TO PROCESSING
PLANT
FIELD
CROPS
HARVESTED
Where possible, crop irrigation is
solely dependent on rainfall and where
necessary augmented with irrigation
using on-location pumped well water.
Adopting good agricultural practices
in accordance with growing
certificates, such as GMO-free.
Local farmers and labour used, creating
seasonal employment opportunities.
Local transportation companies are used and distances covered are often as little
as 30 miles, meaning lower emissions and costs.
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) or 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 employees have appropriate task
safety training such as process safety,
confined space or scaffolding.
We use a Management of Change process
and 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 adopting alternate
methodology, further investment or a decision
to cease the activity. Chemical exposure is a
significant concern and we manage such
exposure via a specific New Chemical Review
Group prior to new substances being brought
on site. We encourage reporting as part of
our no blame culture. We have an internal
Active and Open Concern Recording System
as well as a Quality Concern Raising System
that is run by a third-party, which enables
employees to anonymously raise issues
of concern. All employees are also able to
highlight concerns via the Safety, Health and
Environment Champions in all areas of the
workplace or through line managers.
During the last 12 months we have increased
our UK-based Health and Safety team to
specifically work alongside contractors as
safety partners in the design of the new
UK Headquarters, specifically with regards
to security, spill control, hazardous area
assessment and control of potentially explosive
atmospheres. Both our existing UK site and
our new UK Headquarters are designated as
upper tier sites under COMAH; this is regulated
by a Competent Authority, being the Health and
Safety Executive and the Environment Agency.
The main aim of the regulations is to prevent
and mitigate the effects of major accidents
involving substances which can cause damage
or harm to people and/or the environment.
As well as staff and site visitors we have to
consider and consult our nearest neighbours,
both business owners and local residents.
Environment
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.
Our business very much relies on the
sustainability of nature’s bounty. Climate
change and resource scarcity are matters of
deep concern not only to humanity generally
but also to Treatt in particular. 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. At the end of last
year, we were invited to take part in the
IFRA-IOFI Sustainability Initiative. In August
2020 we were welcomed as a member of
the Florida Orange Sustainability Project;
a collaboration of key industry players
who engage
to collectively accelerate
the widespread adoption of sustainable
agricultural practices.
37
STRATEGIC REPORTSTRATEGIC REPORT WORKING RESPONSIBLY
Environmental performance
and strategy
The Group continues to manage energy, fuel
and waste disposal with the aim of lessening
our 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 and economical climates, major
fluctuation in supply versus demand, as well
as adverse weather conditions and disease are
the main drivers of volatility.
Weather conditions have a direct impact on
fresh crop production. To help keep up with our
customer's demands we need to understand
how environmental factors impact climate
change and ensure our production practices
consider sustainability and consistency at their
core. Over the course of this year so far, there
has been a drought in Brazil, abnormally hot,
dry and windy weather conditions in Florida
and the most significant Saharan dust cloud in
50 years in the Gulf of Mexico. Droughts and
high temperatures directly impact fruit size
and overall crop yields. COVID-19 has also
impacted both the processing industries and
fresh fruit markets worldwide. The fresh fruit
market in particular felt the effects, as people
were forced to stay in their homes, causing
a rapid drop in demand, with the exception
of consumer demand for fresh lemons for
their high Vitamin C content, well-known for
its immune boosting properties. As markets
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.
The introduction of a paperless policy and
the reduction of freestanding waste bins
has been effective in encouraging thoughtful
recycling and disposal. We are continuing to
reduce the number of printed copies of the
report and accounts required to be posted to
shareholders, ensuring our financial reporting
process has a reduced environmental impact.
The completed site expansion at Treatt USA
provides us with the benefit of modernised
facilities and cost-effective
infrastructure
which continues to reduce the environmental
impact of our business and we look forward
to similar opportunities from our new UK
Headquarters in 2021.
Our new UK Headquarters Relocation Team
has been working on the internal finishes of
the facility, to design an appropriate and cost-
effective infrastructure that will help to reduce
the environmental impact of the buildings. The
building is being constructed to a BREEAM
rating of ‘very good’, a performance equivalent
to the top 25% of UK non-domestic buildings.
Having worked with assessors to measure
expected ratings, covering everything from
energy and water use to waste and pollution,
new plant equipment has been purchased and
is beginning to be installed and tested. 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 on the
wildlife is minimised.
The interior of the office building in the new
facility has been designed, where possible,
with sustainability in mind. Many of the
materials proposed have a high level of
recycled content such as counter tops formed
from fully recycled yoghurt pots, carpeting
made with over 45% recycled materials and
internal branding made from 100% natural
moss, which, together with some of the other
flooring selections are all carbon neutral.
Acoustic features are made from 100%
recycled materials, 60% of which is from
recycled PET bottles, the fibres from which
support safer indoor air quality and will not
become a potential airborne pollutant; lighting
pendants made from 100% recycled materials
feature throughout the office building.
CASE STUDY
ZERO WASTE PRODUCTION
from 1,000kg of fresh oranges
BI-PRODUCT
30kg of pulp
413kg of peel, rag and seed
Animal feed ingredients
PRODUCT
553kg of juice
3kg of peel oil
0.1kg of essence oil
1.1kg essence aroma
65˚brix concentrate 100kg1
Cosmetics and
perfumes
Cleaning and
chemical
products
Juices and
beverages
Flavours
Yoghurt, jelly and
gum (pectin)
1 Brix is a measure of the amount of dissolved sugar in a liquid.
38
TREATT PLCAnnual Report & Accounts 2020 STRATEGIC REPORT
WORKING RESPONSIBLY
CASE STUDY
WASTE MANAGEMENT PYRAMID
REUSE/RECYCLE/RECOVER
• 97% of total waste in the UK is reused, recycled or energy
recovered including 100% of general waste and 57.5% of
hazardous waste
• 25% of total waste in the US is reused, recycled or energy recovered
• 100% of UK used drums are reused or recycled
• 6.3 tonnes of UK cardboard is recycled or recovered
• 100% of pallets are reused or recycled across the Group
REDUCE
REUSE
RECYCLE
RECOVER
LAND
FILL
As a business, we have a responsibility to
ensure we produce, store, transport and
dispose of business waste to reduce our
impact on the environment.
LANDFILL
• Zero general waste to landfill in the UK
• 16 tonnes of aged product, unsuitable for recycling or recovery,
was sent to landfill (accounting for just 3% of all waste)
• 66.7% of general waste was sent to landfill in the US
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
transportation and final recovery or disposal.
Alternatives that use less resources and produce
less waste are always a consideration at Treatt;
new purpose-built facilities along with new ways
of working will provide opportunities to do things
differently, with the environment in mind.
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.
Alongside the introduction of our paperless
policy in the UK, by only buying recycled paper,
we have made the following differences to the
environment:
1,974
KGS OF RECYCLED
PAPER USED
4.57m3
LANDFILL WASTE
SAVED
1,184
CO2 EMISSIONS
SAVED (KG)
63,168
LITRES WATER
SAVED
34
TREES
SAVED
the
Much of
is also made
furniture
from recycled content and comes with
environmental product declarations. One
of the predominant fabrics intended for the
furniture is made from 95% wool and has
the EU Ecolabel. The manufacturer also
partners with Just A Drop, the international
water aid charity, and for every metre of
fabric they sell, they make a donation to a
specific project around the world, helping
to provide clean and safe water to those in
need. Feature walls will be painted in water-
based paint with a minimal/low VOC so as
not to impact air quality.
How we utilise the space compared with
our current UK facility is also part of our
sustainable drive. Consolidation of printers,
new AV equipment and increased use of
portable devices all go to support a more
paperless way of working throughout. More
meetings are planned to take place in our
dedicated video conferencing rooms rather
than requiring travel.
Waste
the Group’s
A consistent
environmental ethos is a commitment to
recycle as much waste as possible and
theme
in
constant improvements are being sought in
the reduction of waste streams. At our UK
site, 57.5% of hazardous waste was recycled
and/or recovered (2019: 63%) and 100%
of used drums have been recycled (2019:
100%). 97.1% of our total waste was diverted
from landfill, with a total of 544 tonnes of
waste being recycled or sent to energy
recovery facilities for electricity generation.
Use of the cardboard skip for production
packaging, introduced in August 2018 as a
dedicated waste stream, has increased with
6.3 tonnes being diverted from general waste
for recycling or recovery (2019: 4 tonnes). In
addition, waste oil with a calorific value is sent
for use as biomass, thereby further reducing
the Group’s carbon footprint and eliminating
disposal costs. At Treatt USA, 318 tonnes of
waste (25% of total waste produced) was
recycled or recovered. All plastic and wooden
pallets are sent for recycling in full loads.
Water
Ongoing process reviews and improvements
have continued to be routinely undertaken. At
Treatt USA, increased production combined
with our recent manufacturing expansion
has necessitated a close working relationship
with the Municipal Water and Wastewater
Department as well as the Lakeland Economic
Development Council to understand and
manage our water use and wastewater
discharge. To gain a better understanding of
our waste streams, we are currently securing
quotes to install a wastewater flowmeter.
This will allow us to quantify our wastewater
and give us a powerful tool in our waste
reduction efforts. New product development
has resulted in us re-examining our use of
de-ionised water. We are transitioning from
de-ionising to reverse osmosis for all our
treated water, which will provide significant
economic savings and reduce our water
consumption. The installation of a third well
in addition to increasing the depth of our
injection wells, has led to an improvement
in our cooling capacity without resorting to
less sustainable equipment. Installation of
automatic water valves for hand sinks and
water closets enhances our conservation
of potable water. We remain committed to
identifying and implementing improvements
in our use of water and the move to the new
UK Headquarters in 2021 will assist us to
improve our water efficiency in the UK.
39
STRATEGIC REPORTSTRATEGIC REPORT TREATT PLC Annual Report & Accounts 2020
40
40
TREATT PLCAnnual Report & Accounts 2020 STRATEGIC REPORT
STRATEGY IN ACTION
Reducing our environmental impact
EMBEDDING
SUSTAINABILITY
throughout the business
Sustainability has never been such an important factor in how businesses are scrutinised
by customers, investors, employees, and society as a whole. At Treatt, sustainability is a
core focus and we are committed to enhancing our sustainability responsibilities across the
Group. A focus at Board level, discussions on the importance of sustainability as our product
lines evolve and our employee numbers expand, keep sustainability factors at the forefront of
business growth. We aim to strengthen our sustainability credentials and embed sustainable
practices across the Group. We believe transparency is key with regards to demonstrating to
our stakeholders how we perform against our sustainability ambitions.
DEMONSTRATING OUR S172 DUTIES
Our customers want greater transparency of our sustainability; of our environmental, social and governance
(ESG) factors. We have engaged an experienced consultancy to help us further develop our sustainability
strategy and to embed it across the business. We will improve our reporting of ESG factors so that our
customers and wider stakeholders understand the actions we are taking. The sustainability page on our
website has already been improved.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
GROWING NATURAL
PORTFOLIO AND
SUSTAINABILITY DRIVE
TRANSPORTING GOODS
VIA LOGISTICS GROUPS
WORKING AS PART OF THE
SUSTAINABLE SHIPPING
INCENTIVE
NATURAL
SUPPLY CHAIN
PURPOSE-BUILT ENERGY
EFFICIENT PREMISES
See our Our Ambition & Strategy on pages 16 and 17
41
41
STRATEGIC REPORTSTRATEGIC REPORT
WORKING RESPONSIBLY
SUSTAINABLE SHIPPING
We believe in our duty to improve the sustainability of our logistical operations. We actively work with agents who are committed to
reducing CO2 emissions through their own sustainability strategy, which allows us to make a conscious choice when securing freight
transportation. 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. We have increased our use of
these sustainable shipping companies to approximately 23% of our shipments from the UK compared to approximately 13% in 2019.
full operational use of the improved site in
the USA which incorporates greater chilling
equipment to support increased production.
Total GHG CO2 emissions for Scope 1 and
Scope 2 have increased to 3,640 tonnes
(2019: 3,529 tonnes). This is primarily a result
of increased energy consumption at Treatt
USA related to an increase in production.
The UK site has seen a decrease in Scope 1
and 2 emissions against last year despite an
increase in production.
to
taken
Measures have been
improve
the energy efficiency of our new UK
Headquarters, which is being constructed
to a BREEAM 'very good' rating. Energy
efficiency measures have been utilised
throughout the building including in relation
to lighting, thermal efficiency of materials
and incorporation of a building management
system and a HVAC system (heating,
ventilation and air conditioning).
The expansion of the US facility, which was
completed last year, also incorporated similar
energy efficiency measures throughout.
In the UK, 100% of our electricity is provided
from renewable resources through renewable
electricity contracts.
Business integrity and ethics
We work in partnership with our suppliers
to bring our customers the latest from the
world’s key growing regions, to mitigate risk
and drive business growth. 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 is a core part of
our Group’s value proposition and is integral
to how we consistently deliver excellence
to our customers. As markets continue to
fluctuate, it has never been more important
to keep all lines of communication open.
Water efficiency
Total water used (m3)
Water efficiency (litres per kg of product shipped)
2020
63,011
7.06
2019
55,596
7.37
The increase in water consumption primarily
results from an overall increase in production
in the US and a change in the mix of products
towards those which use more water during
processing.
Our SECR approach
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 2020 for activities within the operational
control of the Group. It is not currently
intended to report Scope 3 emissions. The
Group completed a compliance report in
December 2019 with regards to Phase 2
of the Energy Saving Opportunity Scheme,
the UK Government established
which
to implement Article 8 (4 to 6) of the EU
Energy Efficiency Directive (2012/27/EU)
and is administered by the Environment
Agency. The Group’s GHG reporting is
also in line with the Companies (Directors’
Report) and Limited Liability Partnerships
(Energy and Carbon Report) Regulations
2018 which implemented the government’s
policy on Streamlined Energy and Carbon
Reporting (SECR).
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
2020 DEFRA conversion factors, except for
overseas electricity which used the 2015 IEA
conversion factor for reporting consistency.
The Group’s UK site continues to operate under
the threshold limits of the Solvent Emissions
Directive 1999/13/EC for the industry at less
than 1.5 tonnes, with the threshold limit set
at 10 tonnes. Group Chiller Operating CO2
emissions are 206 tonnes (2019: 104 tonnes).
This increase is due to the completion and
GHG emissions
Scope 1 – Direct emissions (tonnes CO2e)
Scope 2 – Indirect emissions (tonnes CO2e)
Total emissions (tonnes CO2e)
gCO2 emissions per kg of product shipped
Energy and transport fuel consumed
UK operations
International operations
Group
2020
1,706
1,934
3,640
408
2019
1,864
1,665
3,529
476
2020 (MWh)
3,817
9,198
13,015
*This is the first year the Group is reporting this data so no previous data available for comparison.
42
TREATT PLCAnnual Report & Accounts 2020 STRATEGIC REPORT
WORKING RESPONSIBLY
if necessary,
During COVID-19 we have continued to
work closely with various stakeholders and
have adapted measures required to ensure
that business can continue in as normal a
fashion as possible. Such measures have
included looking at our payments and receipts
facilitating
processes and,
restructuring of payment terms and other
considerations, to ensure those further down
the supply chain are not forced into financial
difficulties because of the unprecedented
strains experienced due to COVID-19. 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.
As a leading ingredients manufacturer, we take
huge pride in the stability and transparency
of our supply chains. Our sustainability
commitments are graded on a global scale.
We have been awarded the Silver Standard
by Ecovadis, who provide a ratings platform
to assess corporate social responsibility
and sustainable procurement. We have
also submitted the in-depth sustainability
questionnaire compiled by CDP (formerly
Carbon Disclosure Project) who operate a non-
profit global environmental disclosure platform.
We feel strongly that these initiatives not only
provide a benchmark for our performance but
also enable us to see where we can improve
the sustainability of our own business, as well
as contribute to collaborations to further the
industry’s sustainability as a whole.
The Group is also a member of Sedex, a global
membership organisation dedicated to driving
in ethical and responsible
improvements
business practices in global supply chains.
They use a collaborative approach to help
buyers and suppliers share and exchange
data, helping improve management of 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 for certain products, which
indicates that 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.
Supplier code of conduct
Ethical concerns and human rights issues have
always played an important role in our Group’s
philosophy and our Supplier Code of Conduct
details the standards of behaviour which Treatt
regards as acceptable. We place supplier
integrity and adherence to high level ethical
standards above everything, including purchase
price. Provision of a safe, clean working
environment, free from discrimination, coercion
and the use of child or forced labour is a basic
right of all employees, which Treatt expects of
its business partners as a minimum standard.
The 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. We do not deal with suppliers
who do not pass our high ethical standards or
comply with our Code of Conduct.
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. All staff receive anti-bribery and anti-
facilitation of tax evasion training on joining
the Group. A new interactive training platform
is being rolled out across the Group to furnish
our employees with an easy-to-use learning
experience whilst ensuring that relevant staff
automatically have their training on anti-
bribery refreshed every two years.
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.
GUIDING PRINCIPLES
Together with teamwork, challenge and pride & passion, integrity is one of our 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. Our Employee of the Quarter
awards recognise those whose behaviour reflects the values, as voted for by their colleagues.
INTEGRITY
PRIDE & PASSION
TEAMWORK
CHALLENGE
43
STRATEGIC REPORTSTRATEGIC REPORT WORKING RESPONSIBLY
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 whilst promoting inclusivity 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
Generally, COVID-19 has not hampered
our focus on training, which has continued
throughout 2020. We are committed to
continuously improving the skills of our
through both general and
employees
targeted
training programmes provided
by internal and external providers. Lunch-
these
training
to provide
training provides
initiatives are vital
and-learn style
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.
improving communication between
By
to
colleagues
the sustainable growth of the business.
The Group has embraced the use of virtual
platforms
for our
employees during the COVID-19 lockdown,
including mandatory training related to health
and safety and food safety. We have also
enrolled seven of our UK managers onto
The Institute of Leadership and Management
(ILM) courses. The Group supports the
ongoing development of
staff, which
includes apprenticeship programmes at
NVQ level, right through to further education
including masters degree 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
including IT, Procurement, HR, Technical,
Engineering, Marketing and Health & Safety.
the
fields of science,
As a Group we are committed to the active
encouragement of future career development
in
technology,
engineering and maths (STEM). This year we
have three 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
links with
universities and develop relationships with
the next generation of talented candidates.
Educational support is provided in the UK
and school children are encouraged to spend
time in the business through educational
the Group’s
TOTAL UK TRAINING HOURS
AVERAGE UK TRAINING HOURS PER EMPLOYEE
TOTAL US TRAINING HOURS
AVERAGE US TRAINING HOURS PER EMPLOYEE
3,993
(2019: 3,811)
18
(2019: 18)
1,249
(2019: 710)
9
(2019: 5)
2020
Male
2,655
Female 1,338
2019
Male
2,216
Female 1,595
2020
Male
21
Female 13
2019
Male
18
Female 18
2020
Male
951
Female 298
2019
624
Male
Female 86
2020
Male
11
Female 6
2019
Male
8
Female 2
CASE STUDY
A WORKING ENVIRONMENT IN WHICH TO FLOURISH
Office accommodation at new UK Headquarters
Inspiring, yet calming and
comfortable, the office area has
been designed to resemble an
open community
Workflows shape designated
departmental locations with a
proportion of sit/stand desks,
plus a wide range of other
furniture and design touches to
support agile working
The interior scheme and
furniture proposed allows for an
increased range of movement in
the working day
Indicative design.
44
Along with biophilia and
increased natural daylight
through glazed areas, the new
scheme aims to improve overall
wellbeing and offer a much-
enhanced working environment
in which the Treatt community
can flourish
Quiet pods, collaboration tables,
acoustic meeting booths, soft
seating breakout spaces, as well
as more vibrant open communal
areas all offering choice and
variety dependant on the task
TREATT PLCAnnual Report & Accounts 2020 WORKING RESPONSIBLY
CASE STUDY
support
During the COVID-19 pandemic, the safety and wellbeing of our staff has been
our number one priority both physically and mentally
Employees first, profit second – it was always going to be the case that the safety of our staff was the absolute number one priority,
and throughout the pandemic decisions have been made that will ensure our employees’ safety
COVID secure – on-site two-metre distancing, face coverings,
increased cleaning, provision of hand sanitiser, staggered
working, team bubbles, internal contact tracing
Acts of kindness – grocery supplies to support our on-site
personnel, regular free food on site, simple gifts of thanks to our
staff working from home
Remote working – continued support to those at home, providing equipment, workstation assessments, advice to
managers supporting those at home through peer support sessions
Support – wellbeing activities and
education, promotion of the EAP
(Employee Assistance Program)
Staying current – continued updates to our company
processes and risk assessments throughout the pandemic
to respond to the most up to date advice and guidance
Communication – very regular
updates and drop-in video
sessions
visits and work experience placements. In
February, our CEO hosted an on-site Q&A
with manufacturing and engineering students
from Cambridge University. During peak
lockdown, the Treatt team worked together to
create STEM and careers resources, mainly in
the form of virtual presentations which could
be accessed remotely, which were sent out
to local schools. Funding was also provided
to assist with digital careers resources for a
local Academy which we work closely with
as Enterprise Advisors. In 2021, Treatt plans
to attend workplace preparation events at
local schools who have a specialism in STEM
and a commitment to invest in this education
stream. Expertise will also be shared with
students at careers and science fairs.
Employee involvement
We believe that communication between
colleagues is vital to sustainable growth.
Executive Directors make half-yearly results
presentations to all colleagues and encourage
questions and dialogue on every aspect of
the Group’s performance and activities. At
Treatt in the UK 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.
During COVID-19 specifically, we are proud
that the channels of communication have
not been prevented from flowing freely. The
Board’s ‘open door’ policy has continued to
be facilitated, albeit on a virtual level. The
‘Employee Voice’ initiative hosted by the
Chairman and Non-executive Director David
Johnston invites employees, in one-to-one
sessions, to discuss any matter they wish
whilst also providing the opportunity to give
direct feedback. Virtual ‘coffee mornings’
hosted by the CEO and regular virtual
meetings involving the Senior Leadership
Team have ensured the provision of a
forum for employee discussions even whilst
continuing to work from home. Our two-way
mentoring programme, launched this summer,
is designed to complement other training and
development polices whilst offering support
and guidance for self-development in a
structured approach.
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). 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 2020;
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 are 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 we hope
will encourage higher levels of employee
ownership in the US.
45
STRATEGIC REPORTSTRATEGIC REPORT WORKING RESPONSIBLY
Local employment
in Bury St. Edmunds
Our operations
and Lakeland provide direct employment
opportunities, with a significant number of our
workforce in these locations living within the
local postal districts, including seven of our
eleven Senior Leadership Team and Executive
Directors.
We 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 at our
new UK Headquarters next year and have
already identified local providers to facilitate
our employees' needs.
Our established flexible working policy, which
enables employees, as far as their roles permit,
to work from home and provide general
flexibility has been a success during COVID-19.
With over half of the Group’s workforce having
to remain off-site for the majority of 2020, we
have been able to assist with many home-
life challenges this has presented and have
worked closely with employees dealing with
childcare and other responsibilities during
these unprecedented times. Such policies
assist in the recruitment and retention of a
diverse workforce. 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 at
home. As a Group we believe that we have
a responsibility to support the future local
working generation. As such we endeavour
to host visits to our technical areas from local
schools, attracting the local workforce of the
future in both the UK and US. We are also
committed to encouraging and hosting work
experience placements from local schools as
we recognise this is the pool which will provide
future talent for our workforce.
Looking after our people
is
Promotion of our employees’ health
extremely
the Group
important across
and never has it been more so than during
COVID-19. Our philosophy regarding our
people is ‘think well, live well, be well’.
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. We actively
encourage colleagues to take time away
from their desks, whether working from
home or remaining on-site, to improve their
physical and mental health. 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 workers' health in
relation to exposure. This includes wellbeing
and general physical and mental health
support and we carry out a quarterly review
of our service delivery.
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.
TREATT’S
RESPONSE IN THE COMMUNITY
CASE STUDY
We have sought to support our local communities during the pandemic
Sponsorship of garden supplies (bird feeders and bird feed) for St Nicholas Hospice to enable patients to spend
more time in the hospice garden, surrounded by wildlife, during the peak of COVID-19 when guests were not allowed to visit
Donation to MyWiSH ‘Help your NHS
Appeal’ to go towards treats for staff
and vital equipment needed
Manufacture of hand sanitiser
for donation to St Peters House,
St Nicholas Hospice, Care UK and
seven local care homes
Donation to kidsPACK, Lakeland
to support feeding children in need
during the pandemic
Donation to
Gatehouse Food Bank, Suffolk
Donation to
Royal Papworth Hospital
Fresh produce donations to
Lighthouse Ministries, Lakeland
46
TREATT PLCAnnual Report & Accounts 2020
WORKING RESPONSIBLY
'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 through
payroll. The Group donates additional
funds to money raised by colleagues during
fundraising activities through its matching
scheme. UK colleagues carried out their
own version of The Apprentice raising
£4,828 for the West Suffolk charity, Upbeat
Heart Support. Other activities carried out
include a coffee morning in aid of Macmillan
Cancer Support, a reverse advent calendar
for Gatehouse Food Bank, ‘Girls Night Out
Walk’ for St Nicholas Hospice, who we are
proud to say have recently accepted us as
a member of their Corporate Supporters
Club, and a sizeable donation to the Bury
in Bloom project to part fund a community
project where children and families collected
recycled materials and decorated them to
produce a crown-themed installation.
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. The farming
industry in the USA has been greatly affected
during COVID-19 by the closing of schools and
restaurants; in support of local farmers, Treatt
USA has been buying crops in bulk to provide
our employees with a range of free healthy
food options. Remaining produce purchased
has been donated to Lighthouse Ministries in
Lakeland, a non-profit organisation that aims
to help men and women, who need shelter,
with learning programmes.
The charities Treatt 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.
Community and charity initiatives
Treatt is an advocate of the premise that
the business world has a responsibility to
the communities in which they operate. We
understand that everything we do has an
impact on people, their communities and
the environment, which is why we operate
in an ethical and socially responsible way.
We endeavour to have a positive impact on
the communities in which we operate. The
pandemic has made it ever more critical to
ensure we support our local communities in
recovery and, where we can, donate to those
charities which have been unable to generate
the income to run the services needed.
We recognise that by enabling our staff to
do something for the community in which
they live and work, it will aid their sense
of greater purpose and community spirit.
Under our ’Community Matters’ programme
opportunities are provided for employees to
support local causes and we have set the
objective to increase the Community Matters
fund by a minimum of 10% each year. During
the year the Group made charitable donations
of £54,875 to local and national causes and
has been involved in many initiatives across
its locations.
What our people say…
“Treatt stood out to me as a company that strives for the wellbeing of its
employees, not only through some amazing company benefits but also
a strong social network. I was fascinated by the idea of working with
products that bring joy on a day-to-day basis to consumers globally.”
“We all work as a Team at Treatt to ensure we provide an excellent
service to our customers. Every day is different, and I love the challenges
that this brings. Treatt is fast-moving, it is motivating to be part of this
evolving company, I am really looking forward to the future.”
Julie Barnes
Citrus, Fruit & Vegetable Category Manager, USA
Olivia Reid
Customer Care Coordinator, UK
“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.”
“Today, Treatt's active encouragement of staff
interests and ambitions produces remarkable results
and innovative ways to help our customers succeed.”
Simona Loh
Sales & Marketing Supervisor, China
Andrew Campbell
Business Development Manager, UK
Future focus
We recognise the need to invest in tomorrow and as such, we provide internships, apprenticeships, graduate trainee
and work experience placements in many areas of the Company. By working with local schools and colleges,
we’re doing our part to develop the next generation
This Strategic Report was approved by the Board on
23 November 2020.
Anita Guernari
Group Legal Counsel and Company Secretary
47
STRATEGIC REPORTSTRATEGIC REPORT FINANCIAL REVIEW
A robust performance in spite of COVID-19
uncertainty with adjusted1 earnings per share
UP 10.7%
and dividend per share increased by 9.1%
Non-citrus revenue
grew by 4.4% driven by
health & wellness which
grew by 16.1%. The fruit
& vegetables category
continued to perform well
with growth of 9.9%.”
Overview
The Group delivered a strong set of financial
results for the year. Whilst revenues were
lower, as expected due to lower orange oil
prices, growth in higher margin categories
and an improved performance from the
citrus category resulted in profit before
exceptional items1 increasing for the eighth
successive year.
The year also saw a good cash performance
with the Group remaining in a net positive
cash position, despite having invested almost
£25m in capital projects, including over £20m
on the new UK headquarters.
Income statement1
Revenue and profit
Revenue for the year from continuing
operations fell by 3.3% to £109.0m (2019:
£112.7m). Whilst citrus volumes increased
by 25%, revenue in citrus, which represents
50.3% (2019: 54.0%) of Group sales, fell by
9.8% as a result of the sharp fall in orange
oil prices during the prior year. Across non-
citrus categories, revenue grew by 4.4%
with health & wellness (which includes sugar
reduction) driving performance with growth
of 16.1%. The tea category was impacted by
the effective closure, due to COVID-19, of
some significant on-trade channels, such as
the hospitality sector – bars, restaurants and
theatres, reflected in the much lower growth
rate than seen in the prior year. The fruit &
vegetables category continued to perform
well, with growth of 9.9%, with passion fruit,
watermelon and cucumber natural extracts
leading the way. Within other categories,
whilst more than 70% of the Group's revenue
now comes from our natural and clean-label
% Change in sales – 2020 v 2019
+16.1%
+9.9%
+7.6%
+2.8%
TEA
HEALTH &
WELLNESS
FRUIT &
HERBS, SPICES
VEGETABLES
& FLORALS
AROMA & HICS
-2.4%
CITRUS
-9.8%
48
TREATT PLCAnnual Report & Accounts 2020 FINANCIAL REVIEW
Categories % share of sales – 2020
Geographical % share of sales – 2020
50%
Citrus
6%
Tea
7%
Health & Wellness
7%
Fruit & Vegetables
Herbs, Spices & Florals 11%
19%
Aroma & HICS
product ranges, revenue from our aroma
and high impact chemical (HIC) category
into the synthetic flavour and fragrance
market fell by 2.4% compared with the prior
year. The Group’s traditional range of herbs,
spices & florals, many of which are traded,
grew by 7.6% to £11.5m.
volume (compared with other markets) of
traded citrus by-products, which therefore
resulted in a notable, price-led, fall in revenue
of 6.1%. Also impacted by lower orange oil
prices and COVID-19, sales to the Rest of
the World (excluding China) fell by 3.5% to
£19.4m (2019: £20.1m).
In constant currency terms, revenue from
continuing operations also fell by 3.3%, in line
with the reduction in reported revenue, as
there was no material change to the average
Pound Sterling/US Dollar exchange rate as
compared to the prior year.
to a
A geographical analysis of revenues shows
that the fall in citrus prices impacted all
geographic markets
level broadly
consistent with the relative proportions of
citrus revenues to the whole. Whilst COVID-19
is also a factor that has impacted individual
product lines, generally speaking we have
benefitted from the resilience of demand from
the end-user markets which we serve.
The Group’s strategic focus continued to be on
China and the US. As a relatively unpenetrated
market for Treatt, revenues in China were
impacted by COVID-19, but recovered as the
market did generally. Consequently, reported
revenue to China was broadly unchanged at
£6.9m (2019: £6.8m). In the Group’s largest
market, representing 40% of Group revenue,
revenue in the US remained consistent at
£43.7m (2019: £43.7m). Within the US market,
the Group benefitted from particularly strong
growth in the alcoholic seltzer market which
continues to provide material opportunities.
Whilst mainland Europe represented 21.2%
of Group revenue (2019: 23.4%), the impact
of lower orange oil prices and falling on-
trade sales of carbonated soft drinks due to
COVID-19, resulted in a 12.7% fall in revenue.
In the UK, revenues contain a disproportionate
Gross profit grew by 11.2% with gross profit
margins increasing from 25.4% to 29.2%.
The increase in margins resulted from the
combined effect of growth in higher margin
product categories, such as health & wellness
and fruit & vegetables, coupled with improved
citrus margin rates as compared to the prior
year. The focus on higher margin, added-
value solutions supports the Group’s strategy
of diversifying the product portfolio away
from traded and minimally processed citrus
products, building additional resilience into
the business. There was a notable slowdown
in new product innovation from our customer
base due to the impact of COVID-19, however,
we continued to grow margins with new
clients through our collaborative, science-led
approach.
Administrative expenses grew by 10.7% in
the year to £16.8m (2019: £15.2m). The £1.6m
net increase in administrative expenses is
after a £1.1m favourable movement in foreign
exchange gains and losses compared to the
prior year, partially offsetting a £2.4m increase
in employment costs (see note 6), reflecting
targeted retention and recruitment
the
of highly skilled scientists and a focus on
strengthening the commercial team to drive
continued growth in the business. Headcount
numbers across the Group have increased
by 8% globally, with the Group’s recruitment
and induction processes having successfully
adapted to the current restrictions imposed in
response to COVID-19.
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 24 and 25.
49
UK
Germany
Ireland
Rest of Europe
USA
Rest of the Americas
China
Rest of the World
7%
4%
6%
11%
40%
8%
6%
18%
Net operating margin2 increased in the year
to 13.8% (2019: 12.0%). This compares with
10.8% five years ago. Consequently, operating
profit1 increased by 11.8% to £15.1m (2019:
£13.5m).
Return on capital employed2 decreased to
16.7% (2019: 19.0%) as a direct consequence
of the continued investment in the Group’s
capacity increasing the amount of capital
employed.
As plans progressed towards the relocation
of the Group’s UK headquarters to a new ten-
acre site in Bury St. Edmunds, non-capital
costs relating to the relocation were incurred
during the year totalling £1.1m (2019: £0.8m)
and are included in exceptional items (see
note 9). These included legal fees, planning
consultants, architects and manufacturing
plant and machinery design and installation
specialists.
before
interest,
tax,
Earnings
depreciation and amortisation
(EBITDA)
for the year increased by 14.2% to £17.0m
(2019: £14.9m). Profit before
tax and
exceptional items from continuing operations
rose by 11.3% to £14.8m (2019: £13.3m).
Reported profit for the year of £9.8m
represents an increase of 11.1% on the prior
year.
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 lesser
extent, the Euro. During the year sterling
gradually strengthened against
the US
Dollar which ended the year 5% stronger at
£1=$1.29 (2019: £1=$1.23); however there
STRATEGIC REPORTSTRATEGIC REPORT FINANCIAL REVIEW
Excluding the impact of the expenditure on the
UK relocation, free cash flow³ was a strong
£10.0m
for the year
was no material change to the average Pound
Sterling/US Dollar exchange rate as compared
to the prior year. 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. The
impact in 2020 was a gain on foreign exchange
contracts and re-translation in aggregate of
£0.3m (2019: £0.8m loss). There was a foreign
exchange loss of £2.1m (2019: £2.1m gain), in
the ‘Statement of Comprehensive Income’ in
relation to the Group’s investment in Treatt
USA.
Finance costs
The Group’s net finance costs increased to
£0.3m (2019: £0.2m) as, after total capital
expenditure and related exceptional costs of
£24.8m, the Group’s net cash positive position
fell from £16.0m at the start of the year, to
close at £1.1m (excluding IFRS 16 lease
liabilities). In addition, £0.1m of finance costs
were capitalised in accordance with IAS 23,
‘Borrowing costs’, as part of the US expansion
project. Within the net cash positive position,
the Group has in place a $6.5m seven-year
term loan in the US to part fund the $15m US
expansion which completed in 2019, of which
$5.4m remains outstanding.
In addition,
although in a cash positive position, there
were a number of fixed costs for maintaining
facilities for future use including facility fees
and non-utilisation fees which were funded
from operating cash flows. Following the
increase in net finance costs, interest cover
for the year before exceptional items and
discontinued operations reduced to a still
very healthy 44.9 times (2019: 67.8 times).
Group tax charge
After providing for deferred tax, the overall tax
charge increased by £0.2m to £2.9m (2019:
£2.7m); an overall effective tax rate (after
exceptional items) of 21.1% (2019: 21.3%). There
were also adjustments reducing this year’s
tax charge by £0.4m (2019: £0.4m reduction)
relating to revisions to the previous year’s tax
estimates. The Group now benefits from a US
corporation tax rate of 21% which means that
the main rates of corporation tax which affect
the Group are now broadly similar in both the UK
and the US, with the UK rate currently at 19%.
The UK deferred tax rate increased from 17%
to 19% following the UK Government’s decision
to cancel a previously enacted reduction in the
main rate of UK corporation tax.
Discontinued activities
The disposal of Earthoil Plantations Limited
was completed in 2018 for an enterprise
value of £11.3m and since that time the Kenyan
operations, which remained part of the Group,
have been held as discontinued activities in
accordance with IFRS 5, 'Non-current assets
held for sale and discontinued activities'. It
did not prove possible to attract a suitable
acquirer for those businesses and since
support for the local management, employees
and their families was a priority throughout
the sales process, a buy-out of the business
by local management took place during the
year for a nominal sum. As reported in May
2020, there was an exceptional impairment of
the Kenyan businesses of £0.6m in the year
which took place prior to the sale. In addition,
there was a trading loss for the year of £0.3m
(2019: £0.2m) and a loss on disposal of
£0.3m. The loss after tax from discontinued
activities (all of which related to the Kenyan
businesses) totalled £1.1m.
Earnings per share
Basic earnings per share from continuing
operations (as set out in note 11) increased by
8.6% to 18.12p (2019: 16.69p). Adjusted basic
earnings per share excluding exceptional
items and discontinued operations for the
year increased by 10.7% to 19.72p (2019:
17.82p). 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.
Dividends
The proposed final dividend of 4.16p per share
(2019: 3.80p) increases the total dividend per
share for the year to 6.00p, a 9.1% increase
on the prior year (2019: 5.50p), representing
dividend cover of 3.3 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, in light of the Group’s
capital investment programme, this year’s
dividend increase has, as in the preceding
year, 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 in 2017 and the forthcoming
cash requirements of the business in order
to fund the remaining costs of the UK site
relocation. The Board is also mindful of
the economic uncertainty in respect of the
COVID-19 pandemic.
50
TREATT PLCAnnual Report & Accounts 2020 FINANCIAL REVIEW
NET
ASSETS
£91.1m
m
1
.
7
8
£
m
1
.
1
9
£
m
6
.
1
8
£
DIVIDEND GROWTH
PER ANNUM
9.1%
%
1
.
9
%
8
.
7
%
3
.
6
CASH INFLOW FROM
OPERATIONS
£15.7m
m
5
.
0
2
£
m
7
.
5
1
£
m
6
.
3
£
2018
2019
2020
2018
2019
2020
2018
2019
2020
Balance sheet
Shareholders’ funds grew in the year by £4.0m
to £91.1m (2019: £87.1m), with net assets per
share increasing by 4% to 151p (2019: 145p).
Over the last five years net assets per share
have grown by 140%. 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
During the year the Group invested £24.8m
(2019: £10.6m) on capital projects, of which
£20.3m was incurred on the UK relocation
project (more details of which are set out
on page 52). The balance of the capital
expenditure related to further expansionary
capex in the US on building out our coffee
platform,
regulatory-driven
final
refinements on our expanded US facility and
the normal investment in on-going routine
renewal and maintenance capex. Despite
a year of significant investment, the Group
ended the year with a net cash position of
£1.1m (2019: net cash of £16.0m), excluding
IFRS 16 lease liabilities. Excluding the impact
of the expenditure on the UK relocation, free
cash flow3 was a strong £10.0m for the year.
the
Working capital remained consistent with the
prior year, with an overall outflow in the year
of £0.2m (2019: inflow £5.6m); the £1.3m
increase in receivables being compensated
by a £1.5m increase in payables.
Inventory held at the year-end was £36.1m
(2019: £36.8m), a decrease of £0.7m. 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 cash flow benefit of delaying certain
capital projects in the UK in anticipation of
the new site will inevitably reverse as both
delayed projects, and brought forward capital
expenditure, will occur on the relocation of
the UK business.
Net cash position
The Group's net positive cash position is
in part due to the fact that there remains
approximately £12.2m (prior to the sale of
the existing site) to be spent on the new UK
facility. The Group therefore retains a mix of
secured and unsecured borrowing facilities
totalling £20.4m, of which £2.3m expires in
one year or less, more details of which can be
found in note 22. During the year, the Group
closed its facilities totalling £6.5m with Lloyds
Banking Group. Post year-end the Group is in
the process of arranging an additional £7.0m
three-year revolving credit facility (which
can be extended ultimately to five years)
with HSBC together with a £6.5m accordion
(a pre-approved facility). This change to the
structure of the Group’s UK banking facilities
is being undertaken to both match some of
the Group’s expected borrowings over the
next year to the assets which they have been
used to finance, as well as to reduce the
cost of facilities. Consequently, the Group’s
borrowing facilities are now held with HSBC
and Bank of America with the majority 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.
Capital investment programme
In 2017 the Group announced a capital
investment programme to expand the US
facility (a $15.0m capacity-driven project)
and a once-in-a-generation relocation of
the UK facility (a net £36.1m investment).
This programme of
is now
approximately 75% complete as follows:
investment
US site expansion
In 2019 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 related to new
plant and machinery. This project was multi-
faceted, primarily resulting in a substantially
larger natural extracts manufacturing
facility, doubling our capacity for the key
product categories of tea, health & wellness
(including sugar reduction) and fruit &
vegetables, with space for further expansion.
UK relocation
During the year we made significant progress
relocating our UK business from its current
site in Bury St. Edmunds, to a brand-new
purpose-built facility nearby. The Group
acquired a ten-acre greenfield site on the
new Suffolk Park in Bury St. Edmunds
in mid-2017. Readie Construction Limited
began work on site in September 2019 and,
whilst COVID-19 has impacted the original
timescales for completing the project, work
continued on site throughout the financial
year. Due to the previously announced delays
caused by COVID-19 we now expect to begin
relocating to the site in mid-2021.
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 24 and 25.
3 Calculated as net cash from operating activities minus the purchase of property, plant, equipment and intangible assets, adjusted to exclude the UK relocation costs.
51
STRATEGIC REPORTSTRATEGIC REPORT FINANCIAL REVIEW
The £48m capital investment programme
announced in 2017 is now
75% COMPLETE
Practical completion of the buildings part
of the project occurred after the financial
year-end and we are pleased to confirm
that the project remains on budget. As well
as the land and buildings infrastructure,
the project also incorporates significant
investment in new and upgraded plant and
machinery, including the implementation of
a number of new technologies for the UK
business such as automated warehousing,
clean-in-place and computer-controlled
stills.
The overall estimated costs (and the basis of these estimates) of the UK relocation are set out below:
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
Budget
£'000
3,823
17,483
16,863
(4,965)
33,204
2,884
36,088
434
2,052
2,486
Spend to date (£’000)
To
30/9/19
Year to
30/9/20
Total spend
to date
3,823
1,033
1,259
–
6,115
640
6,755
434
786
1,220
–
14,858
5,035
–
19,893
730
20,623
–
330
330
3,823
15,891
6,294
–
26,008
1,370
27,378
434
1,116
1,550
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 2021.
Note 2: Accelerated depreciation relates to the reduction in the estimated useful lives of assets which will not transition to the new site and was accounted for in the years ended
30 September 2018 and 2019.
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 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 £0.1m,
fall to be capitalised in the year ending
30 September 2021 rather than expensed.
We expect the project to be completed and
transition to the new site to commence mid-
2021 and consequently the cash outflows
for the project are expected to result in
rolling Group net debt to EBITDA1 peaking
at less than 0.5x EBITDA1.
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 is pleased with the fact that, with
the building part of the project virtually
complete, the project continues to track in
line with the previously announced budget,
whilst still maintaining appropriate levels
of contingency on future expenditure. The
Board has also taken appropriate advice
from risk management consultants who
monitor the project on a regular basis.
These factors, combined with the funding
provided by the share placing in 2017, give
the Board confidence that risks inherent
in the UK relocation project have been
mitigated as far as practicable.
52
TREATT PLCAnnual Report & Accounts 2020
EBITDA1
£17.0m
m
0
.
7
1
£
m
6
.
4
1
£
m
9
.
4
1
£
FINANCIAL REVIEW
INVESTMENT
IN R&D
£2.0m
m
1
.
2
£
m
0
.
2
£
m
7
.
1
£
CAPITAL
INVESTMENT
£24.8m
m
8
.
4
2
£
m
6
.
0
1
£
m
6
.
6
£
2018
2019
2020
2018
2019
2020
2018
2019
2020
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
£7.0m 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.
The table on page 52 breaks down the cost
estimates for the project.
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 £625 (2019:
£600) 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 $925 (2019: $900) of
Restricted Stock Units during the year. These
shares are forfeited by employees who leave
within three years from the date of grant.
Under the SIP, UK employees could also
purchase 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 48,000 (2019:
33,000) matching shares were granted.
During the year, nil (2019: nil) shares were
issued to the SIP at par (2 pence per share).
The SIP currently holds 444,000 shares
(2019: 507,000), of which nil (2019: 138,000)
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 Plan, which
was approved by shareholders at the 2019
Annual General Meeting, Executive Directors
and certain key employees were granted
245,000 (2019: 251,000) 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
389,000 (2019: 401,000) shares during the
year, whilst 348,000 (2019: 760,000) were
exercised from options awarded in prior years
which have now vested.
During the year, 100,000 (2019: 700,000)
shares were issued to the Employee Benefit
Trust (EBT) at par (2 pence per share). The
EBT currently holds 219,000 shares (2019:
454,000) 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 was
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, revealed
that the funding level had fallen to 95% or less
of the scheme liabilities, then the Company
would voluntarily resume contributions.
In this regard, and as required by The Pension
Regulator, the actuarial review was updated
on a consistent basis as at 30 September
2020 which showed a deficit of £4.5m (2019:
deficit of £2.5m), being a funding level of
82% (2019: 90%). This has arisen due to a
reduction in discount rate used to calculate
future liabilities as well as lower than expected
asset returns in the last year. Consequently,
the Company has agreed with the trustees to
make contributions of £0.5m (2019: £0.3m)
per annum until the next full actuarial review
is concluded. The next full triennial valuation
will be carried out as at 1 January 2021 the
results of which are expected towards the
middle of 2021.
The IAS 19, 'Employee Benefits' pension
liability in the balance sheet, net of deferred
tax, increased in the year from £6.5m to
£8.1m. 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.
1
Unless indicated otherwise all measures are based on continuing operations.
53
STRATEGIC REPORTSTRATEGIC REPORT Of particular note is that whilst the impact
of COVID-19 resulted in some temporary
reduction in demand in 2020, this was more
than offset by increased market share in
sectors of the beverage market which are
growing strongly in response to consumer
trends such as health and wellness (driven
by our sugar reduction offerings) and the fast
growing market for alcoholic seltzers.
Over the last year we have continued to make
excellent progress on our capital investment
programme with the US expansion complete,
the UK facility now built and with the fit-
out underway. To end the year in a net
cash positive position puts the Group in an
excellent position to continue to deliver in the
years to come.
Richard Hope
Chief Financial Officer
23 November 2020
FINANCIAL REVIEW
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
also enter into forward currency contracts
and options. 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
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 £0.05m
(2019: £nil). Currency accounts are also run
for the other main currencies to which R C
Treatt is exposed. This policy helps manage
against short-term fluctuations in currencies.
the
Summary
Over the last two years the business has
continued to perform well, despite being
faced with the sharp market shocks caused
by, firstly, the 50% fall in orange oil prices in
2019, and secondly the biggest sudden change
in global consumer behaviour caused by the
COVID-19 pandemic. Since the business
was re-shaped in 2012, profit before tax and
exceptional items has increased every year
which is testament to the underlying strength
and resilience of our business model.
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 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 also have a
material effect. 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
overseas subsidiary) can
fluctuate with
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 which therefore can have
an impact on the Sterling gross margin. Raw
materials are also mainly purchased in US
Dollars and 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
competitive advantage.
54
TREATT PLCAnnual Report & Accounts 2020
FINANCIAL REVIEW
Group Five Year Trading Record
*2017, 2018, 2019 and 2020 show discontinued operations separately.
2016 has not been restated.
2016
£’000
2017*
£’000
88,040
101,250
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
Intangible assets
Property, plant and equipment
Right-of-use assets
Net deferred tax asset/(liability)
Current assets
Current liabilities
Non-current bank loans
Post-employment benefits
Lease liabilities
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
Adoption of IFRS 16 Leases
Other cash flows
Movement in (debt)/cash
Total net (debt)/cash
RATIOS
Net operating margin2
Return on capital employed3
Average net (debt)/cash to EBITDA4
Adjusted5 basic earnings per share
Growth in adjusted5 basic earnings per share
Dividend per share6
Dividend cover (adjusted to exclude exceptionals)6
Net assets per share
Notes:
1
2
3
EBITDA is calculated as profit before interest, tax, depreciation,
amortisation and exceptional items, from continuing operations.
Operating profit divided by revenue from continuing operations.
Profit before interest, taxation & exceptional items divided by total equity plus net debt.
2018*
£’000
112,163
14,577
13,944
12,642
8.1%
(1,105)
11,537
(2,284)
2,976
12,229
–
752
2019*
£’000
112,717
14,871
13,499
13,300
5.2%
(755)
12,545
(2,673)
(1,084)
8,788
–
845
20,038
29,485
–
672
102,402
(35,781)
(3,001)
(3,457)
–
–
–
(319)
98,158
(28,905)
(4,369)
(7,788)
–
–
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
81,625
87,107
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
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
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
2020*
£’000
109,016
16,982
15,092
14,801
11.3%
(1,060)
13,741
(2,896)
(1,080)
9,765
–
1,358
50,159
1,173
(924)
69,472
(15,989)
(3,450)
(10,051)
(628)
–
91,120
15,677
(2,191)
(191)
(3,378)
(24,814)
(136)
–
547
2
(659)
(388)
(15,531)
427
13.8%
16.7%
0.48
19.72p
10.7%
6.00p
3.28
151.2p
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
Average of net (debt)/cash at start and end of financial year divided by EBITDA1.
All adjusted measures exclude exceptional items – see note 9 in the financial statements.
The dividend per share shown relates to the interim dividend declared and final dividend
proposed for the corresponding financial year.
4
5
6
55
STRATEGIC REPORTSTRATEGIC REPORT TREATT PLC Annual Report & Accounts 2020
PRINCIPAL RISKS AND UNCERTAINTIES
RISK MANAGEMENT
Risk management framework
Our risk management framework provides a consistent and structured process
for identifying, assessing, responding to and monitoring risk.
The Board
The Board has overall responsibility
for the management of
risk at Treatt
The Board defines and monitors the
actions required to mitigate
our risks and is responsible for:
Setting and communicating the
Group’s risk appetite
Aligning the risk mitigation approach
with the Group’s strategic objectives
Reviewing and challenging
the risk register
Embedding effective risk management in
the culture of the Group
Empowering people at all levels to
engage with risk management and
internal control systems
Executive Directors
Responsible for:
Day-to-day risk management
Reviewing and monitoring risk and mitigation
strategies across the business
Senior Leadership Team
Responsible for:
Identifying key risks facing the business
Compiling Group risk registers
Determining appropriate and proportionate risk
mitigation strategies
Colleagues
Responsible for:
Identifying key risks facing the business
Management of risk through applying appropriate
controls, policies and processes
How we manage risks
The management of risk is embedded within the framework of the Group, which includes:
A dedicated team reviewing adherence to internal procedures
and operational controls, requiring action where non-conformances are identified
The process of
strategy setting
Oversight of risk
by the Board
The quality of our
people and culture
Established policies,
procedures & internal controls
Processes for
identification, review and
monitoring of risk
Regular dissemination of financial and non-financial
information and Key Performance Indicators (KPIs)
A clear understanding of
market conditions and raw
material prices
56
56
TREATT PLCAnnual Report & Accounts 2020 PRINCIPAL RISKS AND UNCERTAINTIES
Risk appetite
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 the Senior Leadership
Team 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 in the way we
do business.
that
strategic,
We operate in a competitive market and
recognise
commercial
and investment risks may be incurred in
seizing opportunities and delivering results.
Consequently, we are prepared to accept
certain risks in pursuit of our strategic
objectives provided
the potential
benefits and risks are fully understood and
appropriate mitigation strategies are in place
to minimise the effects of the risks should
they materialise. An understanding of risk
encourages clear decision-making.
that
Risk identification
Risk identification is an integral part of the
day-to-day activities of people at every level;
they are empowered to manage risk through
appropriate controls, policies and processes.
The Senior Leadership Team is responsible
for compiling Group risk registers to identify
key risks facing the business, their potential
effects and determining appropriate and
risk mitigation strategies.
proportionate
Responsibility for monitoring and reviewing
each risk is taken by a designated senior
member of staff to ensure that there is
appropriate accountability. More than 80
risks are included in the register, rated on
their probability and impact and then re-
rated 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 Key
Performance Indicators (KPIs).
ways of continuously improving our internal
systems to ensure that we work within the
risk appetite set by the Board.
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 monitoring of
risk identification and the effectiveness of
mitigating actions throughout the project.
All risks with a potential impact that remains
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.
risk
Employee involvement
Our
framework
management
incorporates a top-down approach, setting
the risk appetite and identifying our principal
risks, and a bottom-up approach to identify
our operational risks.
risk
the course of
the year a
During
comprehensive bottom-up
review
exercise took place across the Group, which
involved interviewing a large number of
managers and team leaders on risks which
they perceive exist within the organisation.
The results of this exercise were presented
to the Senior Leadership Team and where
appropriate, additional risks were included
on the Group risk register or highlighted to
relevant departments for monitoring.
Board review of risk
As well as reviewing risk registers and
discussing risk throughout the year, the
Board holds one meeting each year dedicated
entirely to risk. At this meeting, the Board
hears from members of staff responsible
for the risks being reviewed in greater detail.
This enables the Board to understand and
challenge the mitigation to satisfy itself that
appropriate action is being taken. Having
undertaken detailed reviews of numerous key
risks on an annual basis since 2017, the Board
is comfortable that risk mitigation is inherent
in the Group's policies and procedures
and that those responsible for risk explore
57
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 prepared by management
on the Group’s internal controls, covering all
material controls, including 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, including any control
failures and has received a comprehensive
report on the review of the Group’s financial
controls, which took place during the course
of the year. The Board also engaged KPMG
to undertake an independent assessment
of risk management at Treatt and provide
suggestions as to how it might be further
improved. The Board has concluded that it
has taken all reasonable steps necessary to
satisfy itself that the current risk management
procedures
and
considering risk mitigation are appropriate.
identifying
risks
for
In 2018 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.
Emerging risks
The Senior Leadership Team is closely involved
in day-to-day matters and have a breadth
of experience across corporate, regulatory,
commercial, supply chain, operations, HR and
financial matters. Within their field of specialism,
they consider emerging risks that have the
potential to adversely impact the business or its
stakeholders and ensure collectively that such
risks are appropriately mitigated, as required.
One such example is COVID-19, which arose
rapidly and had a significant effect on the day-
to-day operation of the business, requiring
mitigation strategies to be put in place quickly
and effectively. Significant emerging risks are
raised and discussed at Board level.
risks,
identifying
In
senior
emerging
management have regular contact with
customers and suppliers to understand their
needs and gain insight into their businesses,
as well as with other businesses, trade bodies
and professional organisations to ensure that
risk monitoring activities are as broad as
possible. Reports are also commissioned and
briefings arranged on wide-ranging, pertinent
topics to understand changes within the
industry and wider environment.
STRATEGIC REPORTSTRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES
category through a diversified supply base,
strong supplier relationships, early action
when markets move and strategic make-or-
buy decisions, which mitigate our exposure.
As our business encompasses so many
from natural sources,
products derived
adverse weather continuously affects 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, resulted 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 caused
a delay in the regular processing of spring
crops such as cucumbers, watermelons,
peppers and cantaloupe. We closely monitor
market conditions and produce a regular
Market Intelligence report, available on our
website, which provides our customers and
others with updates on citrus and other
crops, where yields vary annually and are
affected by the climate and other factors.
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.
to
continue
The risk caused by pressure on our
infrastructure
to deliver
strategically important business has reduced
with the completion of the expansion project
at Treatt USA, delivering greater capacity
through the addition of new plant and
machinery as well as increased warehousing
and cold storage. However, the risk level
remains unchanged pending the completion of
the UK headquarters relocation, now delayed
by COVID-19 to 2021, 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.
Brexit
Following the United Kingdom’s exit from the
European Union we have continued to monitor
the impact that the end of the transition
period, on 31 December 2020, may have on
the business. Beyond the impact of currency
movements there remains, to date, no visible
impact on the business from Brexit. Whilst
the UK Government continues to negotiate
trade agreements, management believes that
Treatt’s global footprint provides flexibility to
face any challenges that may arise.
We will continue to monitor the situation with
respect to the end of the transition period,
including the following areas of potential
impact on our business:
• Short-term volatility in exchange rates.
Whilst Treatt benefits from the weakness of
Sterling against the currencies in which the
Group trades, compared with pre-Brexit
referendum levels, 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 hedging model mitigates
short-term volatilities.
•
Increases or decreases to import or export
tariffs both with EU countries and globally.
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.
• The process
for ensuring continued
compliance with EU REACH (Registration,
Evaluation and Authorisation of Chemicals)
regulations post-Brexit remains uncertain.
The Only Representative Organisation
(ORO) is the international trade association
of REACH ‘Only Representatives’. Only
Representatives have a role that enables
non-EU companies to place their product
on the EU market in accordance with
Article 8 of REACH (1907/2006) and
consequently 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.
• Any changes to immigration rules within
the EU have the potential to cause
us some short-term disruption to the
recruitment of talented individuals from
EU countries. The ability to attract talent
from around the world is important for
Treatt’s future growth.
Principal risks
We have carried out a robust assessment of
the principal risks and uncertainties facing the
business, including those that would threaten
the business model, future performance,
solvency or liquidity. The following list of
principal risks and uncertainties are those
which individually or collectively might be
expected to have the most significant impact
on the long-term performance of the business
and its strategic priorities. 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 reported
COVID-19, which has been introduced as a
new principal risk factor, has the potential
to have a profound impact on people and
in
businesses globally and
more detail on page 59. One such potential
impact is the risk of a prolonged global
recession, which may affect demand for our
products and result in a slowdown in some
of our customers' new product development
activities, with customers retrenching into
existing brands. However, as a supplier to the
beverage, flavour, fragrance and consumer
product industries our business has in the
past been able to withstand recession as
people continue to eat, drink and use cleaning
materials. The Board believes that the Group
is well placed to deal with both the disruption
and opportunities that COVID-19 may bring.
The Group retains a strong focus on keeping
its employees safe and working closely with
customers, suppliers and other stakeholders,
whilst helping our communities where we
can.
Treatt is particularly experienced in managing
volatility in raw material prices and their
availability. Strategic decisions are regularly
taken to mitigate price movements, which,
whilst not eliminating risk, have a history
of being effective. Having seen one of the
sharpest ever price declines in orange oil
last year we have seen the price stabilise and
begin to steadily increase, with opportunities
resulting from the risk mitigation strategies
we put in place when the price was falling.
Having increased our assessment of this
risk last year, the stabilisation of the market
has led us to decrease the risk rating to the
previous level. We continue to manage this
58
TREATT PLCAnnual Report & Accounts 2020 PRINCIPAL RISKS AND UNCERTAINTIES
FINANCIAL
Further impact of COVID-19
Reduction in demand, decrease in
new product development briefs from
customers, changes in consumer habits,
difficulties within the supply chain,
production, incoming and outgoing logistics
and welfare of our employees.
Overspend on UK site relocation
and/or risk of business disruption
caused by the move
Increased costs, reduction in working capital
headroom, a need to cut costs in other areas
and inability to satisfy customer orders.
Movements in citrus commodity
raw material price
Can materially impact revenue, contribution
and onerous stock provisions. Possible
stock shortages.
Strategic impact
Strategic impact
Strategic impact
Mitigation
• Continual monitoring of the situation and
adopting a flexible approach to ensure
appropriate response to support the
business;
•
the health, safety and wellbeing of
our employees is paramount and our
response has focused on our employees,
customers and our local communities;
• adapted work practices to enable
everyone who can, to work from home
and to arrange our sites with safety in
mind to ensure all vital operations and
projects remain on track;
• working closely with existing and new
customers, coming to us as a result of the
pandemic, to manage their immediate and
longer-term needs;
• maintaining regular contact with our
supply chain to ensure continuity of
supply;
• monitoring the regulatory landscape and
market conditions;
• managing cash and headroom to protect
the Group’s liquidity; and
• Senior Leadership Team providing
regular COVID-19 updates to keep all staff
informed and maintain team spirit.
Mitigation
• Project specification agreed to achievable
Mitigation
• Detailed inventory control procedures;
budget before commencement with
suitable contingency included;
•
third party project managers appointed to
run the project;
• monitoring and communication of market
conditions and long-term raw material
contracts;
• maintaining close relationships with
• appointment of a third party project
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
• citrus category team providing greater
management across the Group of
Treatt’s largest raw materials.
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 and suppliers;
• 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 to ensure that
completion of the project is timely and
on budget;
•
internal control processes in place to fully
evaluate any additions to the schedule of
works; and
• new site fully commissioned prior to
move, distillation move phased over
several months providing contingency
capacity on the existing site, appropriate
levels of safety stock and detailed
planning on moving key production plant.
Risk climate
New risk
Risk climate
Risk climate
Risk climate key:
Strategic impact key:
No change
Increase
Decrease
See our Strategy on pages 16 and 17
1
2
Engaging with our communities
Investing in our culture
3
4
Reducing our environmental impact
Investing in our core categories
5
6
Diversifying into new categories
Investing for future growth
59
STRATEGIC REPORTSTRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES
PEOPLE
OPERATIONAL
Loss of key staff through
retention policy and failure
to manage succession
A lack of experienced and engaged
employees will have a detrimental
impact on all areas of the business.
Pressure on infrastructure
for strategic business
Loss of revenue, damage to reputation,
loss of key strategic customer.
Structural damage to production
facilities from storm or hurricane
damage at Treatt USA, due to its
Florida location
Loss of use of buildings, danger to staff, loss
of equipment and product. Major incident
due to type of products stored.
Strategic impact
Strategic impact
Strategic impact
Mitigation
• 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;
• continue to develop succession planning
for positions across the Group; and
• utilising engagement surveys and other
employee voice mechanisms to provide
staff with an opportunity to provide
feedback and ideas.
Mitigation
• Ensure appropriate infrastructure
Mitigation
• Regularly inspect and maintain building
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 constraints to
manage customer expectations; and
• manage sub-contractor relationships.
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.
Risk climate
Risk climate
Risk climate
Risk climate key:
Strategic impact key:
No change
Increase
Decrease
See our Strategy on pages 16 and 17
1
2
Engaging with our communities
Investing in our culture
3
4
Reducing our environmental impact
Investing in our core categories
5
6
Diversifying into new categories
Investing for future growth
60
TREATT PLCAnnual Report & Accounts 2020 PRINCIPAL RISKS AND UNCERTAINTIES
Inadequate documentation of
processes and/or non-adherence
to required processes
Failure of BRC, HACCP or regulatory
audits and damage to reputation as
problem-free supplier.
Investment in rectification of any non-
compliances noted.
IT issues including network,
hardware, data and security
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.
Product failure
Potential product recall causing financial
and reputational loss.
Strategic impact
Strategic impact
Strategic impact
Mitigation
• Strong Group-wide commitment to
disciplined compliance with internal
quality programmes;
• 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.
Mitigation
• Well-constructed IT infrastructure
Mitigation
• Strong supplier qualification process,
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
intake testing and 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 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;
• combination of self-insurance and recall
insurance; and
• annual desk top testing of product recall
• ad hoc hacking attempts by third-party
procedure.
security consultants.
Risk climate
Risk climate
Risk climate
61
STRATEGIC REPORTSTRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES
OPERATIONAL CONTINUED
Commoditisation of established
Treatt products
Effect on revenues and margin attrition.
Shortening value chain and new
entrants in proprietary technology-
based aqueous distillates
Customers demonstrating increased
competence to fold, fractionate and break bulk.
Increased competition.
Single-sourced for synthetic
speciality chemicals, many
Treattarome® raw materials and
materials for applications work
Potential loss of primary supply source.
The nature of the materials concerned would
indicate individual company IP is involved.
Strategic impact
Strategic impact
Strategic impact
Mitigation
•
Innovation and development of new
products;
Mitigation
• Continued value-added in-house
Mitigation
• Closer collaboration with existing
innovation;
suppliers;
• broaden into other associated sectors;
• strengthen product knowledge and
•
• continued focus on citrus as area of
sourcing;
strength;
•
identification and implementation
of process improvements and new
equipment to increase efficiency; and
•
increasing value-added proposition.
•
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.
identifying alternative suppliers where
possible – there was a 40% reduction in
single sourced raw materials during the
year;
•
investigate alternative sources of supply
of, if not identical, similar materials;
• creation of alternative blends using
substitutes; and
•
long-term supply agreements put in place.
Risk climate
Risk climate
Risk climate
Risk climate key:
Strategic impact key:
No change
Increase
Decrease
See our Strategy on pages 16 and 17
1
2
Engaging with our communities
Investing in our culture
3
4
Reducing our environmental impact
Investing in our core categories
5
6
Diversifying into new categories
Investing for future growth
62
TREATT PLCAnnual Report & Accounts 2020 PRINCIPAL RISKS AND UNCERTAINTIES
LEGAL AND REGULATORY
Sourcing of natural products
Loss of supply, increase in market price or
impact on quality resulting from fluctuations
in yields caused by weather, disease, etc.
Failure to comply with relevant
UK and US environmental, H&S
and other applicable legislation
HSE and/or EA investigation.
Squeeze on margins.
Probable enforcement action involving
fines, enforcement notices.
Risk of site closure.
Strategic impact
Strategic impact
Mitigation
• Enhancing relationships with competitors
and 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;
Mitigation
• 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;
• attendance at industry conferences and
seminars providing opportunities to meet
with potential new suppliers; and
• strategic buying of core products.
• working closely with the Environment
Agency and relevant authorities in
respect of Control of Major Accident
Hazards; 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 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’s 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.
Risk climate
Risk climate
63
STRATEGIC REPORTSTRATEGIC REPORT TREATT PLC Annual Report & Accounts 2020
64
GOVERNANCE
GOVERNANCE
CORPORATE GOVERNANCE
Board of Directors 66
Corporate Governance Statement 68
Nomination Committee Report 74
Audit Committee Report 76
Directors’ Remuneration Report 80
Directors’ Report 97
74
Nomination
Committee Report
76
Audit
Committee Report
80
Remuneration
Committee Report
65
GOVERNANCE BOARD OF DIRECTORS
An experienced Board with over
55 YEARS’
combined experience at Treatt
Tim Jones
Non-executive Chairman
Daemmon Reeve
Chief Executive Officer
Richard Hope
Chief Financial Officer
Yetunde Hofmann
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. He is now Chairman of
fixed income broker City and Continental,
a subsidiary of the social impact
organisation Allia.
He is a Fellow at Cambridge Judge
Business School and actively involved
in the City of London where he is
a Court Assistant and Chairman of
Communications at the International
Bankers Company.
Key External Appointments:
Chairman of TMJ (Taylor Made Joinery
Interiors Limited)
Non-executive Director of Retail Charity
Bonds plc
Appointed Chief Executive
Officer in 2012.
Appointed Chief Financial Officer
in 2003.
Appointed to the Board as
Non-executive Director in 2019.
Richard qualified as a Chartered
Accountant in 1992 at Price Waterhouse,
which is now part of PwC, and was
certified a Fellow of the Institute of
Chartered Accountants in England and
Wales in 2010. Richard has held several
senior finance positions for almost 25
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.
Key External Appointments:
No external appointments
Daemmon joined R C Treatt & Co Limited,
the Group’s UK operating subsidiary,
in 1991 and gained extensive industry
experience and knowledge from his
time in technical, operational, sales and
purchasing disciplines. 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.
Key External Appointments:
No external appointments
Yetunde is a seasoned business leader
with significant experience gained in
mergers and acquisitions; business
and operating model transformation;
organisational capability development;
growth and international expansion.
She has been named in the Cranfield
University FTSE Board Report '100
Women to Watch'.
She is a Non-executive Director and
Chair of the Remuneration committee at
the Chartered Institute of Personnel and
Development (CIPD) and is Champion for
the Middle East. She is a Board Trustee and
Chair of the Remuneration Committee of
The Education Development Trust, a Trustee
of The Institute of Business Ethics and a
Visiting Fellow at Henley Business School.
Yetunde’s career began in Nigeria at
the International Institute of Tropical
Agriculture (IITA) and progressed through
FTSE 100 and global organisations across
a variety of industries such as Unilever,
Northern Foods, Allied Domecq and
Imperial Brands.
Key External Appointments:
Non-executive Director CIPD
Trustee of the Institute of
Business Ethics
Trustee of Education
Development Trust
66
TREATT PLCAnnual Report & Accounts 2020 BOARD OF DIRECTORS
Board Gender Diversity
Board Independence
Length of Service
Female
Male
22%
78%
Independent
Non-independent
67%
33%
0–5 years
6–10 years
Over 10 years
44%
44%
12%
David Johnston
Non-executive Director
Vijay Thakrar
Non-executive Director
Jeff Iliffe
Non-executive Director
Lynne Weedall
Non-executive Director
Richard Illek
Non-executive Director
Appointed to the Board as Non-
executive Director in 2016.
Richard retired from PepsiCo in
March 2016, following 28 years
with the company. During that
time he served in various senior
positions around the world
including Plant Manager, QA
Manager and Technical Services
Director, culminating in his most
recent role as Senior Director of
Manufacturing and Formulations.
Key External Appointments:
No external appointments
Appointed to the Board as Non-
executive Director in 2011.
David started his career working
as a biochemist for 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. Since
December 2019, David has been
an independent member of the
scientific advisory committee
of Driscolls, a California-based
global leader in the production
and sales of fresh berries.
Key External Appointments:
Independent Member of Driscolls
Scientific Advisory Committee
Appointed to the Board as Non-
executive Director in 2020.
Vijay is a Chartered Accountant
with extensive strategy,
commercial and governance
experience in FMCG, including
the food and beverage sector and
was previously a partner at EY
and Deloitte, Chairing Deloitte’s
mid-cap listed companies’
practice. Vijay has served on
various boards in a non-
executive capacity, including The
Quoted Companies Alliance and
Quorn Foods.
Vijay is a Non-executive Director
and Audit Committee Chair of
Walker Greenbank Plc, Alumasc
Group plc and Non-executive
Director of RSM UK Holdings
Limited, serving on their Public
Interest Board and Audit
Committee.
Key External Appointments:
Non-executive Director of
Walker Greenbank Plc
Non-executive Director of
Alumasc Group plc
Non-executive Director of RSM
UK Holdings Limited
Appointed to the Board as Non-
executive Director in 2013.
Jeff has widespread experience
of the City, industry and internet-
based businesses, including
acquisitions, business integration
and investor relations.
He was CFO of Abcam plc from
2007 until 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 in
environmental, biotechnology and
internet-based businesses.
Key External Appointments:
Non-executive Director of
Cambridge Nutraceuticals
Limited
Trustee of Cambridge Arts
Theatre
Appointed to the Board as Non-
executive Director in 2019.
Lynne is an experienced Group
HR and Strategy Director
who has worked in a number
of FTSE 100 companies and
family businesses, including
Waitrose, Tesco, Whitbread,
BUPA, Carphone Warehouse and
Selfridges Group. She has key
expertise in business strategy,
organisation design, strategic
change management and
employee engagement.
Lynne has served as a Non-
executive Director on a number
of Boards and spent seven years
on the Board of Greene King.
Lynne is Chair of the
Remuneration Committee at both
William Hill PLC and Stagecoach
Group plc.
Key External Appointments:
Non-executive Director of
William Hill PLC
Non-executive Director of
Stagecoach Group plc
Director of TruePoint
Senior Independent Director
Remuneration Committee
Audit Committee
Nomination Committee
Committee chair
67
GOVERNANCEGOVERNANCE CORPORATE GOVERNANCE STATEMENT
At Treatt our commitment to
EFFECTIVE
CORPORATE
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.”
Introduction from the Chairman
Board and effectiveness
As the business continues to grow it needs a
strong, effective, entrepreneurial and engaged
Board with the right skills and experience to
oversee the strategy, governance, risk and
financial frameworks across the organisation.
Following the introduction of two new
Non-executive Directors in 2019, a further
Non-executive Director, Vijay Thakrar, was
appointed to the Board on 1 September 2020.
Vijay is a Chartered Accountant with extensive
strategic, commercial and governance
experience in FMCG, including the food and
beverage sector and was previously a partner
at EY and Deloitte, Chairing Deloitte’s mid-cap
listed companies’ practice. Vijay has served
on various boards in a non-executive capacity
and will be the future successor for Jeff Iliffe,
Chair of the Audit Committee, who will have
served nine years in 2022.
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 highest standards of governance drive
the Company, balancing the interests of its
shareholders, employees, the environment and
its wider stakeholders of customers, suppliers
and the communities in which the Group
does business. At Treatt our commitment to
effective corporate governance is reflected
in our principles, policies and practices. I
am clear that good governance ultimately
produces a better company and optimum
long-term performance.
Culture
The Board has a role in setting and monitoring
the Group’s culture to ensure that there is
balance between accountability, collaboration
and respect, enabling agile decision-making
and constructive challenge, which promote
innovation and teamwork. These are qualities
that will drive the continued growth of Treatt.
68
TREATT PLCAnnual Report & Accounts 2020 CORPORATE GOVERNANCE STATEMENT
Strategy
The Board is strongly committed to the setting,
monitoring and reviewing of Group strategy,
and ensuring that any risks that threaten the
strategy are managed or mitigated. During the
course of the year, the annual strategy day
was held, with external facilitation enabling an
in-depth review of the current strategy and
its execution, and consideration of the longer
term direction of the Group. The Board will
continue its focus on developing the Group’s
strategic plans in the coming year.
Stakeholders
We are conscious that, as a Board, we are
accountable to all our shareholders and
must have regard to other stakeholders such
as employees, customers, suppliers, the
communities in which we operate and the
environment. We have maintained an active
dialogue with our shareholders throughout the
year and listen to views of representatives of
investors and financial institutions.
Employee engagement
Taking the opportunity to engage with our UK
and US employees is important to the Board
and David Johnston and I have held virtual
open door sessions where any member of
staff is able to drop in and chat about any
matter they wish. These Employee Voice
sessions 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.
Effect of COVID-19
Unfortunately due to COVID-19 our annual
Board meeting at Treatt USA was unable to
take place this year, nor have we been able to
visit the UK site since March.
As the COVID-19 pandemic developed, the
Board changed its usual working practices
and held Board meetings using video
conferencing, as permitted by the Company’s
Articles. The Board already receives its
papers electronically, using a secure board
portal. I have maintained 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.
I have also continued to meet with the Non-
executive Directors virtually, without the
presence of the Executives.
Annual General Meeting 2021
It is currently intended that the Annual
General Meeting in 2021 will be an open
meeting for all shareholders but this will be
subject to review nearer the time in light of
the COVID-19 situation. In the event that it is
necessary to protect the health and wellbeing
of our staff and shareholders and is permitted
by the Corporate Insolvency and Governance
Act 2020, the Annual General Meeting may
subsequently be held as a closed meeting and
shareholders will be unable to attend. Should
this measure become necessary, shareholders
will be notified before the meeting through our
website and by a Regulatory News Service
announcement and will be invited to submit
questions to the Board in advance of the
meeting. Answers to questions submitted will
be published on the Group’s website (www.
treatt.com) as soon as practicable after the
Annual General Meeting.
Compliance with the Corporate
Governance Code
The Company is subject to the 2018 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 2020 the Group
has complied with the provisions set out in the
2018 Corporate Governance Code.
Tim Jones
Chairman
69
GOVERNANCEGOVERNANCE
CORPORATE GOVERNANCE STATEMENT
Role of the Board
The Board is accountable to shareholders
for managing the Company in a way which
promotes long-term sustainable success for
the benefit of its stakeholders. It sets the
Group's strategic objectives and oversees
their implementation by the CEO.
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 and 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 usually 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.
Information and support
Contact is maintained by the Board through
email, telephone and video calls with written
updates provided in respect of on-going
issues, enabling regular input from all Board
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
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, with the exception of this year
due to COVID-19, 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.
Culture
The Board believes that good governance is
driven not just from the operation of the Board
but also from the culture of the organisation
and the way in which employees conduct
themselves on a day to day basis.
At the heart of our culture are our core
values, set out on page 43, which are the
cornerstones of our organisation, having
been created and championed by all of our
employees across three continents, who
feel a great sense of ownership and pride
in them. Continual focus on these values is
supported by employee of the quarter awards,
where colleagues nominate other employees
that they feel have demonstrated strong
commitment to the values.
The Board receives regular updates on
indicators to assist its understanding and
oversight of the Group’s culture. This includes
feedback from Employee Voice sessions
held twice a year by the Chairman and David
Johnston, which are open to all employees,
results of engagement and pulse surveys, a
summary of the outcome of the performance
management process and other reports, such
as health and safety, internal control and
whistleblowing.
Further details on the culture of the Group and
our approach to investing in and rewarding our
employees are set out on pages 44 to 46.
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
Chair
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 the Audit Committee on 1 September 2020)
David Johnston – (stepped down from the Remuneration
and Audit Committees on 1 May 2020)
Richard Illek – Non-executive Director
Jeff Iliffe – Non-executive Director
Yetunde Hofmann – Non-executive Director
Lynne Weedall – Senior Independent Non-executive Director
Vijay Thakrar – Non-executive Director (appointed to the Board
and the Audit and Nomination Committees on 1 September 2020)
7
7
7
7
6
5
7
5
6
1
70
5
N/A
N/A
5
3
N/A
5
5
N/A
1
4
4
N/A
4
N/A
3
N/A
4
4
1
6
N/A
N/A
N/A
Board &
Nomination
1
Remuneration
(until 1 May 2020)
N/A
6
6
6
N/A
Audit
Remuneration
(from 1 May 2020)
TREATT PLCAnnual Report & Accounts 2020 CORPORATE GOVERNANCE STATEMENT
7
Board meetings
in the year
90%
Meeting
attendance
Board Experience
Operations
HR
Finance
Management
Industry
2
2
3
9
4
Division of responsibilities
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 66 and 67. The Board consists
of Non-executive Chairman, Tim Jones, and six
further Non-executive Directors together with
Daemmon Reeve, CEO, and Richard Hope, CFO.
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 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, the whole Board
and its committees is evaluated at least
annually and that Directors are continually
encouraged to update their skills, knowledge
and familiarity with the Company, its
employees and all stakeholders 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 Lynne Weedall,
who is the Senior Independent Director.
The role of the Senior Independent Director
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 of the Chairman.
The Group Company Secretary is secretary
to the Board. Her responsibilities include
ensuring the Board has the information, time
and resources it needs in order to discharge its
duties and function effectively and efficiently.
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 Lynne Weedall. During the year the
Board reviewed the membership of these
committees and made changes following nine
years’ service by David Johnston, resulting in
him stepping down from the Remuneration
and Audit Committees. Although the Chairman
is no longer a member of the Remuneration
or Audit Committees, he regularly attends
the committee meetings at the invitation
of the committee Chair. Delegation of
responsibilities to these committees ensures
that sufficient time is spent on matters within
their responsibility.
Further details of the committees can
be found on page 74 to 96. The terms of
reference of all the committees can be found
on the Treatt website at www.treatt.com.
Independence
The Board considers that, with the exception
of David Johnston, all of the Non-executive
Directors are independent of management
and free of any relationship which could
materially interfere with the exercise of their
independent judgement. In compliance with
the Corporate Governance Code at least half
of the Board are Non-executive Directors,
which the Board considers to be independent.
On 1 May 2020 David Johnston stepped down
as Chair of the Remuneration Committee, as a
member of the Audit Committee and as Senior
Independent Director, having reached nine
years’ service on the Board. Accordingly, in
line with best practice under the UK Corporate
Governance Code, the Board no longer
considers David Johnston as independent.
As reported last year, having consulted with
major shareholders during 2019, the Board
determined that it was in the best interests
of the business and its stakeholders for
David Johnston to remain on the Board,
subject to annual re-election. Lynne Weedall
has succeeded David Johnston as Chair of
the Remuneration Committee, having had
significant experience as Chair of Greene
King's Remuneration Committee and as Senior
Independent Director.
71
GOVERNANCEGOVERNANCE CORPORATE GOVERNANCE STATEMENT
Commitment
The Board typically meets between six and
ten times each year and more frequently
where business needs require; generally, 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. The service
contracts of Non-executive Directors do
not permit them 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. During the
year, Lynne Weedall was permitted to accept
a position as a Non-executive Director of
Stagecoach Group 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.
Composition, succession
and evaluation
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 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 page 36.
The Chairman, Tim Jones, was independent
on appointment and in the opinion of the
Board, remains independent. However, in
February 2021 he will also have served on
the Board for nine years. Whilst provision
19 of the 2018 Corporate Governance Code
provides that a Chairman should not remain
in post beyond nine years from the date of
their first appointment to the Board, the Board
has determined that, whilst the Company
completes its largest ever investment in the
new UK headquarters and in order to facilitate
an effective succession, Tim Jones will remain
as Chairman for a further period, subject to
annual re-election. During this further period,
which will exceed 12 months, but is likely to
be limited to two years, a suitable successor
will be sought by the Nomination Committee.
During his tenure, Tim has overseen many
changes at Treatt leading to substantial growth
in the Company and a ten-fold increase in
its share price as it has transitioned from
a trading to a value-added business. Such
changes have included the disposal of
Earthoil, the expansion of Treatt's international
operations and significant appointments to its
Board including Daemmon Reeve as CEO,
Jeff Iliffe, Richard Illek, Yetunde Hofmann,
Lynne Weedall and Vijay Thakrar as vital
and diverse Non-executive Directors and
committee chairs. His contribution, insight
and effectiveness has been, and continues
to be, significant and the Board regards him
remaining as Chairman to be in the best
interests of the Company and its stakeholders.
This view is strongly supported by our major
shareholders, whose opinions were sought
on this subject during the year by the Senior
Independent Director, Lynne Weedall.
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
74 and 75.
Induction and development
On appointment, where appropriate, 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.
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 2020.
Our Directors understand the need to keep
themselves properly briefed and informed
about current issues. Regular updates on
regulatory and legislative developments
are provided to the Board by the Company
Secretary.
Re-election
The Company 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 66 and 67.
72
TREATT PLCAnnual Report & Accounts 2020 CORPORATE GOVERNANCE STATEMENT
Evaluation
The Board is aware of the need to continually
monitor and improve performance and
recognises that this can be achieved
through annual Board evaluation, which
provides a valuable feedback mechanism
for improving Board effectiveness. In 2019
an external evaluation was undertaken by
Board Excellence, an advisor with no other
connection to the Company.
In order to ensure the effectiveness of the
external evaluation, the Board revisited the
recommendations made by the independent
evaluator, to ensure that they had been fully
discussed and actioned, as appropriate.
The Board was pleased that feedback from
Directors was positive, and improvements
were noticeable, including in the detail of
reports submitted to the Board, agenda
structure and time spent on strategic matters.
During the year an evaluation of the Board,
its committees and each individual Director
was carried out internally, with the assistance
of the Company Secretary. The Board
and committee reviews are conducted
under the supervision of the appropriate
Chairman. The Board evaluation process
used a tailored questionnaire that reviewed
effectiveness through selected questions
focusing on the principles of corporate
governance and the results were discussed
by the Board. In addition, the skills matrix
of each of the Directors was reviewed and
the skills and experience mix discussed
in relation to performance of the Board.
The performance of individual Directors was
evaluated by the Chairman and the Chairman
was evaluated by the Senior Independent
Director, having sought input from the other
Non-executive Directors. The process
involved completion of a self- assessment,
the results of which formed the basis of the
discussions and the agreement, with the
Chairman, of objectives for the coming year.
The evaluation process demonstrated that
the performance of the Directors, the Board
and the committees is effective overall,
but the Board will continue to focus on the
recommendations from the 2019 evaluation to
ensure continuous improvement.
Leadership and purpose
Shareholder relations
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.
Engagement with shareholders takes place through:
Results presentations
Three days of analyst and investor meetings and presentations are held following the
release of the full and half year results. As many institutional shareholders are seen as
possible, providing them with an opportunity to ask questions about the Company. These
presentations are made available to all shareholders through the Company website. This
year, these presentations took place over video conference due to COVID-19.
Shareholder meetings
During the year, conference calls and meetings took place with existing and potential
shareholders. These meetings were attended by either the CEO, 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.
Annual General Meeting
The Annual 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.
Consultation
In recent years we have consulted with our major shareholders in relation to Director
remuneration, auditor rotation, remuneration policy and length of service of Board
members. Consultation provides us with an opportunity to gauge shareholder opinion and
respond to any concerns raised.
Information
We provide updates on the progress of the business through regulatory news
announcements, press releases and updates to the investor section of our website.
This report was approved by the Board on 23 November 2020.
Anita Guernari
Group Legal Counsel and Company Secretary
73
GOVERNANCEGOVERNANCE NOMINATION COMMITTEE REPORT
The Nomination Committee is
RESPONSIBLE
FOR SUCCESSION
PLANNING
for the Board, its committees and senior management
Nomination Committee members
Tim Jones (Chair)
Chairman
Daemmon Reeve
Chief Executive Officer
Richard Illek
Non-executive Director
Lynne Weedall
Non-executive Director
Yetunde Hofmann
Non-executive Director
Vijay Thakrar
Non-executive Director
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 is appropriate for the delivery of
the Group’s strategic objectives.
Membership and meetings
Membership of the committee was refreshed during the year with the appointment of Vijay
Thakrar to the Board and committee. It is intended that during the forthcoming year Lynne
Weedall will succeed me as Chair of the Nomination Committee as I reach nine years’ service
on the Board.
As explained in more detail on page 72, Lynne Weedall, as Senior Independent Director,
consulted with significant shareholders and it is proposed that, in order to facilitate an effective
succession I will remain as Chairman for a further period, which will exceed 12 months but
is likely to be limited to two years, in which time a suitable successor will be sought by the
Nomination Committee.
The committee has met four 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 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
current and future strategy, 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 performance evaluation 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.
74
TREATT PLCAnnual Report & Accounts 2020 NOMINATION COMMITTEE REPORT
Nomination Committee
Experience
Operations
HR
Finance
Management
Industry
2
2
1
6
2
Committee evaluation
The effectiveness of the committee was
considered as part of the Board evaluation
detailed on page 73 and reviewed as part
of the committee’s own processes. The
evaluation of the Nomination Committee
concluded that its performance was good and
noted a number of recommendations for the
forthcoming year: to focus on diverse global
talent development and measurement in light,
in particular, of technical and sustainability
developments and to continue to refresh
qualitative and quantitative KPI reporting to
the Board.
Tim Jones
Chair – Nomination Committee
This year's achievements
• Refreshing the Board with the
appointment of a Non-executive
Director
•
Internal Board evaluation
• Board succession planning
Future plans
• Chairman's succession
• Continuing development of Global
Leadership talent
• Enhanced oversight of senior
management succession plans
• Continuing review and development
of Board and committee
memberships
4
Committee meetings
in the year
96%
Meeting
attendance
Activities since the last report
• recruitment of Vijay Thakrar;
• receive a report from the Chairman on the
individual evaluation of the Directors;
• review of the 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;
• receive an update from the Global Head
of HR on senior management and
organisation succession plans; and
• review of the terms of reference of the
committee.
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 considers the
skills mix of the Board 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 Jeff Iliffe approaching nine years’ service
on the Board in 2022, the committee identified
a need for a Non-executive Director with
relevant financial experience for succession
of the Chair of the Audit Committee. 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
were instructed to search for suitable
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 Director was approved by the Board
unanimously.
Succession planning for the Board and senior
management continues to be a focus of the
committee: alignment with Treatt’s culture
together with the right balance of insight, skills,
entrepreneurialism, diversity, approach to risk
and sustainability are key considerations in its
deliberations.
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 eight to nine Directors, reducing
the percentage of women on the Board
to 22% (2019: 25%) but increasing our
ethnic diversity. 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 page 36.
75
GOVERNANCEGOVERNANCE AUDIT COMMITTEE REPORT
The Audit Committee is an
essential part of
TREATT’S
GOVERNANCE
FRAMEWORK
which oversees accounting and
financial reporting processes
Audit Committee members
Jeff Iliffe (Chair)
Non-executive Director
Yetunde Hofmann
Non-executive Director
Vijay Thakrar
Non-executive Director
Accountability
Membership and meetings
Membership of the Audit Committee was refreshed on 1 September 2020 with the appointment
of Vijay Thakrar in place of Tim Jones, who stepped down from the committee. David Johnston
also stepped down from the committee during the year on reaching nine years' service.
Current membership is therefore Jeff Iliffe (Chair), Yetunde Hofmann and Vijay Thakrar. 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 Vijay Thakrar also being a
Chartered Accountant and having significant financial experience, having been a partner at EY
and Deloitte. It is intended that Vijay will succeed Jeff as Chair of the committee in due course.
The committee met five times during the year. The outgoing auditor, RSM UK Audit LLP
('RSM'), attended one of these meetings and the new auditor, BDO LLP ('BDO'), another.
Neither attended meetings at which their appointment, resignation 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.
76
TREATT PLCAnnual Report & Accounts 2020 AUDIT COMMITTEE REPORT
5
Committee meetings
in the year
100%
Meeting
attendance
Audit Committee
Experience
HR
Finance
Management
1
2
3
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:
Activities since the last report
• managing the audit tender process and
making a recommendation to the Board
on the appointment of new auditors to
succeed RSM;
• 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
•
•
•
•
•
to review the Group’s Annual Report
and any formal announcements relating
to the Group’s financial performance
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;
to oversee the relationship with the
auditor and assess the effectiveness of the
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
to ensure that procedures are in place
whereby staff of the Group may, in
confidence, raise concerns about
possible improprieties in matters of
financial reporting or other matters.
The Group has arrangements in place
for the proportionate and independent
investigation of such matters and for
appropriate follow-up action.
• review of and report to the Board on the
Committee; and
half year report and trading update;
• reviewing the terms of reference of the
• meeting with the audit partner to approve
the audit plan and identification of risks;
• reviewing the auditor’s findings,
management’s response and ensuring
robust challenge;
• reviewing the auditor’s performance and
the audit process to ensure that they
remain objective and independent, and
to assess the effectiveness of the audit,
providing feedback to the auditor in this
respect;
• approval of the fees paid to the auditors
for the audit;
• review of and report to the Board on the
Group’s Annual Report for 2020 to ensure
that, taken as a whole, it was fair, balanced
and understandable. This included
consideration of a report from the auditor
on their audit and review of the financial
statements, significant financial reporting
issues and judgements contained therein,
and discussions with management;
• review of the clarity and completeness of
the treatment and disclosure of exceptional
items;
• review of the Whistleblowing Policy and
consideration of any whistleblowing
reports (of which there was one during
the year);
• reviewing the potential requirement for an
internal audit function;
Audit Committee.
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 2020 Annual
Report was reviewed at a committee meeting
in November 2020; after due challenge and
debate the committee was content with the
appropriateness of the accounting policies
adopted, and that the key judgements
applied, which where possible are supported
by external advice or other corroborative
evidence, are reasonable and therefore agreed
with management recommendations.
77
GOVERNANCEGOVERNANCE AUDIT COMMITTEE REPORT
Having discussed the key judgements and
risk areas monitored by the auditors, the
Board concluded that, as in prior years, the
half year results would not be subject to an
external audit or a formal audit review. In
reaching that conclusion, regard was given
to the matters subject to judgement and the
processes established for addressing and
supporting these, the output of the enhanced
work undertaken on risk identification and
management, the consistent application
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.
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 2020 Annual Report relating to:
COVID-19 and Brexit
After the initial lockdowns in the UK and US
in March 2020 the committee considered the
potential impact of the COVID-19 pandemic
on the cashflows and liquidity of the Group,
particularly in relation to the preparation
of the Group's half year report on a going
concern basis. Appropriate financial modelling
has since been undertaken to support the
assessment of the business as a going
concern and its longer-term viability with the
significant uncertainties caused by COVID-19
and the potential impact of Brexit. The Group’s
going concern and viability statements are set
out on pages 98 and 99, and these set out the
approach taken and the conclusions reached.
Inventory valuation and provisions
Given the nature of the Group’s products and
the processes involved in their manufacture,
a degree of estimation and judgement
is involved in the valuation of inventory,
including determining the level of provisions
required 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 basis of valuation and the
detailed exercises undertaken to identify the
relevant provision levels, and with the auditors
on their findings following their review of the
work done on inventory valuation and the
controls in place over the processes involved.
Pension liability
The assumptions used to calculate the
Group’s pension liability in accordance with
IAS 19 arising from the final salary pension
scheme. This included confirming that they
are in accordance with advice received from
the scheme actuaries, Barnett Waddingham,
and that these assumptions had been critically
reviewed by the auditors.
Revenue recognition
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. The key
performance obligation is considered to be
satisfied at the point in time that the goods
are either collected by, or dispatched to,
the customer, or where goods are sold to a
customer but retained physically on a bill and
hold arrangement, at the point that the goods
are assigned to the customer. This policy has
been consistently applied both before and
after the Company’s adoption of IFRS 15 in
2019. This was reviewed by the committee
in the context of the terms of trade and the
committee concluded that it continued to be
consistent and appropriate.
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 that the
content in respect of their areas of
responsibility is considered to be fair,
balanced and understandable; and
•
the committee receives an early draft of
the Annual Report to enable timely review
and comment.
These processes allowed the committee to
provide an assurance to the Board to assist
them in making the statement required by the
2018 UK Corporate Governance Code.
The Committee also reviewed compliance
with the disclosure requirements on Directors’
remuneration and the Strategic Report.
78
Risk management and internal
controls
The committee continues to consider the
requirements of the 2018 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
also retains responsibility for reviewing
the assumptions underlying both the going
concern and longer-term viability statements
made in the Annual Report as detailed on
pages 98 and 99. 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 56 to 63.
The committee annually reviews the
requirement for an internal audit function and
did so this year with the assistance of KPMG,
who undertook a strategic assurance mapping
exercise to understand the levels of assurance
the Group has for some of its key strategic
risks. They reported to the Board that whilst
there is scope to further enhance and embed
Treatt’s Risk Management Framework, there
are a number of good practice controls
and assurance mechanisms in place and
best practice would be for Treatt's controls
maturity to be increased as the business
develops. A number of recommendations as to
how this could be achieved were made which
will be reviewed and taken on as appropriate.
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.
During the planning phase of the external
audit the auditors confirm their understanding
of the internal controls relevant to the external
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.
TREATT PLCAnnual Report & Accounts 2020 AUDIT COMMITTEE REPORT
External auditor independence
A key consideration during the audit tender
process was that the firm chosen had
procedures and safeguards in place to ensure
that they were able to fully comply with the
relevant ethical standards on independence.
The committee has undertaken an assessment
of the effectiveness of BDO’s performance
and relationship with Treatt and was satisfied
that BDO delivered a robust audit and remains
independent of Treatt, having no previous
connection with the Company. The committee
has therefore recommended to the Board that
BDO be reappointed as the Company’s Auditor
at the Annual General Meeting in 2021.
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. The committee has a policy for
the provision of non-audit services by the
Company auditor, which is aligned with the
requirements of the UK Financial Reporting
Council’s Ethical Standards (2016 and 2019);
it ensures that objectivity and independence
are not compromised. Under the policy, all
non-audit services to be contracted with the
external auditor will require the approval of
the committee. BDO has not provided any
non-audit services to the Group since their
appointment and 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.
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.
During the year the committee reviewed
the Whistleblowing Policy and 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.
External auditor appointment
RSM had, in one form or another through
various changes of name and consolidation
with other audit firms, been Treatt’s auditor
for 32 years, although they complied with
legislative and governance requirements to
rotate the audit partner every five years, with
the most recent rotation taking place in 2017.
As previously reported, it was the committee’s
intention to undertaken a competitive tender
process with new auditors being appointed
to undertake the audit in respect of FY2020.
The tender process was overseen by the
Audit Committee and the management of
the process was delegated to the Chair of
the committee and the CFO. The Company
announced, on 29 May 2020 that BDO had
been successful in the audit tender process
and were appointed for FY2020 with the
appointment for the subsequent financial year
being subject to approval by the Company's
shareholders at the Annual General Meeting
to be held in 2021.
The Committee would like to record its thanks
to RSM and its partners and staff for its many
years of service to the shareholders of Treatt.
External auditor assessment
The committee has oversight of the
relationship with the external auditor
and is responsible for monitoring their
independence, objectivity and compliance with
professional and regulatory requirements. The
committee undertakes an annual assessment
of the effectiveness of the external auditor
to facilitate continued improvement in the
external audit process. This assessment
considers:
•
•
the delivery of an efficient, robust audit
in compliance with the agreed plan and
timescale;
the provision of 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
BDO’s performance and was satisfied that
these requirements have been met and that
they demonstrated commitment to perform
high-quality work.
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.
During the year, one incident was raised under
the Whistleblowing Policy related to a safety
concern. The concern was investigated in a
timely manner in accordance with the policy
and it was determined that no further action
was required.
Effectiveness of the committee
The effectiveness of the committee was
considered as part of the Board evaluation
detailed on page 73 and reviewed as part
of the committee’s own processes. The
committee received positive feedback on the
way it challenges the business and it was
agreed that the committee continued to work
effectively.
Jeff Iliffe
Chair – Audit Committee
Future plans
• Monitor and report to the Board on
responses to the recommendations
made by KPMG in relation to further
improving internal controls and
plans to increase controls maturity
as the business develops.
• ESG measurements and reporting.
79
GOVERNANCEGOVERNANCE DIRECTORS’ REMUNERATION REPORT
The policy is to ensure that
remuneration structures are
TRANSPARENT AND
PROPORTIONATE
Remuneration Committee
members
Lynne Weedall (Chair)
Non-executive Director
Jeff Iliffe
Non-executive Director
Yetunde Hofmann
Non-executive Director
Chair’s statement
Following my appointment as Chair of the
Remuneration Committee in May 2020,
I am pleased to present the Directors'
Remuneration Report for Treatt.
COVID-19
As reported throughout this document, Treatt
has shown resilience in the face of COVID-19
and the Group met expectations in 2020,
without having sought any financial assistance
available to businesses, or furloughing any
of its staff. The Remuneration Committee
monitored executive pay in the context of
COVID-19 and its effect on the business and its
stakeholders and determined that no specific
actions for remuneration were required
during the course of the year, albeit restraint
has been shown when awarding pay rises
for this year. This situation will remain under
review as the pandemic continues to have
the potential to impact people and businesses
globally, presenting further challenges in the
coming year.
Remuneration policy review
The committee is mindful of the continuing
deb ate aro un d E xe cutive Dire c tor
remuneration from both a workforce and
wider social perspective. 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, including under the Shareholder
Rights Directive.
It is in this context that we have conducted a
thorough review of our remuneration policy
and concluded that it has remained aligned with
our strategy, delivering remuneration outcomes
appropriate to stakeholder expectations and
market circumstances. Consequently the
changes adopted in this policy build upon the
2018 policy structure, further improve the
alignment of the policy with the interests of
shareholders and support prevailing market
and best practice. No increases to quantum
are proposed.
The proposed new policy, which would be
effective from 2021 to 2024, if approved by
shareholders at the 2021 Annual General
Meeting, is set out on pages 82 to 88. The
main changes to our proposed policy, having
taken on board feedback from our major
shareholders during consultation, are as
follows:
Annual bonus
Although the policy already has flexibility to
apply metrics other than profit before tax, it has
been clarified that up to 30% of bonus may be
based on non-financial performance measures
in any year during the life of this policy
There is no proposal to apply non-financial
measures in FY2021. Non-financial measures
and targets when applied will be disclosed
appropriately
Share ownership requirement
CFO ownership requirement increased to
200% of salary
Post-cessation shareholding requirement
Introduction of a post-cessation holding
period of two years with a 200% of salary
shareholding requirement in year one and a
100% of salary shareholding requirement in
year two
Malus and clawback
Enhanced malus and clawback provisions in
respect of LTIP and bonus awards
The existing policy already provides for
pension arrangements which are aligned with
the wider workforce. The committee believes
that, having conducted a thorough review and
considered a range of alternative or additional
80
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
6
Committee meetings
in the year
100%
Meeting
attendance
Remuneration
Committee Experience
HR
Finance
Management
2
1
3
performance measures, profit before tax and
earning per share remain the right measures
on which to base the bonus plan and LTIP
respectively in FY2021, in accordance with
our remuneration principles of simplicity and
alignment to wider workforce.
Whilst we have decided not to use additional
metrics for the annual bonus for FY2021,
we have built in the flexibility to enable us to
do so in future years and have ensured that
management are set objectives, as part of a
wider performance management process, that
ensure they are focused on all stakeholder
interests and delivering the culture and values
of Treatt. We have noted feedback received
during the consultation in respect of the type
of additional metrics investors would like to
see when we review the addition of non-
financial metrics for FY2022.
The committee has also reviewed the
minimum level of share ownership of the CEO
(which is also 200% of salary) and considers
this to remain appropriate for the new policy,
recognising that both Executive Directors’
shareholdings are significantly in excess of
this minimum.
Overall, we believe that our incentive
arrangements for our Executive Directors
remain appropriate and take account of the
latest market best practice requirements from
both corporate governance guidance and
feedback from shareholder engagement.
Wider workforce remuneration
The committee has updated the remuneration
principles, set out on page 82, to include the
remuneration policies and practices of the
wider workforce, which have been used
to determine the new remuneration policy
for Executive Directors. The committee
is comfortable that the incentives and
rewards available to the wider workforce
are directly linked to the culture and strategy
of the Group at all levels, including the
remuneration policy for Executive Directors.
Key performance outcomes for 2020
The Group exceeded pre COVID-19
expectations in 2020, with profit before tax
and exceptional items1 increasing for the
eighth 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,
a bonus payment of 100% of salary was
awarded to the Executive Directors on the
basis that annual growth in like-for-like profit
before tax1 was 11.3% against a maximum
target of 10%.
The Remuneration Committee reviewed this
outcome against the backdrop of COVID-19
and the experience of investors and other
stakeholders over the period. On the basis that
the Company has exceeded its expectation,
the dividend per share (paid and proposed)
for 2020 has been increased by 9.1%, the
share price has grown 34.5% since December
2019 (as at 17 November 2020, being the
latest practicable reporting date prior to
publication) and all Group staff are to receive
a bonus in December 2020, the committee is
satisfied that the total remuneration received
by Executive Directors in 2020 is a fair
reflection of performance over the period.
In respect of the LTIPs granted to the
Executive Directors in 2017, earnings
per share growth (from continuing and
discontinued activities) over the three-
year performance period has not met the
performance target set by the Remuneration
Committee at the time of grant (average
annual growth of between 3% and 10% over
three financial years) and consequently the
awards will lapse in full.
The committee exercised what it regards as
normal commercial judgement in respect of
Directors’ remuneration throughout the year
(and in all cases in line with the approved
remuneration policy) including in relation to:
• Setting performance metrics for normal
course annual bonuses and LTIPs in the
year; and
1 Refers to profit before tax and exceptional items from continuing operations.
• Confirming the outcome of performance
metrics for annual bonuses and LTIPs in
the year.
There were no other exercises of judgement
or discretion by the committee save as
detailed in this report.
Remuneration in 2021
The average salary increase across the
Group for 2021 is 2.75% with a baseline
increase of 1%. The baseline increase will
apply to the Executive Directors. The annual
bonus plan for 2021 will operate on a basis
consistent with that for 2020. Performance
conditions will again be based on demanding
profit before tax 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 earnings
per share over a three-year 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 1% baseline 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 and in
the event that it becomes necessary to close
the meeting to shareholders due to COVID-19,
as set out on page 100, there will be an
opportunity to submit questions to me prior
to the meeting.
Lynne Weedall
Chair – Remuneration Committee
81
GOVERNANCEGOVERNANCE DIRECTORS’ REMUNERATION REPORT
Policy section
Policy report
The following sets out the proposed
remuneration policy, which is subject to
a binding shareholder vote at the Annual
General Meeting on 29 January 2021 and,
if approved by shareholders, will apply to
payments made on and from this date. This
Policy will replace in full the remuneration
policy set out in the 2017 Annual Report.
Remuneration principles
The committee’s policy is to ensure that
remuneration structures align with those of
the wider workforce, are simple, transparent
and proportionate to the size and complexity
of the business, whilst ensuring that we pay
people fairly, and recognise and reward good
performance. The main principles of the
remuneration policy are:
• we will always aim to compete on salary
and other benefits, but executives should
not be overpaid when compared with
external pay relativity and wider workforce
remuneration and conditions;
• we will recognise strong contribution from
performance, experience and industry
expertise as well as demonstrating our
culture and values;
• all colleagues participate in a good pension
plan, with the same pension contribution
rates applying to all employees in a
country;
• remuneration packages should align
with Treatt’s strategic objectives and
the interests of shareholders by using
stretching performance metrics that
provide a strong link to the creation of
shareholder value;
the 2018 policy structure, further improve the
alignment of the policy with the interests of
shareholders and support prevailing market
and best practice.
• variable pay should incentivise delivery
against performance in accordance
with our culture where employees are
accountable and rewarded for their
performance;
• all employees can participate in a bonus,
and we have high alignment of business-
based targets for bonus across all
employees;
• we aspire to give all employees the
opportunity to participate in share plans
and we believe it is right that colleagues
can share in value created for our
shareholders; and
• our Executive Directors retain shares
from share plans and stay invested in our
business journey.
Changes from the previous policy
The committee is responsible for ensuring that
the remuneration of Executive Directors and
senior management is aligned to the Group’s
strategic objectives. It is key that the Group
is able to attract and retain leaders who are
focused and also appropriately incentivised
to deliver the Group’s strategic objectives in
accordance with a remuneration policy, which
is aligned with the long term interests of the
Company’s shareholders. The committee
believes that the previous remuneration
policies have achieved this and consequently
the changes adopted in this policy build upon
Specifically, this policy includes:
•
Introduction of a post-cessation holding
period of two years with a 200% of salary
shareholding requirement in year one and
a 100% of salary shareholding requirement
in year two;
•
increase in the shareholding requirement
of the CFO to 200% of salary;
• ability to award up to 30% of annual bonus
based on non-financial performance
measures; and
• enhanced malus and clawback provisions
The current intention is that the framework
of this remuneration policy will apply for
three years from the date of the 2021 Annual
General Meeting.
Executive Directors’ remuneration
The committee will continue to review its
policy and the individual elements of the
remuneration package annually to ensure
that they remain effective, in line with good
practice and support delivery of the strategy
and long-term success of the Group.
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 Helps recruit and retain high-calibre Executive Directors
Provides a competitive salary relative to the size of the Group
Operation
Salary levels will relate to the nature of the role, skill and experience of the individual, market positioning and pay and
conditions in the Group
Salaries are reviewed annually by the committee with changes taking effect for 12 months from 1 October, unless a
change in responsibility requires an interim review
Any change in salary is influenced by increases in the salaries of other Group employees, changes to the complexity of
the role, personal performance and a periodic review of market conditions for similar roles in comparable organisations
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
82
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
Element: benefits
Purpose and link to strategy Helps 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 Helps 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. This can be received as a cash amount where the lifetime
allowance is reached, and with the payments made reduced for the impact of Employers’ NICs
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 bonus (notes 1 – 6)
Purpose and link to strategy Provides an element of at risk pay, which incentivises delivery of performance in the current financial year
Encourages and rewards actions consistent with the annual priorities of the Group
Aligns Directors’ interests with shareholders and other stakeholders
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, with payments normally made in December
Maximum opportunity
100% of salary per annum
Performance metrics
Bonuses are based on the growth in Group profit before tax and exceptionals compared to the prior financial year,
which aligns with all employee bonus schemes across the Group
Up to 30% of bonus may be based on non-financial performance measures
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 major shareholders before making material changes to the current performance measures (except for the possible
introduction of the non-financial measures as described above)
83
GOVERNANCEGOVERNANCE DIRECTORS’ REMUNERATION REPORT
Element: Long Term Incentive Plan (LTIP) (notes 1 – 6)
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
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
Maximum opportunity
100% of salary per annum based on market value of shares at date of grant
Performance metrics
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
major 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: shareholding requirement
Purpose and link to strategy Aligns Directors’ interests with shareholders
Operation
Minimum shareholding requirements:
CEO – 200% of basic salary
CFO – 200% of basic salary
Directors are required to retain shares acquired under share-based incentive awards until the shareholding
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
Directors are subject to a post cessation shareholding requirement of 200% in year one and 100% in year two, with this
requirement applicable to all shares acquired following approval of the Remuneration Policy at the AGM in January 2021
Maximum opportunity
Performance metrics
Not applicable
Not applicable
Element: malus and clawback
Purpose and link to strategy To ensure Executive Directors do not benefit from errors or misconduct
Operation
Malus and clawback provisions are included in relation to LTIPs and bonus to enable an award to be reduced or
cancelled or to require the return of some or all of an award after vesting, in the following circumstances:
• material misstatement of the financial results used to determine an award
• error in the determination of the number of shares awarded
• Director’s misconduct
•
•
•
liquidation or administration of the Company
to prevent serious reputational damage in the view of the committee
to give effect to a provision for clawback under the LTIP or bonus scheme
Maximum opportunity
Performance metrics
Not applicable
Not applicable
84
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
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 consistent 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.
6
Consistent with the latest Corporate Governance Code, the Remuneration Committee may apply discretion to override formulaic outcomes for both annual bonus and LTIP if the
outcomes are considered inconsistent with the underlying performance of the Group.
Non-executive Directors’ remuneration
Element: fees
Purpose and link to strategy
Helps recruit high-calibre Non-executive Directors
Operation
Excluding the Chairman, subject to an aggregate limit within the Articles of Association (currently £300,000 as
approved by shareholders at the Annual General Meeting in January 2020)
Rewards additional responsibility by virtue of position as Chairman of the Board or Chair of a committee
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)
Any change in fees is influenced by increases in the salaries of other Group employees, personal performance and
a periodic review of market conditions for similar roles in comparable organisations
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 below provides estimates of the potential future reward for each of the Executive Directors based on their current roles, the
remuneration policy outlined on pages 82 to 88 and base salaries as at 1 October 2020.
The assumptions used in preparing the chart on page 85 are as follows:
£’000
1,400
1,200
1,000
800
600
400
200
0
510
340
337
337
44
15
44
15
337
44
15
337
18
15
224
116
112
224
18
15
172
168
337
44
15
337
228
224
224
18
15
342
224
224
18
15
Minimum
On target
Maximum
Maximum plus
Minimum
On target
Maximum
Maximum plus
Chief Executive Officer – Daemmon Reeve
Chief Financial Officer – Richard Hope
Salary
Benefits
Pension
Bonus
Share options
85
GOVERNANCEGOVERNANCE
DIRECTORS’ REMUNERATION REPORT
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%);
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%); and
Maximum plus
• as maximum plus effect of 50% share price growth compared to share price at the date of grant for the LTIP value.
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.
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. 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 Executive
Directors, employees are eligible to participate in an annual bonus scheme with conditions linked to the performance of their operating
subsidiary and the Group overall. Employee share ownership is encouraged across the Group and participation, particularly in the UK,
is strong. The Share Incentive Plan is designed to further encourage employee share ownership. Eligible employees, including Executive
Directors, are able to participate in the all-employee share schemes on equal terms. Executive Directors and key employees with the greatest
potential to influence achievement of the Group’s strategic objectives are provided with share options or long-term incentives designed to
encourage strong Group performance.
The Group has not expressly sought the views of employees when drawing up the remuneration policy. However, engagement with
employees takes place across the business through open door sessions held with the Chairman and the designated Non-executive Director
for employee engagement. Further details can be found on page 69. This enables the Board to understand the views of employees on a
variety of subjects, including executive remuneration, and allows the Board, where requested, to clarify how executive pay aligns to and
supports our overall strategy.
Recruitment of Executive Directors
The committee expects any new Executive Director to be engaged on terms that are consistent with the policy. However, it cannot anticipate
the circumstances in which any new Executive Director may be recruited and the committee may determine that it is in the interests of the
Company and shareholders to secure the services of a particular individual, which may require it to take account of the terms of that individual’s
existing employment.
The committee will ensure that:
• salary will be set to reflect the skills and experience of the incoming Director and the market rate for the role to be undertaken;
• existing benefits and incentives of the Group will be used with participation on the same basis as existing Directors using existing Treatt
performance conditions when appropriate;
• payment of relocation expenses, where relevant, will be reasonable and detailed in the relevant remuneration report (and will be limited to
a period of two years from first appointment);
•
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; and
• 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. Any buy-out awards will be subject to the maximum value of any outstanding awards forgone by the recruit (but are
not subject to a formal cap).
In determining the remuneration of a new Director, the committee will balance shareholder expectations, current best practice and the
circumstances of any new Director. It will strive not to pay more than is necessary to recruit the right candidate and will give full details in the
next Remuneration Report.
86
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
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 2020:
Daemmon Reeve
Richard Hope
Summary of the key elements of Directors’ service contracts:
Provision
Notice period
Summary
12 months by either party
Termination payment
No provision for payment in lieu of notice
Date of contract
Notice period
6 April 2016
1 October 2013
12 months
12 months
Salary
Benefits
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 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 Company’s registered office during
normal business hours.
Payments for loss of office
In accordance with the 2018 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, pension 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. As part of a
settlement agreement, the Company may reimburse reasonable legal costs incurred in connection with a termination of employment and/or
agree to make a contribution towards outplacement services, if the committee considers it appropriate.
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, where it is considered appropriate to allow a Director ‘good leaver’ treatment, a time pro-rated proportion
of outstanding share plan awards (as determined by the committee) may be retained and can vest subject to attainment of the performance
conditions at the normal vesting time for the awards. Any originally specified holding periods would normally continue to be applied to the
vesting shares.
In certain circumstances, such as injury, disability, or death, a time pro-rated number of share awards, may vest subject to an assessment of
the performance conditions and may be exercised within six months of leaving the Group (and the committee may disapply holding periods).
87
GOVERNANCEGOVERNANCE DIRECTORS’ REMUNERATION REPORT
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 maintains a regular dialogue with its major shareholders and will continue to monitor trends and developments
in corporate governance and market practice to ensure that the structure of executive remuneration remains appropriate. The views of
shareholders were taken into consideration in developing the new remuneration policy for approval at the 2021 AGM, and specifically
shareholders have commented on the shareholding requirements of the proposed remuneration policy for 2021, revised clawback provisions
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.
Implementation report
Membership and meetings
David Johnston stepped down as Chairman of the committee during the year; having served nine years on the Board as he is no longer deemed
to be independent. Lynne Weedall succeeded David Johnston as Chair. Current membership is Lynne Weedall (Chair), Jeff Iliffe and Yetunde
Hofmann. All members of the Remuneration Committee are considered to be independent.
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 2020 Directors’ Remuneration Report;
• agreement of the bonuses payable for the 2020 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;
• agreeing a new remuneration policy and consulting with major shareholders and proxy advisory services;
• reviewing salary levels for the Executive Directors and Chairman and agreement of salary and fee increases for the 2021 financial year;
• determination of the salary increases of Group senior managers for the 2021 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;
88
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
• 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.
In addition, the committee has ensured that the new policy and practices are consistent with the six factors set out in Provision 40 of the Code:
Clarity – Our policy is well understood by our senior executive team and has been clearly articulated to our shareholders and
representative bodies.
Simplicity – The committee is mindful of the need to avoid overly complex remuneration structures which can be misunderstood and
deliver unintended outcomes. Therefore, a key objective of the committee is to ensure that our executive remuneration policies and
practices are straightforward to communicate and operate.
Risk – Our policy has been designed to ensure that inappropriate risk-taking is discouraged and will not be rewarded via (i) the
balanced use of both annual incentives and LTIPs, (ii) the significant role played by shares in our incentive plans (together with LTIP
holding periods and in employment and post cessation shareholding guidelines) and (iii) malus/clawback provisions within all our
incentive plans.
Predictability – Our incentive plans are subject to individual caps, with our share plans also subject to market standard dilution limits.
The weighting towards use of shares within our incentive plans means that actual pay outcomes are highly aligned to the experience
of our shareholders.
Proportionality – There is a clear link between individual awards, delivery of strategy and our long-term performance. In addition,
the significant role played by incentive pay, together with the structure of the Executive Directors’ service contracts, ensures that poor
performance is not rewarded.
Alignment to culture – Our executive pay policies are fully aligned to Treatt’s culture through the application of our developed
remuneration principles which were widely reviewed by our Board before being settled.
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 led 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 £37,766
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 Board evaluation detailed on page 73 and reviewed as part of the committee’s
own processes. It was regarded that the committee is effective, receives good quality, timely information in respect of regulatory changes and
best practice and communicates well with the rest of the Board.
89
GOVERNANCEGOVERNANCE DIRECTORS’ REMUNERATION REPORT
Implementation of policy in 2021
Element of remuneration policy
Implementation of policy for 2021
Base salaries
Daemmon Reeve – £339,966 (FY2020: £336,600)
Richard Hope – £226,644 (FY2020: £224,400)
Represents a 1% increase, in line with the baseline annual increase for Group employees
Benefits
Unchanged from FY2020. Private healthcare (including family cover for Daemmon Reeve);
life assurance; permanent health insurance; car allowance; all-employee share schemes
Pensions
Unchanged from FY2020
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 FY2020
Maximum is 100% of base salary for Executive Directors
Long Term Incentive
Plan (LTIP)
FY2021 targets are based on Group profit before tax and exceptionals and are calibrated by reference to the
performance of the Group in FY2020
Bonuses are paid in cash after finalisation of the Group’s results for FY2021
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 FY2020
Annual LTIP award to Executive Directors of shares worth 100% of base salary (calculated using share prices at the
time of award)
FY2021 awards will be subject to performance conditions measured over three financial years to FY2023
The performance condition will again be based on growth in adjusted basic earnings per share measured from
FY2020 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 – 200% of basic salary
At 30 September 2020 Daemmon Reeve and Richard Hope held 883% and 1,069% of basic salary respectively
Malus and 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 FY2021 has been increased by 1% in line with
the baseline annual increase for Group employees . Accordingly, fee levels for the Chairman and Non-executive
Directors in FY2021 are as follows:
Chairman – £103,020 (FY2020: £102,000)
For all other Non-executive Directors:
Base fee – £42,445 (FY2020: £42,025)
Audit Committee Chair fee – £7,959 (FY2020: £7,880)
Remuneration Committee Chair fee – £5,306 (FY2020: £5,253)
Senior Independent Director – £2,653 (FY2020: £2,627)
90
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
The following section of this report provides details of the implementation of the policy for the year ended 30 September 2020.
Directors’ remuneration (audited)
The tables below report a single figure for total remuneration, and the proportion of fixed and variable pay is shown below for the Executive
Directors and for each individual Executive and Non-executive Director respectively.
Executive Directors:
Fixed pay:
Salary
Taxable benefits1
Pension2
Total fixed pay
Variable pay:
Annual bonus
Share options vesting in the financial year3
Total variable pay
Total single figure of remuneration
Daemmon Reeve
Richard Hope
2020
£’000
337
16
44
397
337
485
822
1,219
2019
£’000
330
16
43
389
206
906
1,112
1,501
2020
£’000
2019
£’000
224
16
18
258
224
323
547
805
220
16
17
253
138
460
598
851
1 Taxable benefits provided to Executive Directors relate to private medical insurance and car allowances.
2 Pension contributions relate to pay in lieu of pension after deduction of employers’ NI.
3
Options which vested in 2020 included those granted in 2016, during which times share price growth has been 41%. The maximum average adjusted EPS growth required was 10% per
annum, and the actual EPS growth achieved was 12.6% per annum. Details of share options which vested in the year are shown on page 94. The percentage of the value which vested
during the year which related to share price growth was 70% for Daemmon Reeve and 71% for Richard Hope.
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 items ('PBT&E').
Bonus payments range from 2.5% of salary at threshold level, rising incrementally to a maximum of 100%. The ranges are set out below in
comparison to the actual achieved growth in the year.
The achieved growth represented 11.3% growth from 2019’s equivalent PBT&E, and, having also considered a range of factors including the
company’s response to the challenges of COVID-19, the committee considered it appropriate for the bonus outcome to apply as per the originally
set target range without further adjustment.
Threshold
Maximum
Actual achieved
Percentage bonus
attainable
2.5%
100%
100%
2020
PBT&E
£’000
12,835
14,630
14,801
91
GOVERNANCEGOVERNANCE DIRECTORS’ REMUNERATION REPORT
Percentage bonus awarded
The annual bonus, as a percentage of the maximum bonus achievable (100% of salary), was as follows:
Daemmon Reeve
Richard Hope
Non-executive Directors:
Tim Jones
Jeff Iliffe
Yetunde Hofmann
Richard Illek
David Johnston
Lynne Weedall
Vijar Thakrar
Anita Haines
2020
100.0%
100.0%
Fees (fixed pay)
2020
£’000
102
50
42
42
47
45
42
–
332
2019
62.5%
62.5%
2019
£’000
100
49
221
41
49
221
–
133
296
1 Yetunde Hofmann was appointed on 20 March 2019 and Lynne Weedall on 6 April 2019.
2 Vijay Thakrar was appointed on 1 September 2020.
3 Anita Haines retired on 25 January 2019.
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 2010–2020
e
g
a
t
n
e
c
r
e
P
1,200
1,000
800
600
400
200
0
September
2010
September
2011
September
2012
September
2013
September
2014
September
2015
September
2016
September
2017
September
2018
September
2019
September
2020
Treatt plc
FTSE All-share
Source: Thomson Reuters Datastream
92
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
CEO remuneration
The following table provides historical data on remuneration in respect of the Director(s) performing the role of Chief Executive Officer for
each of the years covered by the performance graph:
Total remuneration (£'000)
Annual bonus as % of
maximum1
Share options vesting as %
of maximum
2020
1,219
2019
1,501
2018
1,757
2017
603
2016
580
2015
470
2014
436
2013
405
20122
274
2011
447
100%
62.5%
92.5%
100%
88%
92%
95%
85%
11%3
104%
100%
100%
100%
N/A4
N/A4
100%5
100%5
100%5
100%5
100%5
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 There were no options which vested during the year.
5 All share options vested in full as they were all-employee share options which were not subject to performance conditions.
Change in remuneration of employees and Directors
The table below shows the percentage change in remuneration of the Directors and employees of the business between the years ended 30
September 2019 and 30 September 2020.
Employees1
Executive Directors:
Daemmon Reeve
Richard Hope
Non-executive Directors:
Tim Jones
Yetunde Hofmann3
Jeff Iliffe
Richard Illek
David Johnston4
Lynne Weedall3,4
% change from FY19 to FY20
Salary or fees
4.9%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%
(4.7%)
10.0%
Bonus
22.9%2
63.6%
62.3%
n/a
n/a
n/a
n/a
n/a
n/a
1 The employees used for comparison are those UK and US employees who, for the salary comparison, were employed for the whole of the 2020 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 12.0% of salary
(2019: 2.5%) and UK all-staff bonuses were 4.0% of salary (2019: 10.5%).
3 Yetunde Hofmann was appointed on 20 March 2019 and Lynne Weedall on 6 April 2019, the percentage increase is calculated on a pro-rata basis.
4 David Johnston stepped down from his position as Chair of the Remuneration Committee on 1 May 2020 and was superseded by Lynne Weedall.
Relative importance of spend on pay
Wages and salaries are the most significant overhead cost in the Group. The following table sets out, in a manner prescribed by the regulations,
the relative importance of employee remuneration, as compared to distributions to shareholders and other significant uses of profit, the most
significant of which, taxation, has therefore been selected:
Total remuneration1
Dividends2
Current tax3
1 Total remuneration includes wages, salaries and pension costs as disclosed in note 6.
2 Dividends paid in the financial year as disclosed in note 12.
3
Current tax charge in respect of the financial year as disclosed in note 10.
2020
£’000
16,691
3,378
1,587
2019
£’000
14,739
3,080
1,494
Movement
+13%
+10%
+6%
93
GOVERNANCEGOVERNANCE
DIRECTORS’ REMUNERATION REPORT
Directors’ interests (audited)
The Directors who held office at 30 September 2020 had the following interests in the shares of the Parent Company:
Shares held outright or vested
Unvested share options with
performance conditions
Unvested all-employee share options
2020
2019
2020
2019
2020
2019
492,656
396,585
37,508
1,641
–
434,632
357,566
137,508
–
64,000
221,942
147,666
252,318
166,740
–
–
–
–
–
–
4,986
4,733
–
–
–
4,986
4,718
–
–
–
Executive Directors
Daemmon Reeve
Richard Hope
Non-executive
Directors
Tim Jones
Vijay Thakrar
Richard Illek
Between 1 October 2020 and 17 November 2020, 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 2020 as a percentage of their base salary:
Daemmon Reeve
Richard Hope
Value of shares held1
outright or vested
Base salary2
Value of interest as
% of base salary
2020
£’000
2,976
2,395
2019
£’000
1,765
1,452
2020
£’000
337
224
2019
£’000
330
220
2020
%
883%
1,069%
2019
%
535%
660%
Target % of
base salary
200%
200%
1 Based upon a share price of £6.04 as at 30 September 2020.
2 Base salary is the average basic gross pay for the corresponding year.
Share option schemes (audited)
The following share options were granted to Executive Directors during the financial year:
Daemmon Reeve
Richard Hope
Scheme
Basis
Date of grant
LTIP 20192
Executive
13 Dec 2019
SAYE 20203
All-staff
8 July 2020
LTIP 20192
Executive
13 Dec 2019
Share price
at date of
grant
Face value
£’0001
Min
performance
award
£4.55
£5.11
£4.55
337
8
224
25%
N/A
25%
Performance
end date
30 Sept 2022
N/A
30 Sept 2022
1 Face value is calculated based upon share price at date of grant as shown above.
2 Executive LTIPs are granted at Nil cost, subject to performance conditions.
3 SAYE (Save As You Earn) share options are offered to UK employees (subject to tax exempt limits) at a discount of 20% of the average share price for the three days preceding the date
of grant and are exercisable after three years.
94
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REMUNERATION REPORT
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 on page
94. 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:
Daemmon Reeve
Sept 2022 – Feb 2023
Exercise dates
Richard Hope
Dec 2019 – Dec 2026
Dec 2020 – Dec 2027
Dec 2021 – Dec 2028
Dec 2022 – Dec 2029
Sept 2020 – Feb 2021
Sept 2021 – Feb 2022
Sept 2022 – Feb 2023
Sept 2023 – Feb 2024
Dec 2019 – Dec 2026
Dec 2020 – Dec 2027
Dec 2021 – Dec 2028
Dec 2022 – Dec 2029
Exercise
price
361.0p
Nil
Nil
Nil
Nil
413.0p
373.0p
361.0p
409.0p
Nil
Nil
Nil
Nil
At 1 Oct
2019
4,986
104,354
67,477
80,487
–
257,304
1,481
1,592
1,645
–
68,392
44,690
53,658
–
171,458
Granted
during the
year
–
–
–
–
73,978
73,978
–
–
–
1,496
–
–
–
49,318
50,814
Exercised
during the
year
–
(104,354)
–
–
–
(104,354)
(1,481)
–
–
–
(68,392)
–
–
–
(69,873)
Expired
during the
year
At 30 Sept
2020
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,986
–
67,477
80,487
73,978
226,928
–
1,592
1,645
1,496
–
44,690
53,658
–
152,399
The aggregate amount of gains made by the Directors on the exercise of share options in the year was £808,000 (2019: £1,366,000).
There have been no further changes in the interests of the Directors to subscribe for or acquire shares between 1 October 2020 and
17 November 2020, the latest date practicable to obtain the information prior to publication of this document.
The market price of the shares at 30 September 2020 was £6.04 and the range during the financial year was £3.10 to £6.38. All market price
figures are derived from the Daily Official List of the London Stock Exchange.
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, HM Revenue & Customs approved, defined benefit occupational pension
scheme.
The pension entitlement is as follows:
Daemmon Reeve
Normal retirement date
24 Sept 2036
Accrued total pension
2020
£
14,324
2019
£
14,078
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.
95
GOVERNANCEGOVERNANCE DIRECTORS’ REMUNERATION REPORT
Contributions to defined money purchase pension plans were made as follows:
Daemmon Reeve
Richard Hope
2020
£’000
44
18
2019
£’000
43
17
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 31 January 2020, the votes cast in respect of the resolution to approve the Directors’ Remuneration
Report, was as follows:
Directors’ Remuneration Report
For 99.84%
Against 0.16%
Votes withheld 14,362
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 23 November 2020.
Anita Guernari
Group Legal Counsel and Company Secretary
96
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REPORT
Financial statements
The Directors present their report and the
audited financial statements for the Group for
the year ended 30 September 2020.
Results and dividends
The results of the Group for the year are set
out on page 109. Reported profit before tax for
the year was £13,741,000 (2019: 12,545,000).
Profit before tax and exceptional items from
continuing operations was £14,801,000 (2019:
£13,300,000).
The Directors recommend a final dividend
of 4.16p (2019: 3.80p) per ordinary share.
This, when taken with the interim dividend
of 1.84p (2019: 1.70p) per share paid on 13
August 2020, gives a total dividend of 6.00p
(2019: 5.50p) per share for the year ended 30
September 2020.
Corporate governance
The Corporate Governance Statement on
pages 68 to 73 forms part of this Directors’
Report.
Directors
The Directors of the Company are shown on
pages 66 and 67.
Appointment and replacement of
Directors
The appointment and replacement of
Directors is governed by the Company’s
Articles of Association, the UK Corporate
Governance Code, the Companies Act and
related legislation. Directors can be appointed
by the 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 68 to 73.
Details of the Executive Directors’ contracts
and notice periods are given in the Directors’
Remuneration Report on page 87. The
Executive Directors’ contracts are terminable
by the Group giving the required notice period
of 12 months. The appointments of the Non-
executive Directors can be terminated by the
Company giving three months’ notice at any
time. The 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 Company are shown in the Directors’
Remuneration Report on page 94.
Substantial shareholders
In accordance with Rule 5 of the Disclosure
and Transparency Rules of the Financial
Conduct Authority, the Company has been
notified of the following holdings of 3% or
more of the voting rights at 17 November
2020 (the latest practicable reporting date
prior to publication of this document).
Blackrock Inc
Rights and Issues Investment Trust
Canaccord Genuity Group Inc
Liontrust Asset Management
Hargreaves Lansdown Plc
James Sharp & Co
Number
Issued %
Voting %
6,770,325
3,500,000
3,495,134
2,646,533
2,237,441
1,809,972
11.23%
5.81%
5.80%
4.39%
3.71%
3.00%
11.36%
5.87%
5.86%
4.44%
3.75%
3.04%
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
these annually. Details of other directorships
held by members of the Board can be found
in the Director profiles on pages 66 and 67.
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 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 to 17. The main
research and development activity undertaken
by the Group is in the area of new product
development.
The Group utilises its strong technical
capabilities to develop innovative products that
provide solutions for customers, particularly
in the food and beverage 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.
97
GOVERNANCEGOVERNANCE DIRECTORS’ REPORT
Financial and internal control
The Board confirms that a process for
the on-going identification, evaluation and
management of significant risks faced by
the Group has been in place throughout the
year and to the date of approval of this report,
which complies with the 'Guidance on Risk
Management, Internal Control and Related
Financial and Business Reporting' issued by
the FRC in September 2014.
The 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 appropriate
disclosures are made.
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.
Further information in respect of the new
UK Headquarters is set out in the Financial
Review on page 52.
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 56 to 63.
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 31 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 10
to 63. Information on the principal risks and
uncertainties and how they are managed can
also be found in the Strategic Report.
In accordance with the 2018 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 and also a number
of scenarios specifically related to the impact
of the continuing global COVID-19 pandemic
at varying degrees of severity. 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 are
described on pages 56 to 63.
The key factors considered by the Directors
within the five-year review were:
•
•
•
•
•
•
•
the implications of the challenging
economic environment, notably the
global COVID-19 pandemic and the future
uncertainties on the Group’s revenues and
profits, and also the imminent impact of
the end of the Brexit transition period;
the implications of fluctuating prices of the
Group’s strategic raw materials;
the implication of the ongoing UK
headquarters relocation;
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;
98
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REPORT
• a sensitivity analysis which involves
flexing several of the main assumptions
underlying the five-year plan, and
considering the implications of a number
of risks materialising during a short-term
period; and
covenant compliance have been assessed
throughout the going concern (twelve-
month) and viability (five-year) periods.
These scenarios have then been stress-tested
further by overlaying the adverse impact of a
decline in profit margins.
• additional sensitivity analysis for the
various degrees of severity of the
continuing COVID-19 pandemic, including
a reverse stress test to determine the
scenario and circumstances that would
need to prevail to render the business
unviable.
These tests were assessed against the
Group’s current and projected liquidity
position, in particular the headroom on
existing facilities and compliance with
banking covenants. Excluding the COVID-19
scenarios which are discussed in the next
section, none of the modelled stress test
scenarios resulted in any breach of facility
headroom or banking covenants. Although
during the viability period, three out of four
of the Group’s current banking facilities
would expire, it was considered reasonable to
assume that the financial position of the Group
would be sufficiently robust that the Group
could renew those facilities should it wish to.
The Group’s financial and bank facilities track
record supports this assumption, including its
experience since the onset of the COVID-19
pandemic. Furthermore, as outlined in the
Financial Review on page 51, the Group are
currently negotiating an additional £7.0m
RCF with HSBC, with an option to extend this
by a further £6.5m through an ‘accordion’.
However, the stress test modelling excluded
any benefit from these additional facilities.
COVID-19 stress testing and impact on
going concern and viability assessment
The ongoing global COVID-19 pandemic
presents a unique and unforeseeable variety
of outcomes, and its impact on markets
now and in the next twelve to twenty-four
months is highly uncertain. While detailed
scenario planning is difficult, the Directors
have modelled four scenarios representing
varying degrees of severity. All four scenarios
assume that the chief factor to consider is lost
sales volume, which would adversely impact
cash generation and profitability, and that this
decline in sales volume will be felt over the
first twenty-four months of the viability period,
before the Group returns to growth at a rate
commensurate with un-stressed forecasts.
Using these assumptions, headroom and
Outcome of COVID-19 stress testing
The first three tests considered a decline in
sales volumes ranging between 6% and 26%
over the next twenty-four months followed by
a return to growth in years three to five. The
6% stress test is based on the level of decline
in volumes experienced during the pandemic
between March 2020 and September 2020,
and an additional 10% points reduction was
assumed in the 16% stress-test, with an
additional 20% points reduction in the 26%
stress-tests alongside a fall in gross margin
of 3%.
Under none of these scenarios were
headroom or covenant requirements
breached, and sufficient headroom and cash
resources were in place to meet the expected
needs of the business over the going concern
and viability periods. Flexing for other
variables, such as a potential overspend on
the UK relocation, failure to renew a banking
facility or variability in FX rates, the Directors
still consider that the business would remain
a going concern and viable under these
circumstances over the period.
Under the fourth test, a particularly severe
scenario was determined in which banking
covenant requirements would be breached
during the next twenty-four months, the so-
called ‘reverse stress testing scenario’. In this
test, it was determined that a decline in sales
of greater than 36.3% per annum compared
to expectations over the first twenty-four
months of the viability period, with no
mitigating measures put in place, would result
in a breach of financial covenants.
Based on the Group’s experience over the
past eight months since COVID-19 impacted
its main markets and the Group’s current
trading performance whilst many countries
are in their second national lockdowns,
the possibility of this severe scenario
materialising is considered remote. In addition,
it is implausible that the Group would not act
swiftly and decisively to activate mitigations
such as operating cost savings, reduction in
capital expenditure, accessing Government
support and delaying or cancelling future
dividend payments to avoid a breach of its
banking covenants. It should be noted that
even in this remote scenario, the Group would
remain within its overall banking facilities.
Conclusion on going concern and
viability
Having considered the current cash and
liquidity position of the Group, the range of
scenarios discussed above and the Group’s
proven ability to adapt to and manage
adversity, 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.
Health and safety
The Group’s disclosures on health and safety
have been included within the Working
Responsibly section on pages 36 to 37.
Streamlined Energy and Carbon
Reporting (SECR) compliance
In compliance with the SECR requirements,
our greenhouse gas emissions, energy
consumption and energy reduction initiatives
are reported within the Working Responsibly
section on page 42.
Employees
The Group’s disclosures on employees have
been included within the Working Responsibly
section on pages 44 to 46.
Employee engagement
The Group’s disclosures on how the Board
has engaged with employees and how it has
had regard to employee interests have been
included within the Section 172 statement on
pages 29 to 30.
Business relationships
The Group’s disclosures on how the Board
has had regard to the need to foster the
Company’s business relationships with
suppliers, customers and others have been
included within the Section 172 statement on
pages 29 to 30.
Political donations
The Group made no political donations in
2020 (2019: £nil).
99
GOVERNANCEGOVERNANCE DIRECTORS’ REPORT
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 2021, the 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 Company is able to act at short notice if
circumstances warrant.
A resolution will also be proposed at the 2021
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 155.
Treatt Employee Benefit Trust (the
'EBT')
The EBT holds ordinary shares in the
Company in order to meet obligations under
the Group’s employee share option schemes.
No shares (2019: nil) were purchased by the
EBT during the year ended 30 September
2020. During the year 100,000 (2019:
700,000) shares were issued to the EBT
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.
Branch disclosure
The subsidiary, R C Treatt & Co Limited, has
a branch in China, which was established in
July 2006.
Structure of share capital
The Parent Company’s share capital
comprises 60,270,670 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 26 of the
financial statements. During the year the
Parent Company issued 100,000 shares to
the Employee Benefit Trust (2019: 700,000).
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
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
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.
Treatt SIP Trustees Limited (the
'SIP Trust')
During the year the Company outsourced the
administration of the UK Share Incentive Plan
to Link Asset Services Trustees, who hold
444,017 shares, all of which are allocated to
participants under the rules of the SIP. Voting
rights are waived on all shares held in the SIP
Trust. 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 29 January 2021. It
is currently intended that it will be an open
meeting for all shareholders but this will be
subject to review nearer the time in light of
the COVID-19 situation. In the event that it is
necessary to protect the health and wellbeing
of our staff and shareholders and is permitted
by the Corporate Insolvency and Governance
Act 2020, the meeting will be held as a closed
meeting and shareholders will be unable to
attend. In these circumstances, shareholders
will be notified in writing and will be invited to
submit questions to the Board in advance of
the meeting. Answers to questions submitted
will be published on the Group’s website
as soon as practicable after the Annual
General Meeting. The Notice of Meeting and
explanatory notes are given on pages 155 to
162. 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 (www.
treatt.com).
Auditors
Following their appointment during the
course of the year, BDO LLP has indicated
its willingness to continue in office. On the
recommendation of the Audit Committee,
as set out on page 79, resolutions are to be
proposed at the Annual General Meeting for
the re-appointment of BDO 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 2020 is disclosed in
note 5 of the financial statements.
100
TREATT PLCAnnual Report & Accounts 2020 DIRECTORS’ REPORT
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; and
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;
e. prepare a Directors' Report, a Strategic
Report and Directors' Remuneration Report
which comply with the requirements of the
Companies Act 2006.
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.
The Directors are responsible for ensuring
the annual report and the financial statements
are made available on a website. Financial
statements are published on the Company's
website in accordance with legislation in the
United Kingdom governing the preparation
and dissemination of financial statements,
which may vary from legislation in other
jurisdictions. The Directors are responsible
for the maintenance and integrity of the
corporate and financial information included
on the Treatt plc website.
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 and Article 4 of the IAS Regulation, give
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
23 November 2020.
Signed on behalf of the Board.
Anita Guernari
Group Legal Counsel and
Company Secretary
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 financial statements and
have elected to prepare the Parent Company
financial statements for each financial year.
The Directors are required under company
law and 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
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,
subject to material departures disclosed
and explained in the financial statements;
101
GOVERNANCEGOVERNANCE TREATT PLC Annual Report & Accounts 2020
102
FINANCIAL STATEMENTS
FINANCIAL
STATEMENTS
FINANCIAL STATEMENTS
Independent Auditor’s Report to the Members of Treatt Plc 104
Group Income Statement 109
Group Statement of Comprehensive Income 110
Group and Parent Company Statements of Changes in Equity 111
Group and Parent Company Balance Sheets 113
Group and Parent Company Statements of Cash Flows 115
Group Reconciliation of Net Cash Flow to Movement in Net Cash 116
Notes to the Financial Statements 117
OTHER INFORMATION
Notice of Annual General Meeting 155
Parent Company Information and Advisors 163
Financial Calendar 164
G
O
V
E
R
N
A
N
C
E
103
FINANCIAL STATEMENTS 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 2020 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 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 2020
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 the 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 directors’ confirmation set out on pages 56 to 63 in the annual report that they have carried out a robust assessment of the Group’s
emerging and principal risks and the disclosures in the annual report that describe the principal risks and the procedures in place to identify
emerging risks and explain how they are being managed or mitigated;
the directors’ statement set out on pages 98 and 99 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 98 and 99 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.
104
TREATT PLCAnnual Report & Accounts 2020 INDEPENDENT AUDITOR’S REPORT
to the members of Treatt Plc
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the 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,
including 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 financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Valuation of Inventory
The Group has significant inventory balances, which due to
the nature of the products include a degree of estimation
and judgement in the valuation process, as well as provisions
against inventory for slow moving or obsolete items.
Accordingly, this was determined to be a key audit matter.
The accounting policies and critical judgements applied are
disclosed in Note 3 on page 121. The Group inventory note can
be found in Note 19,
How we addressed the key audit matter in the audit
Our audit work included but was not limited to:
• We critically assessed management’s policy in respect of the recognition of inventory
provisions to determine its appropriateness in relation to the age, nature and
condition of the Group’s inventory and the requirements of the applicable accounting
standards;
• Challenged management’s judgements in relation to inventory provisions by reviewing
the utilisation of prior year provisions in the context of current year inventory write-
offs to assess the appropriateness of management’s estimation process;
• Tested a sample of year-end inventory items via discussion with management and
examination of supporting evidence to determine that where a provision was required
it had been appropriately included in the year-end provision;
• Critically challenged management’s judgement applied when setting overhead
recovery rates, including verifying the nature of categories of overheads absorbed
and reviewing the underlying assumptions applied in the calculations;
• Critically reviewed direct costs and overheads to check that those relevant to
the manufacturing process were included in management’s overhead absorption
calculations;
• Considered variances between budgeted overhead and actual overhead recovery to
confirm that the proportion of overheads absorbed was accurate;
• Tested a sample of overheads absorbed in Cost of Sales to the budgeted overhead
recovery rates set at the beginning of the financial year;
• Tested a sample of works orders completed in the year checking that there was a
corresponding overhead recovery charge where appropriate;
• Checked the mathematical accuracy of managements overhead absorption and
inventory provision calculations;
Key observations
We found management’s judgements and estimates used in the valuation of inventory to
be appropriate and in line with the requirements of applicable accounting standards.
There were no Key Audit Matters identified in relation to the Parent Company.
105
FINANCIAL STATEMENTSFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT
to the members of Treatt Plc
OUR APPLICATION OF MATERIALITY
The concept of materiality is fundamental to the preparation of the financial statements and the audit process and applies not only to monetary
misstatements but also to disclosure requirements and adherence to appropriate accounting principles and statutory requirements. We define
materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced.
We have determined materiality based on our professional judgement for the financial statements as a whole as follows:
Group
Materiality
£733,000
Basis
Rationale
5% of continuing profit before tax and exceptional items
We consider the use of 5% of continuing profit before tax and exceptional items
to be the most appropriate threshold since this removes the impact of certain
one-off or exceptional items impacting the underlying profit of the Group and
is also a key measure for stakeholders based on market practice and investor
expectations. Exceptional items are detailed in note 9 to the financial statements.
Further materiality measures applied in the conduct of the audit include:
Parent company
£608,000
1.5% of total assets
The Parent Company is a non-trading holding
company and the most significant balance in its
financial statements is total assets.
Performance materiality
Measure
Application
Group – £476,000 equivalent to
65% of Materiality
Parent company – £395,000
equivalent to 65% of Materiality
The application of materiality at the individual account or balance level is set
at an amount to reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds materiality.
We consider 65% of materiality to be appropriate due to this being a first year of
audit by BDO and in order to reflect that there are a number of balances subject
to estimation or judgement which are not able to be determined with precision.
Component materiality
The range of materiality used for
significant components ranged
from £201,000 to £608,000.
Our audit work at each component has been executed at levels of materiality
applicable to each individual entity based on its size and risk as approved by
the Group audit team and in each case, lower than that applied to the Group.
Reporting threshold
Group – £25,500
Parent Company – £21,000
All audit differences in excess of the ‘reporting threshold’ are reported to the
Audit Committee, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
Quantitative &
qualitative disclosures
We also report to the Audit Committee on disclosure matters that we identified when assessing the overall
presentation of the financial statements.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit was scoped by obtaining an understanding of the group and its environment, including the group’s system of internal control,
and assessing the risks of material misstatement in the financial statements.
The Group operates through a number of legal entities set out in Note 17. Treatt Plc, R.C.Treatt Limited and Treatt USA Inc were the only
components which were determined as significant to the Group. All significant components were subject to full scope audits. The Kenyan
subsidiaries were subject to desktop reviews. All audits and desktop review procedures were completed by BDO LLP.
Capability of the audit to detect irregularities, including fraud
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and
considered the risk of acts by the Group that were contrary to applicable laws and regulations, including fraud. We designed audit procedures
at Group and significant component levels to respond to the risk, recognising that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or
intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the
financial statements, including, but not limited to, the Companies Act 2006, the UK Listing Rules and tax legislation.
Our tests included agreeing the financial statement disclosures to underlying supporting documentation, review of board and committee
meeting minutes, enquiries with management and enquiries of in-house legal counsel.
There are inherent limitations in the audit procedures described above and, the further removed non-compliance with laws and regulations is
from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We also addressed the risk
of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the Directors that
represented a risk of material misstatement due to fraud.
106
TREATT PLCAnnual Report & Accounts 2020 INDEPENDENT AUDITOR’S REPORT
to the members of Treatt Plc
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information in the Annual Report and Accounts,
other than the financial statements and our auditor’s report thereon. 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 101 – the statement given 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 position, performance, business model and strategy, is materially inconsistent with our knowledge obtained in the
audit; or
• Audit committee reporting set out on pages 76 to 79 – 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 69 – 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.
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 Parent Company and its 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 statement of directors’ responsibilities set out on page 101, 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.
107
FINANCIAL STATEMENTSFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT
to the members of Treatt Plc
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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
OTHER MATTERS WHICH WE ARE REQUIRED TO ADDRESS
Following the recommendation of the audit committee, we were appointed by the Board of Directors on 29 June 2020 to audit the financial
statements for the year ending 30 September 2020 and subsequent financial periods. The period of total uninterrupted engagement is one
year, covering the year ending 30 September 2020.
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.
Tracey Keeble (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Ipswich, UK
23 November 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
108
TREATT PLCAnnual Report & Accounts 2020 GROUP INCOME STATEMENT
for the year ended 30 September 2020
CONTINUING OPERATIONS
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit1
Other gains – hedge ineffectiveness
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 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
2020
£'000
109,016
(77,140)
31,876
(16,784)
15,092
45
67
(403)
14,801
(1,060)
13,741
(2,896)
10,845
(1,080)
9,765
16.32p
16.16p
19.42p
19.24p
18.12p
17.95p
19.72p
19.53p
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
1 Operating profit is calculated as profit before other gains, net finance costs, exceptional items and taxation.
2 All adjusted earnings per share measures exclude exceptional items and the related tax effect, details of which are given in note 9.
3 Excludes the impairment of discontinued operations as detailed in note 11.
Notes 1 to 32 form part of these financial statements.
109
FINANCIAL STATEMENTSFINANCIAL STATEMENTS GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2020
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 currency net investments
Current tax on foreign currency translation differences
Fair value movement on cash flow hedges
Deferred tax on fair value movement
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss on defined benefit pension scheme
Current tax on defined benefit pension scheme liability
Deferred tax on actuarial loss
Other comprehensive expense for the year
Total comprehensive income for the year attributable to owners
of the Parent Company
Notes 1 to 32 form part of these financial statements.
Notes
10
25,31
10
29
10
10
2020
£’000
9,765
(2,094)
82
(6)
2
(2,016)
(2,418)
(29)
586
(1,861)
(3,877)
2019
£’000
8,788
2,123
(72)
93
(16)
2,128
(4,230)
–
719
(3,511)
(1,383)
5,888
7,405
110
TREATT PLCAnnual Report & Accounts 2020 GROUP AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY
for the year ended 30 September 2020
Share
capital
£’000
Share
premium
account
£’000
Own
shares
in share
trusts
£’000
1,189
23,484
(34)
Notes
Hedging
reserve
£’000
Foreign
exchange
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
50
–
–
93
–
(16)
77
–
–
–
–
–
–
–
127
–
127
–
–
(6)
–
2
3,515
53,421
81,625
–
8,788
8,788
2,123
–
–
–
–
2,123
93
(4,230)
(4,230)
(72)
719
2,051
5,277
631
7,405
–
–
–
–
–
–
–
(3,080)
(3,080)
653
–
506
–
653
33
506
–
(35)
(35)
(1,956)
(1,923)
5,566
56,742
87,107
–
(37)
(37)
5,566
56,705
87,070
–
9,765
9,765
(2,094)
–
–
82
–
–
(2,094)
(6)
(2,418)
(2,418)
557
641
5,888
(4)
(2,012)
7,904
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,378)
(3,378)
875
–
537
–
116
875
12
537
–
116
(1,850)
(1,838)
123
3,554
62,759
91,120
Group
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
25
29
10
12
28
26
10
30 September 2019
Adoption of IFRS 161
1 October 2019
Profit for the year
Other comprehensive income:
Exchange differences
Fair value movement on cash flow hedges
25,31
Actuarial loss on defined benefit pension scheme
Taxation relating to items above
Total comprehensive (expense)/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
30 September 2020
29
10
12
28
26
10
–
–
–
–
–
–
–
–
–
–
14
–
14
–
–
–
–
–
–
–
–
–
–
–
–
–
1,203
23,484
–
–
1,203
23,484
–
–
–
–
–
–
–
–
–
–
2
–
2
–
–
–
–
–
–
–
–
–
–
–
–
1,205
23,484
–
–
–
–
–
–
–
–
33
–
(14)
–
19
(15)
–
(15)
–
–
–
–
–
–
–
–
12
–
(2)
–
10
(5)
1 The opening retained earnings balance is restated for the adoption of IFRS 16; more information is provided in note 16.
Notes 1 to 32 form part of these financial statements.
111
FINANCIAL STATEMENTSFINANCIAL STATEMENTS GROUP AND PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY
for the year ended 30 September 2020
Parent Company
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
1 October 2019
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 2020
Notes
Share
capital
£’000
Share
premium
account
£’000
Own shares
in share
trusts
£’000
1,189
23,484
(34)
–
–
–
–
–
–
14
14
–
–
–
–
–
–
–
–
1,203
23,484
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
–
1,205
23,484
12
17
26
12
17
26
–
–
–
33
–
–
(14)
19
(15)
–
–
–
12
–
–
(2)
10
(5)
Retained
earnings
£’000
13,728
2,903
2,903
Total equity
£’000
38,367
2,903
2,903
(3,080)
(3,080)
–
653
506
–
33
653
506
–
(1,921)
(1,888)
14,710
2,900
2,900
39,382
2,900
2,900
(3,378)
(3,378)
–
875
537
–
12
875
537
–
(1,966)
15,644
(1,954)
40,328
The adoption of IFRS 16 has not had any impact on the Parent Company’s results as reported.
Notes 1 to 32 form part of these financial statements.
112
TREATT PLCAnnual Report & Accounts 2020 GROUP AND PARENT COMPANY BALANCE SHEETS
as at 30 September 2020
Registered Number: 01568937
Group
2020
£’000
Parent Company
2019
£’000
2020
£’000
2019
£’000
Notes
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Investment in subsidiaries
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Cash and bank balances
Assets classified as held for sale
Total assets
LIABILITIES
Current liabilities
Borrowings
Provisions
Trade and other payables
Lease liabilities
Current tax liabilities
Derivative financial instruments
Liabilities classified as held for sale
Net current assets
Non-current liabilities
Borrowings
Lease liabilities
Post-employment benefits
Deferred tax liabilities
Total liabilities
Net assets
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
–
–
–
34,097
–
34,097
–
735
–
–
5,758
–
6,493
40,590
–
–
–
7,663
–
7,663
–
86
–
–
33,210
–
33,296
40,959
–
–
–
–
(262)
(1,577)
–
–
–
–
–
–
–
–
(262)
6,231
(1,577)
31,719
–
–
–
–
–
–
–
–
–
–
(262)
40,328
(1,577)
39,382
1,358
50,159
1,173
–
1,358
54,048
36,050
24,167
1,057
459
7,739
–
69,472
123,520
(3,203)
(146)
(12,441)
(31)
–
(168)
–
(15,989)
53,483
(3,450)
(628)
(10,051)
(2,282)
(16,411)
(32,400)
91,120
14
15
16
17
18
19
20
25
21
22
23
24
16
25
22
16
29
18
113
FINANCIAL STATEMENTSFINANCIAL STATEMENTS GROUP AND PARENT COMPANY BALANCE SHEETS
as at 30 September 2020
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 32 form part of these financial statements.
Notes
26
27
Group
2020
£’000
1,205
23,484
(5)
123
3,554
62,759
91,120
2019
£’000
1,203
23,484
(15)
127
5,566
56,742
87,107
Parent Company
2020
£’000
1,205
23,484
(5)
–
–
15,644
40,328
2019
£’000
1,203
23,484
(15)
–
–
14,710
39,382
The Parent Company reported a profit for the year of £2,900,000 (2019: £2,903,000). The adoption of IFRS 16 has not had any impact on the
Parent Company’s results as reported.
The financial statements were approved by the Board of Directors and authorised for issue on 23 November 2020 and were signed on its
behalf by:
Tim Jones
Chairman
Richard Hope
Chief Financial Officer
114
TREATT PLCAnnual Report & Accounts 2020
GROUP AND PARENT COMPANY STATEMENTS OF CASH FLOWS
for the year ended 30 September 2020
Group
Parent Company
Cash flow from operating activities
Profit before taxation including discontinued activities
Adjusted for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of discontinued operations
Loss on disposal of subsidiary
Net finance costs/(income)
Share-based payments
(Decrease)/increase in fair value of derivatives
Increase in post-employment benefit obligations
Dividend income settled via intercompany account
Operating cash flow before movements in working capital
Movements in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Cash generated from operations
Taxation (paid)/received
Net cash from operating activities
Cash flow from investing activities
Disposal of subsidiaries
Acquisition of shares in existing subsidiaries
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Cash flow from financing activities
(Repayment)/increase in bank loans
Interest paid
Employer contributions to defined benefit pension scheme
Dividends paid
Proceeds on issue of shares
Net sale of own shares by share trusts
Net (decrease)/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
14
11
11
8
28
29
24
24
17
14
8
8
29
12
26
21
22
2020
£’000
12,584
1,809
75
638
185
191
886
(611)
145
–
2019
£’000
11,477
1,559
90
825
–
199
637
7
101
–
15,902
14,895
(458)
(1,278)
1,511
15,677
(2,191)
13,486
(136)
–
(23,909)
(905)
67
(24,883)
(724)
(258)
(300)
(3,378)
2
547
(4,111)
(15,508)
(318)
(15,826)
21,076
5,250
7,739
(2,489)
5,250
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
2020
£’000
2019
£’000
(as restated)
2,890
2,865
–
–
–
–
–
–
–
–
(389)
(286)
–
–
–
(1,642)
859
–
–
11
870
9
879
–
(25,559)
–
–
57
(25,502)
–
–
–
–
–
–
(518)
2,061
–
1,387
(469)
2,979
36
3,015
1,033
–
–
–
58
1,091
–
(3)
–
(3,378)
(3,080)
2
547
(2,829)
(27,452)
–
(27,452)
33,210
5,758
5,758
–
5,758
14
526
(2,543)
1,563
–
1,563
31,647
33,210
33,210
–
33,210
The adoption of IFRS 16 has not had any impact on the current or comparative period of the Parent Company’s results as reported.
Notes 1 to 32 form part of these financial statements.
115
FINANCIAL STATEMENTSFINANCIAL STATEMENTS GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH
for the year ended 30 September 2020
Movement in cash and cash equivalents in the year
Repayment/(increase) in bank loans
Cash (outflow)/inflow from changes in net cash in the year
Effect of foreign exchange rates
Movement in net cash in the year
Net cash at beginning of year
Lease liability recognised as debt1
Net cash at end of year
Analysis of movement in net cash during the year:
Cash and bank balances
Bank borrowings
Cash and cash equivalents
Bank loans and overdrafts
Lease liabilities
Net cash at end of year
Cash and bank balances
Bank borrowings
Cash and cash equivalents
Bank loans and overdrafts
Net cash at end of year
At
30 September
2019
£’000
37,187
(16,111)
21,076
(5,118)
–
15,958
IFRS 16 lease
liabilities at
1 October 2019
£’0001
–
–
–
–
(660)
(660)
At
1 October
2019
£’000
37,187
(16,111)
21,076
(5,118)
(660)
Cash flow
£’000
(29,130)
13,622
(15,508)
724
(1)
15,298
(14,785)
At
1 October
2018
£’000
32,304
(19,244)
13,060
(3,001)
Cash flow
£’000
4,801
3,133
7,934
(1,874)
10,059
6,060
2020
£’000
(15,826)
724
(15,102)
230
(14,872)
15,958
(659)
427
2019
£’000
8,016
(1,874)
6,142
(243)
5,899
10,059
–
15,958
Foreign
exchange
movements
£’000
At
30 September
2020
£’000
(318)
–
(318)
230
2
(86)
7,739
(2,489)
5,250
(4,164)
(659)
427
Foreign
exchange
movements
£’000
At
30 September
2019
£’000
82
–
82
(243)
(161)
37,187
(16,111)
21,076
(5,118)
15,958
1 Lease liabilities are recognised following the adoption of IFRS 16; more information is provided in note 16.
This statement of reconciliation of net cash flow to movement in net cash does not form part of the primary statements.
Notes 1 to 32 form part of these financial statements
116
TREATT PLCAnnual Report & Accounts 2020 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 163.
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 Group has adopted IFRS 16, ‘Leases’ from 1 October 2019 using the modified retrospective approach which means that the standard
is applied retrospectively with the cumulative effect of initially applying the standard being recognised within opening retained earnings and
comparative information is not restated. This standard is mandatory for financial periods beginning on or after 1 January 2019 and, therefore,
relevant to the Group for the first time for the financial year ended 30 September 2020.
IFRS 16 Leases
The objective of IFRS 16 is to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, the lessee should recognise
assets and liabilities arising from a lease.
IFRS 16 replaces IAS 17 and removes the distinction between operating leases and finance leases, instead introducing a single lessee accounting
model requiring a lessee to recognise liabilities (‘lease liabilities’) and assets (‘right-of-use assets’) for all leases with a term of more than
twelve months, unless the underlying asset is of low value.
Lease liabilities
A lease liability is recognised at the inception of a contract at an amount equal to the present value of payments due under the lease, discounted
at an incremental borrowing rate that reflects the nature and duration of the lease in question. The lease liability is subsequently measured
using the effective interest rate method with an associated finance cost charged to the income statement.
On transition to IFRS 16, the liability associated with existing leases is calculated at the transition date of 1 October 2019 as the present value
of the remaining lease payments, discounted at an incremental borrowing rate specific to the lease.
Right-of-use assets
At the inception of the contract, a right-of-use asset is recognised equal to the lease liability, adjusted to reflect any lease incentives or
associated direct costs. The right-of-use asset is depreciated over the useful life of the asset, which can be no longer than the lease term, and
the depreciation cost is charged to the income statement.
On transition to IFRS 16, the Group was permitted to choose to measure the value of right-of-use assets of existing leases at an amount equal
to the lease liability; or as if IFRS 16 had always been applied but using the incremental borrowing rate at the date of transition.
The Group adopted the latter approach and has also applied the following practical expedients allowable under IFRS 16 when applying the
standard to leases previously classified as operating leases under IAS 17:
• The exclusion of low-value leases and leases with a remaining lease term of less than twelve months at 1 October 2019 from its transition
workings.
• The decision not to reassess whether a contract is, or contains, a lease at the date of initial application and instead has relied on its
assessment whether an arrangement contains a lease previously made under the application of IAS 17.
The impact of adopting this standard on the financial statements of the Group is provided in note 16.
No other accounting standards which became mandatorily effective for the current reporting period have had any material effect on the
financial statements of the Group.
Accounting standards in issue but not yet effective
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.
117
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 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.
Going concern
The process adopted by the Directors to assess the viability of the Group involved modelling a number of scenarios of varying degrees of
severity that reflect the principal risks and uncertainties of the Group as set out on pages 56 to 63. In these tests a range of plausible scenarios
were considered, and the Group has measured its position against available headroom and banking covenant compliance over a five-year
period. In assessing the Group’s prospects and resilience, the Directors have done so with reference to its current financial position, its recent
and historical financial performance, and forecasts.
As discussed in more detail in the Directors’ Statement on pages 98 and 99, under none of these plausible scenarios were covenants or
headroom limits breached over a five-year period. In response to the COVID-19 pandemic a particularly severe scenario was reverse-
engineered in which banking covenant requirements would be breached during the next twenty-four months, however the likelihood of this
scenario materialising is considered remote. Having considered the range of stress-test scenarios and the Group’s proven ability to adapt to
and manage adversity, 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 at least twelve months from the date of this report. Thus, they continue to adopt the going
concern basis of accounting in preparing the financial statements.
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'.
Alternative performance measures
The Group has defined certain measures that it uses to understand and manage performance. These non-GAAP measures are not defined
under IFRS and are not intended to be a substitute for any IFRS measures of performance. They have been included to provide stakeholders
with additional helpful information on the performance of the business.
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.
118
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 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 dispatched from the Group and/or Parent Company’s premises or other storage depots, irrespective
of the terms of trade. Where goods are sold to a customer, but retained physically on a bill and hold arrangement, revenue is recognised at
the point that the goods are assigned to the customer. At the point of physical dispatch or assignment, the goods are derecognised by the
Group and are no longer available for sale, therefore 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 Sterling are recorded at the rate of exchange at the date of transaction. Assets and liabilities in foreign
currencies are translated into Sterling in the balance sheet at the year-end rate.
Income and expense items of the Group’s overseas subsidiaries are translated into 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
From 1 October 2019, when the Group becomes party to a lease arrangement it applies IFRS 16, ‘Leases’ and recognises a right-of-use asset
and a lease liability upon commencement, except for leases of low value (less than £3,000) or for leases with a duration of less than twelve
months. The lease liability and right-of-use asset is initially measured at the present value of the lease payments payable over the lease term,
discounted at the incremental borrowing rate for that lease. The amount charged to the income statement comprises the depreciation of the
right-of-use asset and the interest cost on the lease liability.
The comparative period results are stated as previously reported under IAS 17, ‘Leases’ and all rentals payable under operating leases, where
substantially all of the benefit and risks of ownership remain with the lessor, were charged against profits on a straight-line basis over the
term of the lease.
Rentals receivable under operating leases continue to be recognised in the income statement as and when they fall due.
Taxation
The tax expense comprises current and deferred tax.
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.
119
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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, 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.
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 year.
Post balance sheet events and dividends
IAS 10, 'Events after the Balance Sheet Date' requires that final dividends proposed after the balance sheet date should not be recognised as a
liability at that balance sheet date, as the liability does not represent a present obligation as defined by IAS 37, 'Provisions, Contingent Liabilities
and Contingent Assets'. Consequently, final dividends are only recognised as a liability once formally approved at the Annual General Meeting
and interim dividends are not recognised until paid.
Cash flow
The Statement of Cash Flows explains the movement in cash and cash equivalents and short-term borrowings.
Property, plant and equipment
Property, plant and equipment is stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition or construction of the assets. Assets are recognised only when it is probable that future economic benefits
associated with the assets will flow to the Group and the cost of the asset can be measured reliably.
Depreciation is provided on all property, plant and equipment and right-of-use assets, except freehold and long leasehold land, using the
straight-line basis to write off the cost of the asset, less estimated residual value. Property, plant and equipment residual values and useful
lives are reviewed annually, and are as follows:
• Buildings:
• Plant and machinery:
50 years
4 – 10 years
• Fixtures, fittings and equipment:
4 – 10 years
• Lab equipment:
5 years
Property, plant and equipment is derecognised on disposal or where no future economic benefits are expected to arise from the continued
use of the asset. Gains and losses on disposals are determined by comparing the net proceeds with the carrying amount and are recognised
within administration expenses.
Intangible assets
Intangible assets comprise licences for software and development costs that meet the criteria for capitalisation as set out in the research and
development expenditure accounting policy note. 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 licenses:
• Development costs:
4 – 12 years
10 years
120
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020
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 fair value less costs of disposal 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 Instruments’. 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.
Loans receivable
All loans receivable are initially recognised at fair value. After initial recognition, interest-bearing loans are measured at amortised cost using
the effective interest method, less an allowance for ECLs. Impairment provisions for receivables from related parties and loans to related
parties are recognised based on the forward looking ECL model. For those receivables where the credit risk has not increased significantly
since initial recognition, twelve-month ECLs are recognised. ECLs measured over the lifetime of the financial asset are only recognised where
it is determined that the credit risk has increased significantly.
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.
121
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into, and in
accordance with IAS 32, 'Financial Instruments: Presentation'. 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 year in which they are incurred unless they meet the criteria for capitalisation under IAS 23, 'Borrowing Costs'.
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 31.
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.
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 initially
recognised directly in equity. Where the hedged item is cash flows that are to be recognised in the income statement, amounts deferred in
equity are recognised in the income statement at the same time in which the hedged items affect net profit or loss. Any ineffective portion
is recognised immediately in the income statement as other gains and losses. 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.
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.
122
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 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.
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:
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.
123
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 3. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 that can lead to uncertainty over income tax treatments and the Group applies the guidance
of IFRIC 23, ‘Uncertainty over Income Tax Treatments’ in order to evaluate whether it is probable that any such tax treatments may not be
acceptable to a relevant tax authority and whether provision is required to reflect the Group’s estimate of the most likely resolution.
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 capital
Share capital represents the value of all called up, allotted and fully paid shares of the Parent Company.
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.
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 a diverse and sustainable portfolio of natural
extracts and ingredients for the beverage, flavour and fragrance industries with manufacturing sites in the UK, US and until the end of May
2020, Kenya. Many of the Group’s activities, including sales, manufacturing, technical, IT and finance are managed globally on a Group basis.
124
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 Geographical segments
The following table provides an analysis of the Group’s revenue by geographical market:
Revenue by destination
United Kingdom
Rest of Europe
– Germany
The Americas
– Ireland
– Other
– USA
– Other
Rest of the World
– China
– Other
2020
£’000
Continuing
7,434
4,383
6,782
11,914
43,701
8,457
6,915
19,430
109,016
2020
£’000
Discontinued
649
–
–
–
–
–
–
89
738
2020
£’000
Total
8,083
4,383
6,782
11,914
43,701
8,457
6,915
19,519
109,754
2019
£’000
Continuing
7,920
6,142
7,434
12,846
43,689
7,787
6,766
20,133
112,717
2019
£’000
Discontinued
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
All Group revenue is in respect of the sale of goods, other than property rental income of £18,000 (2019: £23,000). No country included within
'Other' contributes more than 5% of the Group’s total revenue. The largest customer represented 10.1% of Group revenue (2019: 9.8%).
Non-current assets by geographical location, excluding deferred tax assets, were as follows:
2020
£’000
30,357
22,333
52,690
2019
£’000
Continuing
2019
£’000
Discontinued
1,289
82
2,128
(149)
(424)
(23)
72,427
516
1,960
737
634
595
60
–
–
–
–
–
889
4
27
15
25
19
2019
£’000
10,412
19,918
30,330
2019
£’000
Total
1,349
82
2,128
(149)
(424)
(23)
73,316
520
1,987
752
659
614
Continuing operations
United Kingdom
United States
5. PROFIT FOR THE YEAR
Profit1 for the year is stated after charging/(crediting):
Group
Depreciation of property, plant and equipment
and right-of-use assets
Amortisation of intangible assets2
Research and development costs
Research and development tax credits
Net foreign exchange loss/(gain)3
Rent receivable
Cost of inventories recognised as an expense4
Write down of inventories recognised as an expense
Shipping costs
IT & telephony costs
Insurance costs
Energy & utility costs
2020
£’000
Continuing
2020
£’000
Discontinued
2020
£’000
Total
1,809
75
2,037
(146)
654
(18)
39
–
–
–
(3)
–
498
64,200
1
22
10
14
11
253
2,097
786
843
711
1,770
75
2,037
(146)
657
(18)
63,702
252
2,075
776
829
700
1 Figures refer to operating profit which is calculated as profit before other gains, net finance costs, exceptional items and taxation.
2 Included in administrative expenses.
3 Excludes foreign exchange gains or losses on financial instruments disclosed in note 25.
4 Included in cost of sales.
125
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 5. PROFIT FOR THE YEAR CONTINUED
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
6. EMPLOYEES
2020
£’000
2019
£’000
54
114
168
–
–
37
86
123
2
2
Number of employees
During the year the average number of staff employed by the Group, including Directors, was as follows:
Group
Technical and production
Administration and sales
2020
Number
Continuing
2020
Number
Discontinued
189
152
341
63
5
68
2020
Number
Total
252
157
409
2019
Number
Continuing
2019
Number
Discontinued
175
141
316
63
5
68
2019
Number
Total
238
146
384
The total number of staff employed by the Group at the year-end date is 367 (2019: 399), no staff were employed by the Parent Company in
the current or prior year. During the year, the Directors shown on pages 66 and 67 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)
2020
£’000
Continuing
2020
£’000
Discontinued
15,535
1,538
923
886
18,882
224
1
9
–
234
2020
£’000
Total
15,759
1,539
932
886
19,116
2019
£’000
Continuing
2019
£’000
Discontinued
13,564
1,400
842
637
16,443
319
1
14
–
334
Directors
During the year, the aggregate emoluments in respect of the Executive and Non-executive Directors was as follows:
Group
Directors in aggregate
Emoluments in respect of qualifying services
Fees paid to Non-executive Directors in respect of qualifying services
Taxable benefits in respect of qualifying services
Gains made on the vesting of share options
Pension contributions to money purchase schemes
Further information on Directors’ emoluments and share options are set out on pages 91 to 96.
126
2020
£'000
1,122
332
32
808
62
2,356
2019
£’000
Total
13,883
1,401
856
637
16,777
2019
£'000
894
296
32
1,366
60
2,648
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020
7. OTHER GAINS
Group
Hedge ineffectiveness on cash flow hedges
2020
£’000
45
2019
£’000
–
The ineffectiveness of certain cash flow hedges in the year arose due to a shortfall in receipts against expectations. These shortfalls were the
consequence of a slowdown in receipts from customers, partly caused by the COVID-19 pandemic.
2020
£’000
Continuing
2020
£’000
Discontinued
2020
£’000
Total
2019
£’000
Continuing
2019
£’000
Discontinued
2019
£’000
Total
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)
Lease liability finance cost (see note 16)
67
–
67
27
207
145
24
403
–
–
–
–
–
–
–
–
67
–
67
27
207
145
24
403
139
2
141
26
213
101
–
340
9. EXCEPTIONAL ITEMS
The exceptional items referred to in the income statement can be categorised as follows:
Group
Accelerated depreciation expense
UK relocation expenses
Less: tax effect of exceptional items
–
–
–
–
–
–
–
–
2020
£’000
–
1,060
1,060
(104)
956
139
2
141
26
213
101
–
340
2019
£’000
217
538
755
(91)
664
The exceptional items all relate to non-recurring items. 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 mid-2021, and which in management's view do not fall to be capitalised. The
accelerated depreciation and amortisation in the prior year was in relation to the reduction in the estimated useful lives of UK assets which
are not to transition to the new UK facility.
127
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 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 decreasing tax rate on opening deferred tax
Adjustments in respect of previous periods
Total deferred tax (see note 18)
Tax on profit on ordinary activities
2020
£’000
Continuing
2020
£’000
Discontinued
2020
£’000
Total
2019
£’000
Continuing
2019
£’000
Discontinued
249
(251)
1,957
(368)
1,587
1,120
(43)
232
1,309
2,896
–
–
–
–
–
(47)
–
(30)
(77)
(77)
249
(251)
1,957
(368)
1,587
1,073
(43)
202
1,232
2,819
685
(298)
1,166
(59)
1,494
1,198
(14)
(5)
1,179
2,673
–
–
–
–
–
16
–
–
16
16
2019
£’000
Total
685
(298)
1,166
(59)
1,494
1,214
(14)
(5)
1,195
2,689
Analysis of tax credit in other comprehensive income:
2020
£’000
2019
£’000
(82)
29
(53)
(2)
(586)
(588)
(641)
72
–
72
16
(719)
(703)
(631)
2020
£’000
2019
£’000
(88)
(418)
(28)
(116)
453
35
Group
Current tax:
Foreign currency translation differences
Actuarial loss on defined benefit pension scheme
Total current tax
Deferred tax:
Cash flow hedges
Defined benefit pension scheme
Total deferred tax
Total tax credit recognised in other comprehensive income
Analysis of tax (credit)/charge in equity:
Group
Current tax:
Share-based payments
Deferred tax:
Share-based payments
Total tax (credit)/charge recognised in equity
128
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020
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% (2019: 19.0%).
The differences are explained below:
Group
Profit before tax multiplied by standard rate of UK
corporation tax at 19% (2019: 19%)
Effects of:
Expenses not deductible in determining taxable profit
Research and development tax credits
Difference in tax rates on overseas earnings
Adjustments to tax charge in respect of prior years
Effect of increased rate on opening deferred tax
Impairment of discontinued operations not tax allowable
Total tax charge/(credit) for the year
2020
£’000
Continuing
2020
£’000
Discontinued
2020
£’000
Total
2019
£’000
Continuing
2019
£’000
Discontinued
2019
£’000
Total
2,611
(220)
2,391
2,384
(203)
2,181
421
(39)
332
(386)
(43)
–
2,896
47
–
4
(30)
–
122
(77)
468
(39)
336
(416)
(43)
122
359
(47)
354
(362)
(15)
–
2,819
2,673
(6)
–
68
–
–
157
16
353
(47)
422
(362)
(15)
157
2,689
The Group’s effective UK corporation tax rate for the year was 22.5% (2019: 19.2%). The effective tax rate of US-based earnings is 21.7%
(2019: 25.4%). The adjustments in respect of prior years relate to the finalisation of previous year’s tax computations.
11. DISCONTINUED OPERATIONS
On 1 June 2020, the Group completed the sale of its Kenyan operations to local management for a nominal sum. Since the sale of Earthoil
Plantations Limited in May 2018, these operations have not been considered core to the Group’s existing business and growth strategy and
were consequently classified as a disposal group held for sale.
On 31 March 2020, all assets were written down to a net book value of zero and an impairment charge of £638,000 was recognised within
the income statement, this is reflected in the earnings per share figures below and the earnings per share from continuing and discontinued
operations figures shown in note 13. Costs directly associated with the final sale are recognised as part of the loss on disposal of subsidiaries
and general costs relating to the disposal in the year are recognised as exceptional items.
The results of the discontinued operations, which have been included in the income statement, were as follows:
Revenue
Cost of sales
Gross loss
Administrative expenses
Operating loss and loss before taxation and exceptional items
Exceptional items – impairment of disposal group
Exceptional items – disposal costs
Loss on disposal of subsidiaries
Loss before taxation
Taxation
Loss for the period attributable to owners of the Parent Company
2020
£’000
738
(852)
(114)
(142)
(256)
(638)
(78)
(185)
(1,157)
77
(1,080)
2019
£’000
1,577
(1,587)
(10)
(233)
(243)
(825)
–
–
(1,068)
(16)
(1,084)
Earnings per share from discontinued operations: basic 1.80p loss (2019: 1.83p loss); diluted 1.79p loss (2019: 1.81p loss). Adjusted earnings
per share (excluding exceptional items shown above) from discontinued operations: basic 0.61p loss (2019: 0.44p loss); diluted 0.60p loss
(2019: 0.43p loss).
During the year, the discontinued operations contributed an outflow of £212,000 (2019: £274,000) to the Group’s net operating cashflow, paid
£nil (2019: £nil) in respect of investing activities and received £nil (2019: £nil) in respect of financing activities.
The adoption of IFRS 16 has had no impact on the results of the discontinued operations as reported.
129
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 12. DIVIDENDS
Equity dividends on ordinary shares:
Parent Company and Group
Interim dividend
Final dividend
1 Accounted for in the year ended 30 September 2018.
2 Accounted for in the year ended 30 September 2019.
3 Accounted for in the year ended 30 September 2020.
Dividend per share for years ended 30 September
2020
Pence
1.84p3
4.16p4
6.00p
2019
Pence
1.70p2
3.80p3
5.50p
2018
Pence
1.60p1
3.50p2
5.10p
2020
£'000
1,103
2,275
3,378
2019
£'000
1,009
2,071
3,080
4 The proposed final dividend for the year ended 30 September 2020 of 4.16 pence per share will be voted on at the Annual General Meeting on 29 January 2021 and will therefore be
accounted for in the financial statements for the year ending 30 September 2021.
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 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)
2020
9,765
1,080
10,845
59,841
16.32p
18.12p
2019
8,788
1,084
9,872
59,140
14.86p
16.69p
Diluted earnings per share
Diluted earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year,
adjusted for the effect of all dilutive potential ordinary shares.
The number of shares used to calculate earnings per share (EPS) have been derived as follows:
Group
Weighted average number of shares
Weighted average number of shares held in the EBT and SIP
Weighted average number of shares used for calculating basic EPS
Executive share option schemes
All-employee share options
Weighted average number of shares used for calculating diluted EPS
Diluted earnings per share – continuing and discontinued (pence)
Diluted earnings per share – continuing (pence)
2020
No ('000)
2019
No ('000)
60,188
(347)
59,841
499
72
60,412
16.16p
17.95p
59,681
(541)
59,140
639
152
59,931
14.66p
16.47p
130
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 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)
Loss on disposal of subsidiary including disposal costs (see note 11)
Earnings for calculating adjusted earnings per share:
From continuing and discontinued operations
Less: Loss from discontinued operations (see note 11)
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
2020
£’000
9,765
1,060
(104)
638
263
11,622
179
11,801
19.42p
19.72p
19.24p
19.53p
14. INTANGIBLE ASSETS
Group
Cost
1 October 2018
Exchange adjustment
Additions
Disposals
30 September 2019
Exchange adjustment
Transfer to right-of-use assets
Additions
Disposals
30 September 2020
Amortisation
1 October 2018
Exchange adjustment
Charge for year
Disposals
30 September 2019
Exchange adjustment
Transfer to right-of-use assets
Charge for year
Disposals
30 September 2020
Net book value
30 September 2020
30 September 2019
Development costs
£’000
Lease premium
£’000
Software licences
£’000
–
5
135
–
140
(11)
–
299
–
428
–
–
–
–
–
–
–
–
–
–
428
140
343
–
–
–
343
–
(343)
–
–
–
33
–
4
–
37
–
(37)
–
–
–
–
306
885
6
43
(228)
706
(3)
–
606
(100)
1,209
443
6
86
(228)
307
(3)
–
75
(100)
279
930
399
2019
£’000
8,788
755
(91)
825
–
10,277
259
10,536
17.38p
17.82p
17.15p
17.58p
Total
£’000
1,228
11
178
(228)
1,189
(14)
(343)
905
(100)
1,637
476
6
90
(228)
344
(3)
(37)
75
(100)
279
1,358
845
Included in intangible assets are software licences in the course of construction totalling £743,000 (2019: £166,000) and included within
development costs are ongoing projects totalling £428,000 (2019: £140,000) which are not yet subject to amortisation. Intangible assets with
a net book value of £431,000 (2019: £146,000) have been pledged as security in relation to all US borrowings as detailed in note 22.
131
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 15. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
1 October 2018
Exchange Adjustment
Additions
Disposals
30 September 2019
Exchange adjustment
Transfer to right-of-use assets
Additions
Disposals
30 September 2020
Depreciation
1 October 2018
Exchange adjustment
Charge for year
Disposals
30 September 2019
Exchange adjustment
Charge for year
Disposals
30 September 2020
Net book value
30 September 2020
30 September 2019
Freehold land &
buildings
£’000
Plant &
machinery
£’000
Fixtures, fittings
& equipment
£’000
Laboratory
equipment
£’000
17,038
703
4,185
–
21,926
(655)
(253)
14,730
–
35,748
1,690
66
151
–
1,907
(60)
247
–
2,094
33,654
20,019
9,001
479
4,926
(634)
13,772
(516)
–
7,183
(472)
19,967
5,213
201
892
(633)
5,673
(188)
993
(472)
6,006
13,961
8,099
1,561
42
845
(168)
2,280
(51)
–
1,292
(176)
3,345
946
12
330
(168)
1,120
(12)
392
(176)
1,324
2,021
1,160
804
14
44
(187)
675
(13)
–
442
(101)
1,003
517
12
126
(187)
468
(8)
121
(101)
480
523
207
Total
£’000
28,404
1,238
10,000
(989)
38,653
(1,235)
(253)
23,647
(749)
60,063
8,366
291
1,499
(988)
9,168
(268)
1,753
(749)
9,904
50,159
29,485
Included within freehold land and buildings is £5,416,000 (2019: £5,475,000) of land which is not depreciated.
Included in property, plant and equipment are land and buildings assets in the course of construction totalling £15,952,000 (2019: £10,513,000),
plant and machinery assets in the course of construction of £7,042,000 (2019: £4,850,000), fixtures, fittings and equipment in the course of
construction totalling £923,000 (2019: £871,000) and laboratory equipment in the course of construction totalling £229,000 (2019: £nil) which
are not yet being depreciated.
Included within plant and machinery additions is £129,000 (2019: nil) of interest payments capitalised in accordance with IAS 23, 'Borrowing
Costs'.
Property, plant and equipment with a net book value of £21,868,000 (2019: £19,773,000) has been pledged as security in relation to all US
borrowings as detailed in note 22.
Capital commitments
Contracted but not provided for
2020
£’000
7,608
2019
£’000
18,145
132
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 16. LEASES
Group as lessee
Following the adoption of IFRS 16 the Group now reports right-of-use assets and lease liabilities for all lease arrangements it is party to,
excluding those with less than a twelve month duration or those of low value.
Right-of-use assets
Group
Net carrying value
1 October 2019
Transfer from intangible assets (see note 14)
Transfer from property, plant and equipment (see note 15)
Additions
Depreciation charge
30 September 2020
Lease liabilities
Group
1 October 2019
Exchange adjustment
Additions
Repayments of lease liabilities
Interest on lease liabilities
30 September 2020
Of which:
Current lease liabilities
Non-current lease liabilities
Leasehold land
& buildings
£’000
Plant &
machinery
£’000
587
306
253
–
(8)
1,138
36
–
–
8
(9)
35
Total
£’000
623
306
253
8
(17)
1,173
£’000
660
(2)
9
(32)
24
659
31
628
The lease liability is determined by discounting the lease payments over the life of the leases using an incremental borrowing rate applicable
to the respective lease. The weighted average incremental borrowing rate associated with the leases on transition to IFRS 16 was determined
to be 3.4%.
The maturity analysis of the undiscounted contractual lease commitments is shown below for the current and prior year:
Group
Maturity analysis – undiscounted lease commitments
Within one year
In one to two years
In two to five years
In more than five years
Group
Maturity analysis – undiscounted lease commitments
Within one year
In one to two years
In two to five years
In more than five years
2020
£’000
35
35
88
2,970
2019
£’000
(restated1)
67
36
102
2,992
1
Operating lease commitments for the period ended 30 September 2019 have been restated to be shown, correctly, on an undiscounted basis. The restatement results in amounts due
within one and two years increasing by £2,000, within two to five years increasing by £18,000 and amounts due after five years increasing by £2,883,000.
133
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 16. LEASES CONTINUED
The lease liabilities at 1 October 2019 can be reconciled to the operating lease commitments as of 30 September 2019 as restated on the
previous page, as follows:
Group
Undiscounted operating lease commitments at 30 September 2019
Less: short-term leases recognised as an expense
Less: low value leases recognised as an expense
Plus: newly identified lease commitments
Remeasurement using incremental borrowing rate at 1 October 2019
Lease liability at 1 October 2019
The impact of the adoption of IFRS 16 results in charges/(credits) in the income statement is as follows:
Group
Depreciation of right-of-use assets
Interest on lease liabilities
Exchange adjustments
Short-term and low value leases expensed on
a straight-line basis
Operating leases accounted for under IAS 17
Group as lessor
2020
£’000
Continuing
2020
£’000
Discontinued
2020
£’000
Total
2019
£’000
Continuing
2019
£’000
Discontinued
17
24
(2)
6
–
45
–
–
–
–
82
82
17
24
(2)
6
82
127
–
–
–
–
28
28
–
–
–
–
105
105
£’000
3,197
(111)
(6)
36
(2,456)
660
2019
£’000
Total
–
–
–
–
133
133
As at 30 September 2020, the Group had contracted with tenants for the following future minimum lease payments which fall due as follows:
Within one year
2020
£’000
9
2019
£’000
9
Adoption of IFRS 16 does not impact any lease relationships where the Group is a lessor in the current or comparative year results as reported.
134
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 17. INVESTMENTS IN SUBSIDIARIES
Parent Company
Cost
1 October 2018
Capital contributions to subsidiaries
30 September 2019
Capital contribution to subsidiaries
Acquisition of share capital in subsidiaries
30 September 2020
Parent Company
Subsidiary:
R C Treatt & Co Limited – 100% (2019: 100%)
Treatt USA Inc – 100% (2019: 100%)
Treatt SIP Trustees Limited – 100% (2019: 100%)
Treatt Development Company Limited – 100% (2019: 100%)
Speciality Oils Holding Company Kenya Limited – 0% (2019: 100%)
£’000
7,010
653
7,663
875
25,559
34,097
2019
£’000
4,871
2,791
–
–
1
2020
£’000
25,557
8,540
–
–
–
Speciality Oils Holding Company Kenya Limited and its' subsidiaries, which were classified as discontinued operations, were disposed of on
1 June 2020, as set out in note 11.
During the year the Parent Company had the following subsidiary undertakings:
34,097
7,663
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
Dormant
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.
135
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 18. DEFERRED TAXATION
Group
UK deferred tax asset
Overseas deferred tax liability
Net deferred tax liability
2020
£’000
1,358
(2,282)
(924)
A reconciliation of the net deferred tax liability is shown below:
UK deferred tax
Overseas deferred tax
(56)
(1,162)
Group
1 October 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
1 October 2019
Exchange differences
(Charge)/credit to income statement:
– For the year
– For change in tax rate
Credit to other comprehensive income:
– For the year
– For change in tax rate
Credit to equity:
– For the year
– For change in tax rate
30 September 2020
Post-
employment
benefits
£’000
587
–
18
–
719
–
1,324
–
–
–
430
156
–
–
Fixed
assets
£’000
(118)
–
27
–
–
–
(91)
–
(568)
(13)
–
–
–
–
1,910
(672)
Cash flow
hedge
£’000
Share-based
payments
£’000
69
–
–
–
(16)
–
53
–
535
–
–
–
(365)
114
–
(47)
(25)
–
2
–
–
–
8
–
–
–
10
13
112
Fixed
assets
£’000
(775)
(84)
17
–
–
(2,004)
102
(731)
57
–
–
–
–
Other
temporary
differences
£’000
374
22
(20)
(3)
–
(88)
285
(14)
19
(1)
–
–
5
–
2019
£’000
1,400
(1,719)
(319)
Total
£’000
672
(62)
(1,193)
14
703
(453)
(319)
88
(1,352)
43
432
156
15
13
(2,576)
294
(924)
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 19.0% (2019: 17.0%) as legislation was substantively enacted that set
out the main rate of UK corporation tax as 19% from 17 March 2020. The deferred tax rate applicable to the Group’s US subsidiary was
22.3% (2019: 23.0%).
19. INVENTORIES
Group
Raw materials
Work in progress and intermediate products
Finished goods
2020
£’000
14,709
18,323
3,018
36,050
2019
£’000
14,531
19,145
3,123
36,799
Inventories are stated net of provisions for impairment of £1,648,000 (2019: £2,681,000).
Inventory with a carrying value of £19,781,000 (2019: £19,435,000) has been pledged as security in relation to all US borrowings as detailed
in note 22.
136
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 20. TRADE AND OTHER RECEIVABLES
Current
Trade receivables1
Amounts owed by subsidiaries
Other receivables
Prepayments
Group
Parent Company
2020
£’000
22,160
–
690
1,317
24,167
2019
£’000
21,412
–
388
1,220
23,020
2020
£’000
–
700
35
–
735
2019
£’000
–
52
34
–
86
1 This includes £1,057,000 (2019: £99,000) 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
2020
73
2019
75
The Group recognises the lifetime expected credit losses ('ECLs’) 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. An ECL loss rate has been calculated based on the historical credit losses of
the past five accounting years and adjusted to reflect current and forward-looking information. 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.
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
2020
£’000
285
(67)
404
(11)
611
2019
£’000
258
(170)
188
9
285
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
The Group’s top five customers represent 34% (2019: 33%) 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.
137
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 20. TRADE AND OTHER RECEIVABLES CONTINUED
The ageing profile of impaired trade receivables is as follows:
Group
Number of days past the due date:
1–30
31–60
Over 60
2020
£’000
–
1
610
2019
£’000
3
2
280
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 31 and the Financial Review on pages 48 to 55. The currency exposure within trade
receivables of the principal foreign currencies, was as follows:
Group
US Dollar
Euro
2020
£’000
17,334
1,547
2019
£’000
15,890
1,897
Trade receivables with a carrying value of £11.2m (2019: £8.6m) have been pledged as security in relation to US borrowings as detailed in
note 22.
21. CASH AND BANK BALANCES
Group and Parent Company
Cash and bank balances of £7,739,000 (2019: £37,187,000) 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 £5,758,000 (2019: £33,210,000). The carrying amount of these
assets approximates to their fair value.
A detailed analysis of net cash balances by currency is shown in note 31. All material cash balances are held with the Group’s main banks,
being HSBC and Bank of America. The credit ratings of these banks are considered to be satisfactory.
22. BORROWINGS
Current
Group
Term loans
UK bank borrowings
Non-current
Group
Term loans
2020
£’000
714
2,489
3,203
2020
£’000
3,450
2019
£’000
749
16,111
16,860
2019
£’000
4,369
138
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 Loans and borrowings
Term loans comprise the following:
Group
Treatt USA term loan – US
2020
£’000
4,164
2019
£’000
5,118
The Group has a three-year US Dollar overdraft facility ('US line of credit') of $6.0 million (with an additional $2.0 million seasonal line from
March to July each year) expiring in 2023. At the year-end date the overdrawn balance was £nil (2019: £nil).
The Group initially 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 consist of a five-year revolving credit facility of $12.0 million and overdraft facilities of $3.0 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 incurring interest.
Borrowings are repayable as follows:
Group
Within one year
In one to two years
In two to five years
In more than five years
2020
£’000
3,203
713
2,142
595
6,653
2019
£’000
16,860
749
2,247
1,373
21,229
Further information on Group borrowing facilities is given in notes 30 and 31, including a detailed analysis of cash balances by currency.
Borrowing facilities
At 30 September 2020, the Group had total borrowing facilities of £20,408,000 (2019: £28,659,000) of which £2,321,000 (2019: £9,303,000)
expires in one year or less at the balance sheet date. At 30 September 2020 the Group had access to £21,494,000 (2019: £44,617,000) of
financing facilities including its own cash balances at that date.
23. PROVISIONS
Group
Onerous contract provision:
At start of year
Utilised in year
Provided in year
Foreign exchange
Balance at end of year
2020
£’000
261
(247)
135
(3)
146
2019
£’000
58
(55)
254
4
261
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.
139
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 24. TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts owed to subsidiaries
Other taxes and social security costs
Accruals and other creditors
Group
Parent Company
2020
£’000
8,193
–
453
3,795
12,441
2019
£’000
7,858
–
415
3,058
11,331
2020
£’000
37
–
–
225
262
2019
£’000
199
1,308
–
70
1,577
Amounts owed to subsidiaries reduced in the year due to an interest receivable from R C Treatt & Co Ltd of £332,000 (2019: £232,000),
together with dividend transactions settled via intercompany. In 2020, Treatt USA Inc paid a dividend due to Treatt Plc of £1,642,000 (2019:
£518,000) in cash to its’ fellow subsidiary R C Treatt & Co Ltd. These transactions reduced the existing intercompany payable by £1,974,000
(2019: £750,000) resulting in an intercompany receivable of £700,000 in 2020, as shown in note 20. As non-cash items, these have been
adjusted in the Parent Company cash flow statement on page 115.
In 2019, the Parent Company cash flow statement incorrectly adjusted for both the similar dividend and interest income payments as a
decrease in payables. This has been restated to include the dividend as an adjustment to operating cash flows and to reduce the amount
previously included as interest received with the corresponding changes made to the (increase)/decrease in payables.
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 31 and the Financial Review on pages 48 to 55. The currency exposure within trade payables of
the principal foreign currencies, was as follows:
Group
US Dollar
Euro
25. DERIVATIVE FINANCIAL INSTRUMENTS
Group
Derivative financial assets
Current:
Foreign exchange contracts
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:
Foreign exchange contracts
Further details on the Group’s hedging policies and derivative financial instruments are disclosed in note 31.
140
2020
£’000
4,666
473
2020
£’000
459
168
2020
£’000
509
2019
£’000
4,368
512
2019
£’000
–
315
2019
£’000
(1,266)
(6)
93
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 26. SHARE CAPITAL
Parent Company and Group
Called up, allotted and fully paid
At start of year
Issued in year
At end of year
2020
£'000
1,203
2
1,205
2020
Number
60,170,670
100,000
60,270,670
2019
£'000
1,189
14
1,203
2019
Number
59,470,670
700,000
60,170,670
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 (2019: nil) 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 100,000 (2019: 700,000) ordinary shares to the Employee Benefit Trust
for the purpose of meeting obligations under employee share option schemes.
27. SHARE PREMIUM ACCOUNT
Parent Company and Group
Balance at 1 October 2019 and 30 September 2020
2020
£'000
23,484
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
2020
£’000
574
301
875
11
886
2019
£’000
467
186
653
(16)
637
141
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 28. SHARE-BASED PAYMENTS CONTINUED
(a) Share option schemes
Under the schemes listed below, options have been granted to subscribe for the following number of existing ordinary shares of 2p each in the
capital of the Parent Company. These share options are expected to be settled via the transfer of shares out of the Treatt Employee Benefit Trust.
The equity-settled options which existed during the year were as follows:
UK SAYE1 Scheme 2017
UK SAYE1 Scheme 2018
UK SAYE1 Scheme 2019
UK SAYE1 Scheme 2020
US ESPP2 Scheme 2019
US ESPP2 Scheme 2020
UK LTIP3 Scheme 2014
UK LTIP3 Scheme 2015
UK 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
UK LTIP3 Scheme 2020
US LTIP3 Scheme 2020
UK Executive4 Options 2016
UK Executive4 Options 2017
UK Executive4 Options 2018
UK Executive4 Options 2019
Number of share
options outstanding
1,132
98,571
124,803
124,185
–
19,382
12,565
14,045
15,984
8,337
–
38,647
50,470
47,588
66,554
45,065
74,136
–
112,167
134,145
123,296
Number exercised
Exercise price
in year
76,299
655
401
–
20,924
–
–
3,439
3,352
21,362
48,908
–
–
–
–
–
–
172,746
–
–
–
per share
413.0p
373.0p
361.0p
409.0p
391.0p
434.0p
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Date option exercisable
Sep 2020 – Feb 2021
Sep 2021 – Feb 2022
Sep 2022 – Feb 2023
Sep 2023 – Feb 2024
July 2020
July 2021
Jun 2017 – Jun 2024
Jun 2018 – Jun 2025
Jun 2019 – Jun 2026
Jun 2020 – Jun 2027
Jun 2020 – Mar 2021
Jun 2021 – Jun 2028
Jun 2021 – Mar 2022
Jun 2022 – Jun 2029
Jun 2022 – Mar 2023
Jun 2023 – Jun 2030
Jun 2023 – Mar 2024
Dec 2019 – Dec 2026
Dec 2020 – Dec 2027
Dec 2021 – Dec 2028
Dec 2022 – Dec 2029
1
2
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.
3 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.
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
2017
516.3p
SAYE
2018
466.3p
SAYE
2019
451.0p
SAYE
2020
511.3p
3.5 years
3.5 years
3.5 years
3.5 years
3 years
3 years
3 years
3.5 years
25.6%
0.49%
0.86%
10.0%
15.8%1
123.0p
27.3%
0.71%
1.06%
10.0%
14.0%
114.3p
31.1%
0.53%
1.15%
10.0%
14.0%
117.0p
39.6%
0.09%
1.10%
10.0%
14.0%
158.5p
US ESPP
2019
US ESPP
2020
451.0p
1 year
1 year
32.4%
0.53%
1.15%
10.0%
1.6%1
82.4p
510.6p
1 year
1 year
53.5%
0.09%
1.10%
10.0%
5.0%
124.8p
142
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 Key-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
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.
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
UK LTIP
2017
503.5p
US LTIP
2017
516.3p
UK LTIP
2018
483.0p
US LTIP
2018
483.0p
UK LTIP
2019
455.0p
US LTIP
2019
455.0p
10 years
3.2 years
10 years
3.2 years
10 years
3.2 years
5 years
3.2 years
5 years
3.2 years
5 years
3.2 years
25.6%
0.51%
0.88%
0.0%
14.8%1
481.7p
25.6%
0.49%
0.86%
0.0%
6.3%1
502.2p
27.3%
0.68%
1.02%
0.0%
100%
458.9p
27.3%
0.68%
1.02%
0.0%
100%
467.4p
31.1%
0.62%
1.14%
0.0%
69.6%
429.7p
31.1%
0.62%
1.14%
0.0%
69.3%
438.6p
UK LTIP
2020
485.0p
US LTIP
2020
485.0p
10 years
3.2 years
3.5 years
3.2 years
39.6%
0.05%
1.16%
0.0%
14.5%
465.7p
39.6%
0.05%
1.16%
0.0%
13.6%
467.2p
UK Exec
2016
273.5p
UK Exec
2017
452.0p
UK Exec
2018
410.0p
UK Exec
2019
455.0p
10 years
10 years
10 years
10 years
5 years
20.7%
0.57%
1.59%
0.0%
0.0%1
5 years
25.6%
0.51%
1.06%
0.0%
100%
5 years
3.5 years
27.3%
0.73%
1.24%
0.0%
68.0%
385.3p
31.1%
0.59%
1.21%
0.0%
10.0%
436.1p
Fair value per option at date of grant
252.3p
428.6p
1 Actual forfeiture experienced.
Expected volatility was determined by calculating the historical volatility of the Group’s share price over a period equivalent to the expected life
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.
143
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 28. SHARE-BASED PAYMENTS CONTINUED
Details of movements in share options during the year were as follows:
Outstanding at start of year
Granted during the year
Forfeited during the year
Exercised during the year
Cancelled during the year
Outstanding at end of year
Exercisable at end of year
2020
Number
of options
1,091,606
386,756
(18,706)
(348,086)
(498)
1,111,072
71,445
2020
Weighted average
exercise price
£1.15
£1.53
£1.67
£1.15
£3.61
£1.27
£1.24
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
£3.83
£1.15
£0.00
Forfeiture arises when the employee is no longer entitled to participate in the savings-related share option scheme as a consequence of leaving
the Group whereas cancellation arises when a participant voluntarily chooses to cease their membership of a scheme within the vesting period.
The options outstanding had a weighted average remaining contractual period of 5.2 years (2019: 5.4 years). The weighted average actual
market share price on the date of exercise for share options exercised during the year was 500.1 pence (2019: 431.9 pence) and the weighted
average fair value of options granted during the year was 362.2 pence (2019: 295.6 pence).
(b) Share incentive plans
All UK-based employees are eligible to participate in an HMRC-approved SIP once they have been with the Group for a qualifying period of up
to twelve months. US employees participate in a similar scheme through the use of nil cost Restricted Stock Units ('RSUs'). During the year
UK employees were awarded £625 (2019: £600) of 'Free Shares', and US employees $925 (2019: $900) 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 (2019: 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 movements in the SIP were as follows:
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
2020
158,501
73,044
(44,431)
(983)
(1,036)
185,095
2019
184,845
58,110
(74,499)
(7,691)
(2,264)
158,501
2020
35,530
14,592
(14,136)
(1,438)
–
34,548
2019
44,617
13,050
(17,928)
(1,099)
(3,110)
35,530
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 2020 the number of shares held by the EBT was 219,000 (2019: 454,000), and the number of shares held by the SIP was
444,000 (2019: 507,000), of which 444,000 (2019: 369,000) relate to shares beneficially held by employees (including those not yet vested
shown above).
144
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 29. POST-EMPLOYMENT BENEFITS
The Group 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
2020
£’000
908
24
932
2019
£’000
832
24
856
The defined contribution schemes pension charge includes £9,000 (2019: £14,000) in respect of discontinued operations.
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 2020. 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 Group,
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.
145
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 29. POST-EMPLOYMENT BENEFITS CONTINUED
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)
GMP equalisation allowance
Rate of increase in salaries
Life expectancy for male aged 65 in 20 years’ time
Life expectancy for female aged 65 in 20 years’ time
Life expectancy for male aged 65 now
Life expectancy for female aged 65 now
2020
1.60%
3.10%
2.30%
2.25%
1.95%
1.80%
2.30%
2019
1.90%
3.30%
2.30%
2.25%
1.95%
1.80%
2.30%
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%
20%
75%
1% of liability value
1% of liability value
N/A
23.8
25.7
22.3
24.2
N/A
23.7
25.7
22.2
24.1
Effect of the scheme on future cash flows
The Group is required to agree a schedule of contributions with the trustees of the scheme following a 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 102%. It was agreed with the trustees that, consequently,
the Group 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 2020 revealed an actuarial deficit of £4,491,000 (2019: £2,538,000), being a funding level of 82% (2019: 90%). The
Group therefore expects to make on-going contributions to its defined benefit pension scheme in 2021 of £450,000 (2020: £300,000). 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
2020
£’000
9,586
4,772
6,715
42
21,115
(31,166)
(10,051)
1,910
(8,141)
2019
£’000
10,292
6,818
4,589
153
21,852
(29,640)
(7,788)
1,324
(6,464)
146
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 Group
Changes in scheme liabilities
Balance at start of year
Interest cost
Benefits paid
Remeasurement losses:
– Actuarial loss arising from changes to demographic assumptions
– Actuarial loss arising from changes in financial assumptions
Balance at end of year
Changes in scheme assets
Balance at start of period
Interest on scheme assets
Employer contributions
Benefits paid
Remeasurement gains:
– Return on plan assets (excluding amounts included in interest expense)
Balance at end of year
Group
Amount charged to finance costs
Interest on scheme assets
Interest on scheme liabilities
Net expense recognised in income statement
Amount recognised in statement of comprehensive income
(Loss)/gain on scheme assets in excess of interest
Loss from changes to demographic assumptions
Loss from changes to financial assumptions
Remeasurement loss recognised in statement of comprehensive income
Actual (loss)/gain on scheme assets
Cumulative remeasurement loss recognised in statement of comprehensive income
Approximate effect of change of assumptions on liability values at 30 September 2020:
Reduce discount rate by 0.25% pa
Increase inflation and all related assumptions by 0.1% pa
Increase life expectancy by one year
2020
£’000
(29,640)
(557)
645
–
(1,614)
(31,166)
21,852
412
300
(645)
(804)
21,115
2020
£’000
412
(557)
(145)
(804)
–
(1,614)
(2,418)
(392)
(11,123)
2019
£’000
(24,742)
(710)
542
(181)
(4,549)
(29,640)
21,285
609
–
(542)
500
21,852
2019
£’000
609
(710)
(101)
500
(181)
(4,549)
(4,230)
1,109
(8,705)
Increase
liability by:
£’000
1,446
410
1,406
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.
147
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 30. CONTINGENT LIABILITIES
Parent Company
When the Parent Company enters into financial guarantee contracts that guarantee the indebtedness of group companies, the Parent Company
considers these to be insurance arrangements. In this respect, the Parent Company treats the guarantee contract as a contingent liability until
such a time it becomes probable that the Parent Company will be required to make payments under the guarantee. The Parent Company has
guaranteed the borrowings, net of cash balances for Treatt USA Inc. At the balance sheet date, the liability covered by this guarantee amounted
to $3,732,000 (£2,887,000) (2019: $4,808,000 (£3,902,000)).
The Parent Company has also guaranteed certain bank borrowings of its UK subsidiaries R C Treatt & Co Limited and Treatt Development
Company Limited that are held within cash pooling arrangements. At the year-end the liabilities covered by this guarantee amounted to
£2,489,000 (2019: £13,618,000).
31. 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 $12.0m (2019: $12.0m) five-year revolving credit facility with HSBC in the UK, together with a
$6.0m (plus $2.0m from March to July each year) three-year line of credit facility with Bank of America in the US. The Group obtained a
$6.5m term loan with Bank of America in July 2019 repayable 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 48 to 55.
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
Other receivables
Cash and cash equivalents
Amounts owed by subsidiaries
Derivative financial instruments measured at fair
value through other comprehensive income:
Trade receivables
Derivative financial instruments measured at fair
value through profit and loss:
Forward currency contracts (level 2)
1 Trade receivables are shown net of lifetime expected credit losses.
2019
£’000
21,313
388
37,187
–
99
–
Parent Company
2020
£’000
–
35
5,758
700
–
–
2019
£’000
–
34
33,210
52
–
–
58,987
6,493
33,296
Group
2020
£’000
21,103
690
7,739
–
1,057
459
31,048
148
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 Financial liabilities
Measured at amortised cost:
Trade payables
Other creditors
Bank borrowings
Lease liabilities
Amounts owed to subsidiaries
US term loans
Derivative financial instruments measured at fair
value through profit and loss:
Forward currency contracts (level 2)
Group
2020
£’000
8,193
3,795
2,489
659
–
4,164
168
19,468
2019
£’000
7,858
3,058
16,111
–
–
5,118
315
32,460
Parent Company
2020
£’000
37
225
–
–
–
–
–
2019
£’000
199
70
–
–
1,308
–
–
262
1,577
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
20. 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 21. 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.
149
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS CONTINUED
Liquidity risk management
Liquidity risk refers to the risk that the Group may not be able to fund the day-to-day running of the Group. Liquidity risk is reviewed by the
Board at all Board meetings. The Group manages liquidity risk by monitoring actual and forecast cash flows and matching the maturity profiles
of financial assets and liabilities. The Group also monitors the drawdown of debt against the available banking facilities and reviews the level of
reserves. Liquidity risk management ensures sufficient debt funding is available for the Group’s day-to-day needs. Board policy is to maintain
a reasonable headroom of unused committed bank facilities. The Board also monitors the Group’s banking covenants which are calculated
under IFRS. There were no breaches during the year or prior year.
The Group has a number of debt facilities, details of which, including their terms and maturity profile, are given in note 22. The undiscounted
contracted maturity profile of the Group’s financial instrument liabilities payable at year-end, including interest payments estimated using the
prevailing floating rate at that date, is as follows:
Group
Non-derivative financial instruments:
Trade payables
Other creditors
Bank borrowings
US term loan:
– Capital repayments
– Interest repayments
Derivative financial instruments:
Forward currency contracts
Within
0 to 3 months
£’000
Within
3 to 12 months
£’000
Within
1 to 2 years
£’000
Within
2 to 5 years
£’000
Over
5 years
£’000
7,871
3,183
2,489
178
18
45
322
612
–
535
50
123
–
–
–
714
56
–
–
–
–
2,142
91
–
–
–
–
595
5
–
Group trade payables and other creditors are not interest-bearing and are all due within one year. Bank borrowings of £2,489,000 are not
interest-bearing due to a net-off against positive cash balances held in a pooling arrangement for interest purposes, these borrowings are
considered to be current and repayable on demand.
All financial instruments held by the Parent Company fall due within three months, and contractual interest due is £nil.
Interest rate risk management
The Group is exposed to interest rate risk on short to medium-term borrowings primarily with two major institutions being HSBC 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 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% – 1.75% (2019: 1.2% – 1.85%) above
bank base or currency LIBOR rates.
150
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020
The Group's cash/(debt) position by currency at year-end, is as follows:
Group
Bank balances:
US Dollars
Sterling
Euro
Other
Overdrafts:
Sterling
Term loans:
US Dollars
Lease liabilities:
Sterling
Total net cash/(debt)
Floating rate financial
assets/(liabilities)
2020
£'000
1,537
5,784
273
145
2019
£'000
2,903
33,313
804
167
(2,489)
(16,111)
(4,164)
(5,118)
Fixed rate financial
assets/(liabilities)
2020
£'000
2019
£'000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,086
–
15,958
(659)
(659)
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. 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 2020
would have decreased or increased as follows:
Impact on profit before tax of 1% interest rate movement
Group
2020
£’000
(16)
2019
£’000
(52)
Parent Company
2020
£’000
–
2019
£’000
–
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 48 to 55.
151
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 31. FINANCIAL INSTRUMENTS CONTINUED
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 2020
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
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:
Option to purchase SFr within 4–6 months
Average
contract rate
1.219
1.311
1.122
1.105
Average
contract rate
1.307
1.216
1.146
1.077
1.302
Nominal
currency
‘000
$10,000
$11,000
€2,500
€1,500
Nominal
currency
‘000
$10,750
$10,000
€2,500
€700
SFr475
Contract
GBP
£’000
Fair value
gains/(loss)
£’000
8,203
8,390
2,227
1,358
459
(115)
(45)
(8)
291
Contract
GBP
£’000
Fair value
gain/(loss)
£’000
8,223
8,224
2,181
650
365
(484)
152
(34)
28
23
(315)
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, Investec 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 gains – hedge ineffectiveness
Other comprehensive income
2020
£’000
464
45
(6)
503
2019
£’000
(1,266)
–
70
(1,196)
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
2020
£’000
–
2019
£’000
23
152
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 The reconciliation of the hedging reserve as shown in the statement of changes in equity is as follows:
Group
1 October 2018
Fair value movement on:
– Cash flow hedges of probable future receipts
Transfer from hedging reserve to:
– Profit and loss account
Amounts recognised in other comprehensive income
Taxation relating to items above
30 September 2019
Fair value movement on:
– Cash flow hedges of probable future receipts
Transfer from hedging reserve to:
– Profit and loss account
– Profit and loss account – other gains
Amounts recognised in other comprehensive income
Taxation relating to items above
30 September 2020
Hedging reserve
£'000
50
(1,141)
1,234
93
(16)
127
503
(464)
(45)
(6)
2
123
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
Euro
Other
2020
£’000
4,061
1,347
353
5,761
2019
£’000
6,833
2,188
590
9,611
A currency sensitivity analysis has been performed on the financial assets and liabilities to sensitivity of a 10% increase/decrease in the
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 year in the income statement would be a gain on net monetary
assets or liabilities as follows:
Group
Impact of 10% strengthening of US Dollar against Sterling
2020
£’000
451
2019
£’000
759
In management’s opinion the sensitivity analysis is unrepresentative of the inherent foreign exchange risk since it is limited only to the year-
end exposure and does not reflect the exposure during the year, nor does it include the impact of gains or losses that would have occurred
on hedging instruments.
153
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020FINANCIAL STATEMENTSFINANCIAL STATEMENTS 32. 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 91 to 96.
Group
Salaries and other short-term employee benefits
Fees paid to Non-executive Directors in respect of qualifying services
Employer's social security costs
Pension contributions to money purchase schemes
Share-based payments charge in respect of qualifying services
2020
£’000
1,153
332
205
62
223
1,975
2019
£’000
1,222
296
168
60
477
1,927
No Directors were 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 pages 95 and 96.
Parent Company
Transactions with subsidiaries:
Parent Company
Interest received from:
R C Treatt & Co 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 Limited1
R C Treatt & Co Limited
2020
£’000
332
1,669
1,642
2020
£’000
–
700
2019
£’000
–
1,545
1,539
2019
£’000
52
(1,308)
The Parent Company has guaranteed certain bank borrowings of its subsidiaries as set out in note 30. Amounts owed to the Parent Company
are unsecured and will be settled in cash.
1 Athi River Oils EPZ Limited was part of the discontinued operations which were disposed of on 1 June 2020, as set out in note 11.
154
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 September 2020TREATT PLCAnnual Report & Accounts 2020 NOTICE OF ANNUAL GENERAL MEETING
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT AS TO WHAT
ACTION TO TAKE YOU ARE RECOMMENDED TO CONSULT YOUR STOCKBROKER, SOLICITOR, ACCOUNTANT OR OTHER
INDEPENDENT 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 (‘AGM’) which has been convened for 29 January 2021 at 10.30am 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 10.30am on 27 January 2021, being 48 hours before the
time appointed for the holding of the AGM. 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 +44 (0) 371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside
the United Kingdom are charged at the applicable international rate. Lines are open 9.00am – 5.30pm Monday to Friday excluding bank
holidays in England and Wales.
PART I – LETTER FROM THE CHAIRMAN OF TREATT PLC
Dear Shareholder
2021 Annual General Meeting
Treatt plc’s (the ‘Company’) 2021 AGM will be held at Treatt plc,
Northern Way, Bury St. Edmunds, Suffolk, IP32 6NL on 29 January
2021, at 10.30 am.
Any changes to the AGM arrangements will be communicated to
shareholders before the AGM through our website at treatt.com/
investor-relations/shareholder-services/agm and by a Regulatory
News Service announcement.
The Notice of AGM, which sets out the details of the resolutions
to be proposed at the AGM and an explanation in respect of each
resolution, is set out below.
The AGM is an important event in the Company’s corporate
calendar providing an opportunity for the Directors to engage with
shareholders. As at the date of this letter, it is our intention to hold
the AGM as an open meeting for all shareholders. However, the
ongoing situation with COVID-19 must remain under review and in
the event that it becomes necessary, for the health and wellbeing of
us all, and provided we are permitted to do so under the Insolvency
and Governance Act 2020, it may be necessary to change the AGM
to a closed meeting. In such an event the AGM will be convened with
the minimum necessary quorum of two shareholders facilitated by
the Company. Should this change become necessary, shareholders
will be invited to submit any questions to the Board in advance of
the meeting. Following the meeting we would select representative
questions and provide the Company’s answers to these questions on
the Company’s website. We hope that should this become necessary,
shareholders will understand.
Your vote is important to the Company and all shareholders are
encouraged to submit their votes by proxy in advance of the AGM.
Further details on proxy voting are set out in the notes to the notice
of the AGM. In the event that it is a closed meeting, the business
of the AGM will be purely functional in order to ensure that the
Company complies with the relevant legal requirements. As such
shareholders should note that no presentations will be made.
Action to be taken
Voting on the business of the meeting will be conducted on a poll.
I would encourage shareholders to exercise their right to vote in the
following ways:
• you can complete and submit your proxy appointment
online by using the Signal Shares share portal service at
www.signalshares.com;
• you can complete a paper proxy form and return it to Link
Asset Services in accordance with the instructions printed on the
form; or
• CREST members may use the CREST electronic proxy appointment
service.
155
OTHER INFORMATIONOTHER INFORMATION NOTICE OF ANNUAL GENERAL MEETING
PART I – LETTER FROM THE CHAIRMAN OF TREATT PLC CONTINUED
Further details in respect of each of these methods of voting are set
out in the notes on voting procedures on pages 161 to 162 below.
Please note that all forms of proxy and appointments, whether postal
or electronic, must be received by 10.30am (UK time) on 27 January
2021. The results of voting on the resolutions will be posted on the
Company’s website immediately after the AGM.
Recommendation
The Board believes that all of the resolutions to be put to the AGM are
in the best interests of its shareholders and the Company as a whole.
Accordingly, the Board recommends that shareholders vote in favour
of all resolutions, as the Directors intend to do in respect of their own
shareholdings in the Company.
Shareholder queries
Should you have any queries on the documentation enclosed or
the AGM generally, please do not hesitate to contact the Company
Secretary, Anita Guernari, on 01284 702500 or by email on Cosec@
treatt.com.
Yours sincerely
Tim Jones
Chairman
8 December 2020
PART II – NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the AGM of the Shareholders of Treatt
plc (the 'Company') will be held at Treatt plc, Northern Way, Bury
St. Edmunds, Suffolk, IP32 6NL on 29 January 2021, at 10.30am
for the for the purpose of considering and, if thought fit, passing the
resolutions set out in this notice. Resolutions 1 to 16 (inclusive) will be
proposed as ordinary resolutions. Resolutions 17 to 21 (inclusive) will
be proposed as special resolutions.
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 2020.
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 first
of these is an advisory resolution on the Implementation Section of
the Directors’ Remuneration Report, which details the remuneration
packages paid to Directors during the year ended 30 September
2020. You can find the Implementation Section of the Directors’
Remuneration Report on pages 86 to 94.
Resolution 3 – Final dividend
3.
To approve a final dividend of 4.16p per share on the ordinary
shares of the Company for the year ended 30 September 2020.
Explanatory note
A final dividend can only be paid after the shareholders at a general
meeting have approved it. A final dividend of 4.16p 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 5 February
2021. If approved, the date of payment of the final dividend will be 18
March 2021. An interim dividend of 1.84 pence per ordinary share was
paid on 13 August 2020. This represents an increase of 0.5 pence per
share, or 9.1%, on the total 2019 dividend.
Resolutions 4 to 12 – 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.
12. To re-elect Vijay Thakrar 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 64 and 65. 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.
156
TREATT PLCAnnual Report & Accounts 2020 NOTICE OF ANNUAL GENERAL MEETING
Resolution 13 – Re-appointment of auditors
13. To re-appoint BDO LLP as Auditors of the Company, to hold
office from the conclusion of this meeting until the conclusion of the
next AGM.
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 BDO LLP as auditors of the Company.
The Board appointed BDO LLP as auditors during the year, following
a competitive tender process.
Resolution 14 – Auditors remuneration
14. 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 15 – Approval of remuneration policy
15. THAT the Remuneration Policy be and is hereby approved.
Explanatory note
As referred to under Resolution 2 above, two resolutions are required
to be put to shareholders on separate sections of the Directors’
Remuneration Report. The second of these is a binding resolution,
passed by a majority, to approve the Company’s remuneration policy.
The last remuneration policy was approved at the 2018 AGM and
is therefore required to be approved by shareholders in 2021. The
changes to the policy, which bring it into line with the 2018 Corporate
Governance Code and with policies operated by other FTSE
SmallCap companies, are set out on pages 78 to 80 of the Directors’
Remuneration Report. Once approved, a remuneration policy only
requires shareholder approval every three years unless any revisions
are required. The policy, which is set out on pages 78 to 86, will apply
to all payments made to Directors from the date the policy is approved
by shareholders. In the event that this resolution is not passed at the
AGM, the version of the remuneration policy approved by shareholders
in 2018 will continue in force.
Resolution 16 – Authority to allot securities
16. 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 £401,764 (such
amount to be reduced by the nominal amount allotted
or granted under paragraph (b) below in excess of such
sum); and
(b) comprising equity securities (as defined in Sections 560 of the
Act) up to an aggregate nominal amount of £803,528 (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 AGM of the Company to be held in 2022, or at close of
business on 29 April 2022 (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
AGM of the Company in 2022 or, if earlier, on 29 April 2022 (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.
157
OTHER INFORMATIONOTHER INFORMATION
NOTICE OF ANNUAL GENERAL MEETING
PART II – NOTICE OF ANNUAL GENERAL MEETING CONTINUED
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 £401,764
(representing approximately one-third (33.33%) of the total issued
ordinary share capital of the Company as at 17 November 2020, 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 £803,528 (representing approximately
two-thirds (66.66%) of the total issued ordinary share capital of the
Company as at 17 November 2020, 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).
SPECIAL RESOLUTIONS
Resolution 17 – Authority to disapply pre-emption rights
17. THAT subject to the passing of resolution 16 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 16 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 16, 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 16 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 £60,270,
provided that this power shall expire at the conclusion of the AGM
of the Company to be held in 2022 or at close of business on
29 April 2022 (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 17 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 £60,270 (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 17 November 2020, 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 AGM of
the Company in 2022 or, if earlier, 29 April 2022 (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 17 (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.
158
TREATT PLCAnnual Report & Accounts 2020
NOTICE OF ANNUAL GENERAL MEETING
Resolution 18 – Authority to disapply pre-emption
rights for the purposes of acquisitions or capital
investments
18. THAT subject to the passing of resolutions 16 and 17 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 16 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) limited to the allotment of equity securities for cash and sale
of treasury shares up to an aggregate nominal amount of
£60,270; and
(b) 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 AGM
of the Company to be held in 2022 or at close of business on
29 April 2022 (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 18 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.
Accordingly, resolution 18 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 £60,270, being approximately 5% of the
Company’s issued ordinary share capital as at 17 November 2020,
the latest practicable date prior to publication of this Notice. This is in
addition to the 5% referred to in resolution 17. If given, the authority
will expire at the conclusion of the next AGM of the Company in 2022
or, if earlier, 29 April 2022 (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 19 – Authority to purchase own shares
19. 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 6,027,067 ordinary shares in the
capital of the Company, subject to the following conditions:
(a) the minimum price (excluding expenses) which may be paid
for an ordinary share is the nominal amount of that share; and
(b) 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 AGM of the Company to be held in 2022, or if earlier 29 April
2022, 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 19 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.
159
OTHER INFORMATIONOTHER INFORMATION
NOTICE OF ANNUAL GENERAL MEETING
PART II – NOTICE OF ANNUAL GENERAL MEETING CONTINUED
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.
Resolution 21 – Amendment to Articles of Association
21. THAT the Articles of Association produced to the meeting and
initialled by the Chairman for the purposes of identification be
adopted as the Articles of Association of the Company ('New
Articles') in substitution for, and to the exclusion of, the existing
Articles of Association ('Existing Articles').
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 17 November 2020, 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 17 November 2020, the latest practicable date
prior to publication of this Notice, was 1,200,558. The proportion of
issued share capital that they represented at that time was 1.99% 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 2.21%.
If given, the authority will expire at the conclusion of the next AGM of
the Company in 2022 or, if earlier, 29 April 2022 (the date which is 15
months after the date of passing of the resolution).
Resolution 20 – Notice of general meetings
20. 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 AGMs), 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 AGM, 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 AGM, at which meeting it is
intended to propose a similar resolution for approval.
Explanatory note
The proposed New Articles have been updated for current procedural
and governance requirements as well as to reflect recent developments
in market practice in respect of the holding of combined physical and
electronic general meetings (also known as ‘hybrid’ meetings) and to
provide the Company with greater flexibility to hold general meetings
in this way.
These hybrid meetings would enable members to attend and
participate in the business of the meeting by attending a physical
location or by means of an electronic facility or facilities if the
Directors decide to hold a combined physical and electronic general
meeting. The New Articles are not intended to permit the Company
to hold general meetings wholly by electronic means. It is not the
current intention of the Board to routinely hold combined physical and
electronic general meetings.
The New Articles set out the procedures and processes for attendance
at, and participation in, combined physical and electronic general
meetings. This includes how attendance is determined and allowing
Directors to make arrangements to enable attendees to exercise their
rights to speak or vote as well as other consequential changes.
These amendments are being made to provide the Directors with
the flexibility should they need to make alternative arrangements for
participation in meetings (including where physical participation may
be prevented or restricted). The New Articles showing all the changes
as compared to the Existing Articles will be available for inspection on
the Company’s website at treatt.com/investor-relations/shareholder-
services/agm.
By order of the Board
Anita Guernari
Group Legal Counsel
and Company Secretary
Registered Office:
Bury St. Edmunds
Suffolk
IP32 6NL
8 December 2020
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.
160
TREATT PLCAnnual Report & Accounts 2020 NOTICE OF ANNUAL GENERAL MEETING
NOTES 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 27 January 2021 (the Record
Date) shall be entitled to attend or vote at the AGM in respect of the
number of ordinary shares in the capital of the Company registered
in their names at that time. Changes to entries on the Register for
certificated or uncertificated shares of the Company after the Record
Date shall be disregarded in determining the rights of any person to
attend or vote at the AGM. Should the AGM be adjourned to a time 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 AGM. Should the AGM be adjourned for a
longer period, to be so entitled, members must have been entered on
the Register by close of business two days prior to the adjourned AGM
(excluding weekends and public holidays) or, if the Company gives
notice of the adjourned AGM, at the time specified in such notice.
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 10.30am on 27 January
2021, being 48 hours before the time appointed for the holding of
the AGM (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 +44 (0) 371 664 0300. Calls are charged at
the standard geographic rate and will vary by provider. Calls outside
the United Kingdom are charged at the applicable international rate.
Lines are open 9.00am – 5.30pm Monday to Friday excluding bank
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 AGM
to be held on 29 January 2021 and any adjournment(s) of the meeting
by using the procedures described in the CREST Manual. CREST
personal members or other CREST sponsored members, and those
CREST members who have appointed a voting service provider(s),
should refer to their CREST sponsor or voting service provider(s),
who will be able to take the appropriate action on their behalf. Please
note the following:
(a) In order for a proxy appointment or instruction made using the
CREST service to be valid, the appropriate CREST message
(a 'CREST Proxy Instruction') must be properly authenticated
in accordance with Euroclear UK & Ireland Limited’s ('EUI')
specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message,
regardless of whether it constitutes the appointment of a proxy or
an amendment to the instruction given to a previously appointed
proxy must, in order to be valid, be transmitted so as to be
received by the issuer’s agent (ID RA10) by the latest time(s)
for receipt of proxy appointments specified in this notice of the
AGM. For this purpose, the time of receipt will be taken to be the
time (as determined by the timestamp applied to the message by
the CREST applications host) from which the issuer’s agent is
able to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions
to proxies appointed through CREST should be communicated to
the appointee through other means
(b) CREST members and, where applicable, their CREST sponsors
or voting service providers should note that EUI does not
make available special procedures in CREST for any particular
messages. Normal system timings and limitations will therefore
apply in relation to the input of CREST Proxy Instructions. It is
the responsibility of the CREST member concerned to take (or, if
the CREST member is a CREST personal member or sponsored
member or has appointed a voting service provider(s), to procure
that his CREST sponsor or voting service provider(s) take(s))
such action as shall be necessary to ensure that a message is
transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable,
their CREST sponsors or voting service providers are referred
in particular to those sections of the CREST Manual concerning
practical limitations of the CREST system and timings.
161
OTHER INFORMATIONOTHER INFORMATION NOTICE OF ANNUAL GENERAL MEETING
NOTES ON VOTING PROCEDURES AND GENERAL RIGHTS OF SHAREHOLDERS CONTINUED
Members satisfying the thresholds in Section 338A of the Companies
Act 2006 may request the Company to include in the business to be
dealt with at the AGM any matter (other than a proposed resolution)
which may properly be included in the business at the AGM. A matter
may properly be included in the business at the AGM unless (i) it is
defamatory of any person or (ii) it is frivolous or vexatious. A request
made pursuant to this right may be in hard copy or electronic form,
must identify the matter to be included in the business, must be
accompanied by a statement setting out the grounds for the request,
must be authenticated by the person(s) making it and must be received
by the Company no later than six weeks before the date of the AGM.
In accordance with Section 311A of the Companies Act 2006, the
contents of this notice of meeting details the total number of shares
in respect of which members are entitled to exercise voting rights
at the AGM, the total voting rights members are entitled to exercise
at the AGM and, if applicable, any members’ statements, members’
resolutions or members’ matters of business received by the Company
after the date of this notice will be available on the Company’s website
www.treatt.com.
As at 17 November 2020 the Company’s issued share capital consists
of 60,270,670 ordinary shares. The total number of voting rights in the
Company as at 17 November 2020 (the latest practicable date prior to
publication of this Notice) is 59,608,089.
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 AGM (Saturdays, Sundays and public
holidays excluded).
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 (0) 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.
(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.
The right to appoint a proxy does not apply to persons whose
shares are held on their behalf by another person and who have
been nominated to receive communications from the Company in
accordance with section 146 of the Companies Act 2006 ('nominated
persons'). Nominated persons may have a right under an agreement
with the registered shareholder who holds the shares on their behalf
to be appointed (or to have someone else appointed) as a proxy.
Alternatively, if nominated persons do not have such a right, or do not
wish to exercise it, they may have a right under such an agreement to
give instructions to the person holding the shares as to the exercise
of voting rights.
A member of the Company which is a corporation may authorise
a person or persons to act as its representative(s) at the AGM. In
accordance with the provisions of the Companies Act 2006 (as
amended by the Companies (Shareholders’ Rights) Regulations 2009),
each such representative may exercise (on behalf of the corporation)
the same powers as the corporation could exercise if it were an
individual member of the Company, provided that they do not do so
in relation to the same shares. It is therefore no longer necessary to
nominate a designated corporate representative.
Pursuant to Section 319A of the Companies Act 2006, the Company
must cause to be answered at the AGM any question relating to the
business being dealt with at the AGM which is put by a member
attending the meeting, except in certain circumstances, including if it
is undesirable in the interests of the Company or the good order of the
meeting that the question be answered or if to do so would involve the
disclosure of confidential information.
Members satisfying the thresholds in Section 338 of the Companies
Act 2006 may require the Company to give, to members of the
Company entitled to receive notice of the AGM, notice of a resolution
which those members intend to move (and which may properly be
moved) at the AGM. A resolution may properly be moved at the AGM
unless (i) it would, if passed, be ineffective (whether by reason of any
inconsistency with any enactment or the Company’s constitution or
otherwise); (ii) it is defamatory of any person; or (iii) it is frivolous or
vexatious. The business which may be dealt with at the AGM includes
a resolution circulated pursuant to this right. A request made pursuant
to this right may be in hard copy or electronic form, must identify the
resolution of which notice is to be given, must be authenticated by the
person(s) making it and must be received by the Company no later
than six weeks before the date of the AGM.
162
TREATT PLCAnnual Report & Accounts 2020 PARENT COMPANY INFORMATION AND ADVISORS
Solicitors
Greene and Greene
80 Guildhall Street,
Bury St. Edmunds,
Suffolk, IP33 1QB
Bankers
HSBC Bank plc
140 Leadenhall Street,
London, EC3V 4PS
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
Directors
Tim Jones
(Chairman and Non-executive Director)
Daemmon Reeve
(Chief Executive Officer)
Richard Hope
(Chief Financial Officer)
Jeff Iliffe
(Independent Non-executive Director)
Richard Illek
(Independent Non-executive Director)
David Johnston
(Non-executive Director)
Yetunde Hofmann
(Independent Non-executive Director)
Lynne Weedall
(Senior Independent Non-executive Director)
Vijay Thakrar
(Independent Non-executive Director –
from 1 September 2020)
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 (Chair)
Yetunde Hofmann
Vijay Thakrar
Remuneration Committee
Lynne Weedall (Chair)
Jeff Iliffe
Yetunde Hofmann
Nomination Committee
Tim Jones (Chairman)
Daemmon Reeve
Richard Illek
Lynne Weedall
Yetunde Hofmann
Vijay Thakrar
Brokers
Investec Bank plc
30 Gresham Street,
London, EC2V 7QP
Public Relations
MHP Communications
4th Floor,
60 Great Portland Street,
London, W1W 7RT
Auditors
BDO LLP
16 The Havens,
Ransomes Europark,
Ipswich, IP3 9SJ
Tax Advisors
KPMG LLP
Botanic House,
98–100 Hills Road,
Cambridge, CB2 1JZ
Crowe LLP
124 South Florida Avenue, Suite 1,
Lakeland, Florida 33801-4629
163
OTHER INFORMATIONOTHER INFORMATION FINANCIAL CALENDAR
FINANCIAL YEAR 2019/20
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2020 goes ‘ex-dividend’
Record date for 2020 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2020 paid
FINANCIAL YEAR 2020/21
Interim results to 31 March 2021 announced
Interim dividend for 2021 goes ‘ex-dividend’
Record date for 2021 interim dividend
Last day for dividend reinvestment plan election
Interim dividend for 2021 paid
Financial year ended
Results for year to 30 September 2021 announced
Final dividend for 2021 paid
* These dates are provisional and may be subject to change
30 September 2020
24 November 2020
8 December 2020
29 January 2021
4 February 2021
5 February 2021
25 February 2021
18 March 2021
11 May 2021*
1 July 2021*
2 July 2021*
22 July 2021*
12 August 2021*
30 September 2021
30 November 2021*
17 March 2022*
164164
TREATT PLCAnnual Report & Accounts 2020 Treatt plc
Northern Way, Bury St. Edmunds, Suffolk, IP32 6NL
www.treatt.com
cosec@treatt.com
+ 44 (0) 1284 702500