The Board recognises that high standards of Corporate Governance throughout the Group are essential for the delivery of the company's strategic objectives, shareholder value and the long term protection of stakeholder interests. It is recognised that good governance should emanate from the Board but pervade the entire organisation, being reflected in its trading practices, policies and procedures.
Treatt plc complies with the following five principles of the UK Corporate Governance Code (the 'Code') and, in accordance with the comply or explain approach, provides an explanation in the Corporate Governance Statement of the annual report in respect of any individual provisions of the Code with which it does not comply.
The following documents are provided for download:
Audit Committee - Terms of Reference
Nomination Committee - Terms of Reference
Remuneration Committee - Terms of Reference
Articles of Association - Click Here
Details of the Directors who serve on the Board, the positions they hold, and the committees of which they are members are detailed in the Director Profile section of this website.
There is a clear division of responsibility between the Chief Executive Officer, who is required to develop and lead business strategies and processes to enable the Group's business to meet the requirements of its shareholders, and the Chairman who is responsible for leadership of the Board and ensuring that appropriate conditions are created to enable the Board to be effective in providing entrepreneurial leadership to the company. The key functions of the Chairman are to conduct board meetings, meetings of shareholders and to ensure that all Directors are properly briefed in order to take a full and constructive part in Board discussions. The Chairman has regular contact with the Non-executive Directors without the presence of the Executive Directors. Concerns relating to the executive management of the Group or the performance of the other Non-executive Directors may be raised with the Senior Independent Director.
The Board meets at least five times each year and more frequently where business needs require, with attendance in person or by video conference required at each meeting. In addition regular contact is maintained by email and telephone with written updates provided in respect of on-going issues, enabling regular input from all Board members. On a bi-annual basis a Board meeting is held at the Group's US subsidiary, Treatt USA, to enable closer interaction of the Non-executive Directors with the senior management and staff.
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 include matters such as material capital commitments, commencing or settling major litigation, business acquisitions and disposals and appointments to subsidiary company boards.
To enable the Board to function effectively and Directors to discharge their responsibilities, full and timely access is given to all relevant information. In the case of board meetings, this consists of a comprehensive set of papers, including regular business progress reports and discussion documents regarding specific matters. Board meetings are of sufficient duration to enable debate and discussion ensuring adequate analysis of issues during the decision making process. Further opportunity for more informal and extended discussion is provided at Board lunches which take place after every Board meeting and also provide the Board with an opportunity to meet members of staff, who are invited to attend.
There is an agreed procedure for Directors to take independent professional advice if necessary and at the Group's expense. This is in addition to the access which every Director has to the Company Secretary. The Secretary is charged by the Board with ensuring that Board procedures are followed.
The Directors believe that the Board, having been refreshed in 2011 and 2012, has an appropriate balance of skills and experience with financial, technical, industry specific and general business disciplines being represented. The structure of the Board ensures that no one Director is dominant in the decision making process and that open debate and discussion is encouraged. There is a suitable balance between the number of Executive and Non-executive Directors.
The importance of a diverse board, including gender diversity which has been the subject of recent debate in respect of board composition, is recognised and supported by the Directors of Treatt plc. The Board, which has a serving female Executive Director, is conscious of the benefits of diversity in the boardroom and within management positions within the Group. The policy of the company is to recruit the best possible candidate for each individual role having regard to qualifications, experience and personality, without prejudice to a candidate's characteristics.
The Board considers that all the Non-executive Directors are independent of management and free of any relationship which could materially interfere with the exercise of their independent judgement. None of them have any significant interest in the shares of Treatt plc and all receive a fixed fee for their services. The Board is satisfied that the Chairman's other commitments do not detract from the extent or the quality of the time which he is able to devote to the Group.
Appointment of Directors
The Nomination Committee's principal remit is to consider the appointment or retirement of Directors, to review proposed nominations and make recommendations thereon to the Board.
Appointments to the Board of both Executive and Non-executive Directors are considered by the Nomination Committee, which consults with Executive Directors and ensures that a wide range of candidates are considered. The Committee considers the skills mix of the serving Directors to identify potential gaps or areas where increased strength is required. In accordance with Treatt's Board Diversity Policy and having recognised the benefit of having an appropriate level of diversity on the Board to support the achievement of its strategic objectives, the Committee also considers the benefits of all aspects of diversity, including but not limited to, race, disability, gender, sexual orientation, religion, belief, age, culture, personality and work-style. The recommendations of the Nomination Committee are ultimately made to the full Board which considers them before any appointment is made.
Upon appointment Directors are provided with access to an appropriate external training course and to advice from the Group's solicitors in respect of their role and duties as a public company director. Where they have significant relevant experience for the role, training may be felt to be unnecessary. In addition all new Directors receive an induction to acquaint them with the Group. This takes the form of site tours, meetings with other Board members and senior management and the provision of an induction pack, which contains general information about the Group, its structure and key personnel, together with copies of relevant policies and procedures, financial information and briefings on Directors' responsibilities and corporate governance.
The Nomination Committee is also responsible for the annual evaluation of the Board, its committees and its Directors. During the year an evaluation of the Board, its committees and each individual Director is carried out internally as the Board believe they have the appropriate resources and experience to undertake the reviews. The internal Board and committee reviews are conducted under the supervision of the appropriate Chairman. The performance of individual Directors, both Executive and Non-executive are evaluated by the Chairman, in conjunction with the Chief Executive Officer in the case of other Executive Directors. The process includes individual performance meetings, at which past performance is discussed and evaluated and future objectives established. In the event that training and development needs are identified during the evaluation process, suitable resources or training are provided.
Any Director appointed during the year is required, under the provisions of the Articles of Association, to retire and seek election by shareholders at the next Annual General Meeting. The Articles also require that one third of the Directors retire by rotation each year and seek re-election at the Annual General Meeting provided always that all directors must be subject to re-election at intervals of no more than three years. Any Non-executive Director having been in post for nine years or more is subject to annual re-election. The Directors required to retire are those in office longest since their previous re-election
The Board is responsible for reviewing and approving the Annual Report and Accounts, the Interim Report and other financial statements made to ensure they present a balanced assessment of the Group's position. Drafts of all financial releases are provided to the Board in a timely manner and Directors' feedback is discussed and incorporated where appropriate, prior to publication.
Financial and Internal Control
The Directors are responsible for the Group's system of internal control, the effectiveness of which is reviewed by them annually. This covers all controls including those in relation to financial reporting processes (including the preparation of consolidated accounts). In addition to monitoring reports received via the Executive Directors they consider the risks faced by the Group, whether the control systems are appropriate and consult with internal and external experts on environmental, insurance, legal and health and safety compliance. However, such a system can only provide reasonable but not absolute assurance against material misstatement or loss. The key procedures that the Directors have established to provide effective internal controls are as follows:
A detailed formal budgeting process for all Group businesses culminates in an annual Group budget which is approved by the Board. Results for the Group and its main constituent businesses are reported monthly against the budget to the Board and revised forecasts for the year are prepared through the year. The Group uses a standardised consolidation system for the preparation of the Group's monthly management accounts, Half Year and Annual Consolidated Financial Statements, which is subject to review by senior management throughout the consolidation process.
Financial and Accounting Principles
Financial controls and accounting policies are set by the Board so as to meet appropriate levels of effective financial control. Compliance with these policies and controls is reviewed where necessary by external auditors.
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, such as IT security, access rights and business continuity, with having all the group IT systems on a common platform. These risks are mitigated by an increased focus on IT security through a process of investment in IT facilities to maintain separacy and redundancy for the hardware and communications infrastructure.
The Group has clearly defined guidelines for capital expenditure. These include annual budgets, appraisal and review procedures, and levels of authority. Post investment appraisals are performed for major investments.
Risk Assessment and Information
Operational management in conjunction with the Executive Directors, who report regularly to the Board, are responsible for identification and evaluation of significant risks applicable to their area of business and design and operate suitable internal controls. The principle risks associated with the Group's activities include:
- foreign exchange risk, particularly with regard to the US Dollar, as the Group trades with approximately one hundred countries around the globe;
- credit risk in ensuring payments from customers are received in full and on a timely basis;
- legislative and regulatory risk as new requirements are being imposed on business and the industries with which the Group are involved, for example the European REACH (Registration, Evaluation, Authorisation and restriction of Chemicals) legislation;
- movements in commodity and essential oil prices often caused by unpredictable weather patterns or other sudden changes in supply or demand, for example the impact of the 2004 Florida hurricanes on grapefruit oil prices, the 2008 movement in lemon oil prices, and the sharp rise in orange oil prices in late 2010.
The Group has taken appropriate steps to manage and control these risks, which include:
- the implementation of a foreign exchange risk management policy as explained in the OFR;
- agreeing appropriate payment terms with customers including, where necessary, payment in advance or by securing payment through bank letters of credit;
- taking a pro-active and leading role in ensuring the Group's systems and procedures are adapted to ensure compliance with new or changing legislative or regulatory requirements;
- ensuring that Group purchases of raw materials are based upon a well-researched understanding of the risks involved and ensuring that appropriate inventory balances are held in order to meet future demand, whilst not holding excessive levels which may expose the Group to unnecessary levels of risk.
The Audit Committee considers annually the possible need for an internal audit function by taking into account a number of considerations including the cost of maintaining an effective internal audit function and the risks associated with not maintaining one. The Audit Committee do not currently believe that an internal audit function can be justified.
In addition to its responsibility for reviewing the system of internal control outlined above, the Audit Committee keeps the scope and cost effectiveness of the external auditors under review. The independence and objectivity of the external auditors is also considered on a regular basis, with particular regard to the level of non-audit fees and their effect on the auditor's independence or objectivity. Non-audit fees are generally paid mainly in respect of tax compliance services.
In accordance with UK Corporate Governance Code, the Audit Committee is responsible for ensuring 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 Audit Committee has arrangements in place for the proportionate and independent investigation of such matters and for appropriate follow-up action.
The Remuneration Committee's primary responsibility is to determine the remuneration of the Executive Directors of the Group ensuring that there is sufficient balance between the levels of ordinary remuneration and performance related elements designed to promote the long term success of the company.
Full details of the Directors' remuneration and a statement of the Group's remuneration policy are set out in the Directors' Remuneration Report of the Annual Report, which can be found in the Financial Results section of this website. The Chief Executive Officer attends meetings of the Remuneration Committee to discuss the performance of the other Executive Directors and make proposals as necessary, but is not present when his own position is being discussed.
Each Executive Director abstains from any discussion or voting at full Board meetings on Remuneration Committee recommendations where the recommendations have a direct bearing on their own remuneration package. The details of each Executive Director's individual package are fixed by the Committee in line with the policy adopted by the full Board.
Relations with Shareholders
The Group places a great deal of importance on communication with its shareholders. The company mails to all shareholders its full annual report and financial statements. This information, together with the quarterly interim management statements, half yearly statements and other financial announcements, is also available in the Financial Results section of this website and, upon request, to other parties who have an interest in the Group's performance.
There is regular dialogue with individual institutional shareholders as well as presentations after the half year and preliminary results. The views of major shareholders are communicated and discussed at Board meetings and Non-executive Directors may request meetings with major shareholders should they wish to do so and vice versa. All shareholders have the opportunity to put questions at the Company's Annual General Meeting.