Interactive Investor

Why this is the UK's best AGM

3rd February 2017 13:30

Richard Beddard from interactive investor

If I were to recommend one Annual General Meeting to go to in a year, it would be Treatt's. It has everything, even drama!

It's onsite in Bury St Edmunds, which is reassuring because you see the offices, warehouses, car parks, factory buildings and people that work to make a profit shared with you. Knowing what a business looks like helps me understand how it works.

Lots of curious shareholders attend, a characteristic of long-established firms. Sometimes, the shareholders are former employees with long memories. They are a source of probing questions for management and can educate a relatively new face like me.

One of the questioners at this year's AGM had appointed the current chief executive, Daemmon Reeve, as a lab technician more than 25 years ago. It's hearsay, but another told me how Reeve had forced the pace of change before he became chief executive and how the chairman had supported him.

There's a tour. Two years ago, at my first Treatt AGM, we visited a new laboratory. I've seen a few laboratories, and this one was small and unremarkable. But it was a big step forward for a company realising ambitions to invent trendy new flavours in collaboration with multinational beverage companies.

This year, we toured the distillery, the sweetest smelling factory I have ever walked around. It's the meat and drink of Treatt, which sources essential oils from around the world and distills them again to ensure a consistent flavour unique to each customer.

Cirtus speciality

Treatt's long-time speciality is citrus, and the smell of lemon and oranges follows us around as we learn how the process wastes little. The lighter molecules in orange oil will be used as flavours, but the heavier molecules, which stick around longer, will give cleaning fluids made by companies like Proctor and Gamble their scent.

We're told the barrels of lemon oil on the floor in front of us are worth many thousands of pounds each, but only a tiny amount flavours a drink so the cost of the flavouring is not a substantial part of the cost of the whole product. Customers may not be as price sensitive as you think.

I'm still warming my lips on the small bottle of tangerine and hot ginger flavoured vodka gift

There's a presentation. Of course, the chairman reads out the announcement released earlier to the stockmarket describing how the company is trading, that always happens. The chief executive says a few words too, which usually happens. Almost uniquely*, in my experience, a member of staff, not a member of the board, gives a presentation. Last time it was a scientist, this time it's the marketing department equipped with new flavours for us to taste, flavours the scientist had probably worked on.

There was a free gift**. Of an evening, I'm still warming my lips on the small bottle of tangerine and hot ginger flavoured vodka I collected on my way out. Some shareholders scooped up two or three.

There was even drama this year when a bottle of carbonated water exploded behind us, showering the company secretary and silencing the chief executive momentarily.

It's easy to be seduced when a company treats you well, but I like to think I'm quite impervious to the pitches of impressive executives. Reeve is prepared to let the staff do much of the talking. His executive biography puts emphasis on his role in providing the "cultural environment for success" and says "seeing our excellent team succeed is what excites [him] most about Treatt".

Management guff

Maybe it's management guff. It sounds like it could be. But when you walk around the factory with production staff, and meet the scientists and marketeers, you begin to think it might be true.

Apparently, forklift drivers jump off their trucks to participate in company-wide taste tests. That didn't happen five years ago. Reeve is giving a breakfast talk on the day this article is published to the Suffolk Chamber of Commerce. The subject: employee engagement.

Treatt is frustratingly coy about its customers, though. As a supplier to large international flavour houses it might not know who the end customer is and, in establishing direct relationships with beverage companies, it's sometimes competing with the same flavour houses.

The increase in profitability is one of the reasons I believe Treatt's strategy is working

Walking around the business, though, names drop tantalising out of the conversation. Names like Starbucks, and Fevertree. I don't know if they're customers, but Treatt is knocking on their doors. A new non-executive director is the recently retired senior director of manufacturing and formulations at PepsiCo.

You also get an appreciation of just how complicated Treatt's impending relocation is likely to be. Currently occupying six buildings, by the end of 2019 it should have moved into one. The distillery alone contains six units, each one a maze of pipes reminiscent of the paths traced by the bikes in the film Tron. Much of this equipment will need to be unplugged and shifted, while some will be retired. It's reassuring to hear staff explain how they're preparing at least a year before building commences.

I'm concerned about the financial implications of the move. It will cost tens of millions of pounds, and, while the company has little debt, that's partly because it hasn't been spending as much on new equipment. Reduced capital expenditure leading up to the move may also have artificially boosted profitability over the last three years.

That's a disturbing notion because the increase in profitability is one of the reasons I believe Treatt's strategy is working. But the short-term benefits of lower capital spending may have been offset, partially at least, by the costs. Maintenance costs have risen as the firm runs older equipment. And the new plant should be more efficient. Forklift truck drivers spend about 30% of their time on the road today, driving between Treatt's buildings.

The new facility will not just be more efficient. It will enable collaboration and impress the customers Treatt expects to work with there. It could be a £30 million folly, but I doubt it.

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*Games Workshop's senior designer gave a presentation at its AGM when I attended. The AGM was perhaps more obviously stage managed, but nevertheless well worth the trip to Nottingham, especially if you like modelling fantasy armies.

**Finsbury Food's high-carb giveaway remains the standard by which all AGM's will be measured in this regard.

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Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard

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