CASE STUDY

NOVEMBER 2016

ADVANCE INFORMATION

This material is issued prior to the examination session on 9 November 2016.

Candidates MUST bring this material with them to the Examination Hall.

Copyright © ICAEW 2016. All rights reserved.

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ICAEW/CS/N16
 TRUE TASTE LIMITED: ADVANCE INFORMATION

This Advance Information is issued prior to the examination session so as to allow you to
familiarise yourself with the information provided and to undertake any other appropriate
research and analysis. The Advance Information is also published on the website:
www.icaew.com/students.

You MUST bring this Advance Information with you to the Examination Hall, annotated if
you wish, together with any other notes of your preparatory work. You must carry out sufficient
and appropriate analysis work of your own in order to have a detailed understanding of the
Advance Information. You should also undertake any additional research and analysis you feel
necessary to enhance your awareness of the industry and market context and to enable you to
clarify any technical terms or other issues of vocabulary. You will need to be able to refer back
quickly to the Advance Information and your notes during the exam; you are therefore unlikely
to benefit from taking large quantities of additional material with you into the Examination Hall.

At the start of the examination you will receive some additional material which will complete
the description of the case scenario and state the Case Study requirements. Your answer
must be submitted on the CBE software provided by ICAEW in the Examination Hall.

Assessment of the Case Study

The marks in the Case Study are awarded for professional skills, allocated broadly as follows:

 Assimilating and using information 22.5%

 Structuring problems and solutions 22.5%
 Applying judgement 22.5%
 Drawing conclusions and making recommendations 15.0%
 Demonstrating integrative and multidisciplinary skills 17.5%

Of the total marks available, 15% are awarded for the executive summary and approximately
10% for the relevant discussion of ethical issues within your answer to the requirements.
Ethical issues do not form a specific requirement but, within a requirement, may cover such
topics as:

 Lack of professional independence or objectivity

 Conflicts of interest among stakeholders
 Doubtful accounting or commercial practice
 Inappropriate pressure to achieve a reported result.

You should be clear that marks are awarded for demonstrating your professional skills, not for
reproducing facts from the case. In order to be successful, you will need to:

 Demonstrate your knowledge of the case material and make use of your research;
 Carry out relevant analysis of the problems and structure your proposed solutions;
 Apply your judgement on the basis of the analysis that you have carried out; and
 Draw conclusions from your analysis and judgement, and develop them into practical
commercial recommendations.

Omitting any one of these elements will have a significantly detrimental effect on your
chances of success.

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ICAEW/CS/N16 Page 2 of 45
 November 2016 Case Study: True Taste Limited

List of exhibits

1 About you, Lu Tobyn; your employer, Porterfields Hunter ICAEW Chartered

Accountants (PH); and your client, True Taste Limited (TT)

2 The UK fruit juice industry

3 True Taste Limited: history and overview

4 Email from Esme Hext to Andy Rode: True Taste financial history and review of
management accounts for the three years ended 30 September 2015

5 True Taste: management accounts for the three years ended 30 September 2015

6 Email from Esme Hext to Andy Rode: review of True Taste business operations for the
year ended 30 September 2015

7 True Taste: apple juice operations

8 True Taste: orange juice operations

9 True Taste: toll processing operations

10 True Taste: fruit trading operations

11 True Taste: operational and strategic review

12 Toll processing contract issues

13 Email from Myra Ashyana to True Taste board: fruit imports from Kadar

14 Media articles

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 EXHIBIT 1

About you, Lu Tobyn; your employer, Porterfields Hunter ICAEW Chartered

Accountants (PH); and your client, True Taste Limited (TT)

You are Lu Tobyn, a final-year trainee ICAEW Chartered Accountant working at Porterfields
Hunter (PH), a firm of ICAEW Chartered Accountants that has operations throughout the UK.
You are based in the business advisory unit of the firm, and you report to the partner
responsible for client development in the business advisory unit, Andy Rode.

One of the firm’s recently-acquired clients is True Taste Limited (TT), a company which
manufactures and sells fruit juice and also imports and sells fruit. TT is based in the county of
Hampshire in the south of England. It is located approximately 20 kilometres north of the
busy port city of Southampton and close to the M3 motorway linking London and
Southampton.

Since joining the business advisory unit, your work has included:

 Preparing financial analysis schedules and reports to support the advice given to clients
 Analysing clients’ financial statements to understand their business and to identify issues
and challenges in financial activities, and then providing advice based on that analysis
 Performing financial data calculations, financial analysis, PESTLE and SWOT analysis to
identify and evaluate potential business opportunities or risks and their related costs
 Analysing financial and non-financial information provided by, or affecting, clients in order
to assess its provenance and to perform a critical evaluation of the issues arising
 Assessing the markets in which clients operate, identifying changes or trends in those
markets and any related strengths or weaknesses for clients
 Providing clear opinions and judgements on issues presented by clients
 Drafting reports for clients on all financial and operational aspects of their business.
.
You are expected to keep yourself up to date with the political, economic, market and
technical issues affecting the clients you deal with in order that you can contribute as fully as
possible to all of the above tasks.

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 EXHIBIT 2
The UK fruit juice industry (Source: British Soft Drinks Association)

The British Soft Drinks Association

The British Soft Drinks Association (BSDA) is the national trade association representing the collective
interests of producers and manufacturers of soft drinks, including carbonated drinks, still and
dilutable drinks, fruit juices and bottled waters.

The term ‘soft drinks’ includes every type of non-alcoholic cold drink ranging from lightly-flavoured
mineral water through to carbonated soda-type drinks. Sports and energy drinks are also included.
Juice manufacturing, or processing, and sales are an important part of the UK soft drinks market.
Annual total soft drinks sales are approximately 15 billion litres (worth around £16 billion).

Definition of juice products

Fruit juice and juice drinks can be defined as:

Fruit juice: legally this must be made from 100% fruit. It may or may not include pulp. The juice is
often pasteurised to make it last longer. Fruit juice represents about 6% of all soft drinks.

Juice drinks: these are drinks that contain less than 100% fruit juice and have added ingredients,
mainly water, but they can also include sweeteners, flavourings, colourings and/or vitamins. A juice
drink must contain a minimum of 2% pulp (although most have a much greater proportion). Juice
drinks also includes ready-to-drink versions of concentrated squashes. Juice drinks represent about
10% of all soft drinks.

The juice industry

The UK juice industry is dominated by big corporations – both national and international. Typical
examples of large UK juice processors and suppliers are: Tropicana (now part of a major international
soft drinks group) with 15% of UK juice sales; and Tesco (the large UK supermarket) with its own-
brand fruit juice taking approximately 10% of UK juice sales.

Many organisations involved in the juice industry are also involved in initiatives designed to promote
an active lifestyle providing support for non-traditional urban and adventurous sports and activities –
popular with the hard-to-reach 18-34 year-old market – and inspiring a younger target audience.

Market trends

Annual sales of all soft drinks declined by approximately 2%, in both 2014 and 2015. However, within
those small overall changes there has been a significant switch by consumers to reduced calorie
drinks. This has occurred as the public has become more aware of the effect of high-calorie (sugar-
rich) soft drinks on health, and in particular the issue of obesity. This has meant a significant increase
in bottled water (up by over 9% in 2015) and flavoured bottled water drinks (up by more than 16%).
Sales of fruit juice and juice drinks have been affected by the national debate on sugary drinks,
although individual juice companies have maintained their sales by astute marketing which
emphasises the healthy aspects of juice drinks – full of vitamins – as opposed to sugar content.

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 EXHIBIT 3

True Taste Limited: history and overview

True Taste Limited (TT) is currently engaged in four business lines:

 producing and selling apple juice (Exhibit 7)

 processing and selling orange juice (Exhibit 8)
 processing juice on behalf of other juice suppliers (toll processing – see Exhibit 9)
 fruit trading (grapes) – purchased from abroad and sold to supermarkets in the UK (Exhibit 10).

In common with many fruit juice businesses, TT started out as an experimental dream by one person.
In TT’s case it was Ida Marsh (its current Managing Director) who, in 2002, believed that she could
produce top-quality fruit juice from the apples grown locally. That belief coincided with an increased
public awareness in appreciating the benefits of eating and drinking more healthily. There was also a
growing trend amongst consumers to support local businesses by buying products which were sourced
locally. Ida has matched her belief with a steely determination and a hard-headed business approach
which has made TT a successful enterprise.

TT operates from an agricultural-industrial site located on farmland near the town of Winchester in
Hampshire – a county in the south of England. TT has a lease on the site which comprises a large
factory building and offices, plus a vehicle park. Initially all operations occurred at ground level, but
there was always scope to construct additional floors within the building for any expansion – which
has since occurred.

Many of TT’s apple suppliers operate from farms within 100 kilometres of TT’s site, and most have
invested in high-productivity managed orchards using an intensive planting (‘espalier’) system. This
system utilises posts and wire – similar to the growing systems seen in vineyards – and allows a
significant increase in the yields available from apple trees by extending the growing and harvesting
period and enabling easy fruit harvesting. The varieties which TT buys in from trusted suppliers and
uses in its apple juice production include old English varieties, such as Cox’s Orange Pippin (Cox) and
Bramley’s Seedling (Bramley), as well as the more modern varieties including Braeburn and Gala.

TT produces its range of apple juices from these apples, which it then bottles in green glass bottles for
a long shelf-life. Further details of the apple juice operations are in Exhibit 7.

In 2009, as a result of identifying a new market opportunity, TT started to purchase pure orange juice
in bulk and sell it to a variety of new customer outlets in large plastic bottles. These new customer
outlets comprise organisations such as hospitals, colleges and universities, which operate on-site
cafeterias or canteens where the juice is sold to end-consumers. After a short period, TT subcontracted
the orange juice processing to a local toll processor/manufacturer (Exhibit 8). In January 2014, TT
brought production back in-house by using newly-acquired plant and equipment. These assets had
sufficient spare production capacity to allow TT to offer a processing service to third parties – a
process referred to as toll processing (Exhibit 9).

Early in 2010 TT became involved in a new area of business – namely the importing of grapes to sell
to local supermarket chains (Exhibit 10).

TT has always aimed to be a company which not only responds to market changes and consumer
needs, but also strives to deliver a top-quality product to its customers. TT is a socially responsible
organisation of integrity which respects the environment and encourages sustainability in its own

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trading activities and with its trading partners. Health and Safety is a priority, and TT has an
exemplary record in this area. TT actively supports its local community.

Currently the board and senior managerial posts are held by:

Ida Marsh Managing Director

Daria Marchewka Sales Director
Kelan Teague Production Director
Myra Ashyana Purchasing Director
Esme Hext Finance Director (an ICAEW Chartered Accountant)
Su Fin Zhang Head of production IT and company website co-ordinator
Paul Klakter Head of toll processing contracts

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 EXHIBIT 4

EMAIL
From: Esme Hext
To: Andy Rode
Subject: True Taste financial history and review of management accounts for the three years
ended 30 September 2015
Date: 11 December 2015

Further to your firm’s appointment as our business adviser, please find attached a combined set of
management accounts for the three years ended 30 September 2015, together with related notes
(Exhibit 5).

True Taste (TT) is engaged in processing and selling fruit juice and, in recent years, importing fruit. It
sells more than 95% of all its products through retailers or other business organisations. Only a small
percentage is now sold directly to the public through farmers’ markets and special food fairs and
events – although these outlets were its main trading outlets when the business was created.

The demand for fruit juice and fruit, as with all food and drink related products, is perennial but there
are some fluctuations in demand, and therefore in sales, during the year. However, we are more
extensively affected by the natural supply of fruit from growers and suppliers at different times of the
year than by anything else. As our business lines have changed and evolved, we have been sourcing
our produce from an increasingly international range of suppliers. This means that not only are they
heavily affected by their own local growing conditions – weather, disease, crop success or failure – but
the whole market is subject to global harvest factors. As a result, the supply, the delivery, the demand
and the price of fruit in the shops and throughout the supply chain at any time can be affected by a
crop’s success or failure elsewhere.

Prior to October 2012

 Each year since the company began operations there has been a steady expansion of apple juice
sales (Exhibit 7).
 In 2009 TT started to process and supply orange juice in large plastic bottles (Exhibit 8).
 TT’s processing of orange juice was outsourced (by way of toll processing) (Exhibit 9).
 Early in 2010 TT started to import grapes from India (Jat Grapes) (Exhibit 10).

Year ended 30 September 2013

 TT continued to produce and bottle all local apple juices on site with a steady increase in apple
juice revenue of just over 10% compared to the previous year’s figures.
 TT continued to use local third party toll processing (AB Juicing) for the bottling of orange juice –
with strong revenue growth in this business line.
 Grape importing expanded to include a new supplier (Kadar) located in Iran.

Year ended 30 September 2014

This was a year of major change for TT. The purchase in October 2013 of an entire new processing
plant and IT system for processing apple and orange juice on site had widespread repercussions. The
plant and system took three months to install, and there was also significant disruption to our existing
operations during the ongoing transition to the new system. As a result, we initially struggled to
produce the necessary output to meet our customers’ demands – we know that this caused us to lose
some customer goodwill.

ICAEW/CS/N16 Page 11 of 45
By injecting resources into our processing operations at every level throughout this financial year, we
managed to recover by the end of the period from the position caused by the disruption. However, as a
result the 2014 financial statements reflect the process of transition. Initially, increased costs and
expenses moved out of step with business line revenue but there was a recovery later in the year. Tight
working capital control was important throughout the year, necessitated by the fact that we were
operating close to our overdraft limit of £2 million (see below).

The investment in new plant meant that TT could revamp the apple juice production and bottling
operation and take the orange juice processing back in-house. It also managed to open up a new line
of business – a toll processing service for other juice processing companies. During this year TT
increased its fruit trading business activity.

 The initial cost of the purchase of the plant, equipment and IT for the fully automated bottling and
packaging operation was £7.3 million – funded by a 10-year, 6.5% per annum, interest-only bank
loan of £7 million – the remaining £300,000 came from working capital. We also started to update
our website to enable it to be fully accessed by our business customers. Additional expenditure on
plant and equipment during the year amounted to £248,000.
 The bank loan is secured on the non-current and current assets of the business.
 As with all non-current assets, apart from leasehold improvements, the new assets are depreciated
on a reducing balance basis (15-25%).
 Leasehold improvements are depreciated over the remaining life of the lease.
 Early in 2014, as a result of the spare processing capacity which the new system created, TT
started offering toll processing services to other organisations.
 To attract new toll processing customers, they were initially offered 60 days’ credit – which had an
impact on TT’s cash flow.
 We continued to import grapes from India and Iran – with payments from supermarkets (our
customers for the imported fruit) running at approximately 60 days.
 The purchase of the entire new processing operation in October 2013 had major financial and
operational repercussions with one result being that working capital control deteriorated and the
bank overdraft during that period touched its agreed maximum of £2 million.

Year ended 30 September 2015

There is a review of the year to 30 September 2015 and more detail on each of the main business lines
following the management accounts.

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 EXHIBIT 5
True Taste Limited
Management accounts for the three years ended 30 September 2015

Statement of profit or loss

Year ended 30 September 2015 2014 2013
£000s £000s £000s
Note
Revenue 1 37,759 30,052 25,182
Cost of sales 2 (28,863) (23,489) (20,006)
Gross profit 8,896 6,563 5,176
Selling and administrative expenses 3 (5,976) (4,808) (4,022)
Operating profit 2,920 1,755 1,154
Interest payable and finance charges (585) (620) (118)
Profit before taxation 2,335 1,135 1,036
Taxation (467) (227) (207)
Profit after taxation 1,868 908 829

Statement of financial position

As at 30 September 2015 2014 2013
Notes £000s £000s £000s
Non-current assets
Tangible assets 4 7,821 9,465 3,060
7,821 9,465 3,060
Current assets
Inventories 5 3,147 2,460 2,174
Trade and other receivables 6 8,096 5,908 4,055
11,243 8,368 6,229

Total assets 19,064 17,833 9,289

Shareholders' equity
Ordinary share capital 1,000 1,000 1,000
Retained earnings 6,706 4,838 3,930
Total shareholders' equity 7,706 5,838 4,930

Non-current liabilities
Bank loan 7,000 7,000 -
7,000 7,000 -
Current liabilities
Trade and other payables 7 3,772 3,539 3,495
Bank overdraft 586 1,456 864
Total current liabilities 4,358 4,995 4,359

Total equity and liabilities 19,064 17,833 9,289

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 Statement of cash flows
Year ended 30 September 2015 2014 2013
£000s £000s £000s

Profit before tax 2,335 1,135 1,036

Adjustments for:
Depreciation & loss on disposals 2,018 1,812 882
Net finance expenses 585 620 118
4,938 3,567 2,036
Change in inventories (687) (286) (603)
Change in trade and other receivables (2,188) (1,853) (1,208)
Change in trade and other payables (7) 24 885
Cash generated from operations 2,056 1,452 1,110
Taxation paid (227) (207) (384)
Net finance expenses (585) (620) (118)
Net cash from operating activities 1,244 625 608
Investing activities
Purchase of tangible assets (390) (8,232) (648)
Proceeds from disposal of tangible assets 16 15 92
Net cash used in investing activities (374) (8,217) (556)
Financing activities
Bank loan - 7,000 -
Net cash (used in)/from financing activities - 7,000 -

Net change in cash and cash equivalents 870 (592) 52

Cash and cash equivalents at start of year (1,456) (864) (916)
Cash and cash equivalents at end of year (586) (1,456) (864)

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 Notes to the management accounts

Note 1 Revenue (all UK) 2015 2014 2013

£000s £000s £000s
Apple juice 6,998 6,431 5,999
Orange juice 17,574 15,048 13,807
Toll processing 6,195 2,767 -
Fruit trading 6,992 5,806 5,376
37,759 30,052 25,182

Note 2 Cost of sales 2015 2014 2013

£000s £000s £000s
Production personnel costs 2,929 3,338 1,948
Materials: fruit; juice; ingredients 4,983 3,365 2,754
Materials: bottles; packaging 7,543 6,656 5,875
Logistics 7,679 6,031 5,369
Juice processing costs 3,710 2,657 2,985
Agent’s fees (fruit trading) 1,399 1,161 1,075
Toll contract costs 620 281 -
28,863 23,489 20,006

Note 3 Selling and administrative expenses 2015 2014 2013

£000s £000s £000s
Selling and marketing 2,425 1,813 1,588
Staff costs 1,055 713 669
Establishment costs 1,817 1,664 1,454
General administrative expenses 679 618 311
5,976 4,808 4,022

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 Note 4 Non-current assets
Tangible assets
Leasehold Plant, IT &
Improvements Machinery Vehicles Total
Cost £000s £000s £000s £000s
At 1 October 2012 1,979 3,072 646 5,697
Additions - 224 424 648
Disposals - (466) (338) (804)
At 30 September 2013 1,979 2,830 732 5,541
Depreciation
At 1 October 2012 720 1,319 272 2,311
On disposals - (276) (192) (468)
Charge for the year 198 322 118 638
At 30 September 2013 918 1,365 198 2,481

Carrying amount at 30 September 2013 1,061 1,465 534 3,060

Cost
At 1 October 2013 1,979 2,830 732 5,541
Additions 232 7,548 452 8,232
Disposals - (104) (122) (226)
At 30 September 2014 2,211 10,274 1,062 13,547
Depreciation
At 1 October 2013 918 1,365 198 2,481
On disposals - (82) (92) (174)
Charge for the year 259 1,348 168 1,775
At 30 September 2014 1,177 2,631 274 4,082

Carrying amount at 30 September 2014 1,034 7,643 788 9,465

Cost
At 1 October 2014 2,211 10,274 1,062 13,547
Additions - 166 224 390
Disposals - (42) (78) (120)
At 30 September 2015 2,211 10,398 1,208 13,817

Depreciation
At 1 October 2014 1,177 2,631 274 4,082
On disposals - (30) (42) (72)
Charge for the year 259 1,549 178 1,986
At 30 September 2015 1,436 4,150 410 5,996

Carrying amount at 30 September 2015 775 6,248 798 7,821

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 2015 2014 2013
Note 5 Inventories £000s £000s £000s
Raw materials 365 285 131
Bottles and packaging 1,692 1,241 1,252
Finished goods 1,090 934 791
3,147 2,460 2,174

Note 6 Trade and other receivables £000s £000s £000s

Trade receivables 7,162 5,049 3,322
Prepayments and sundry 934 859 733
8,096 5,908 4,055

Note 7 Trade and other payables £000s £000s £000s

Trade payables 2,917 2,712 2,677
Other payables 855 827 818
3,772 3,539 3,495

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 EXHIBIT 6
EMAIL
From: Esme Hext
To: Andy Rode
Subject: Review of True Taste business operations for the year ended 30 September 2015
Date: 18 November 2015

I am attaching a set of documents to provide an explanation of the company’s four business lines:

 Apple juice (Exhibit 7)

 Orange juice (Exhibit 8)
 Toll processing (Exhibit 9)
 Fruit trading (Exhibit 10).

I am also attaching the TT board’s operational and strategic review (Exhibit 11).

Set out below is a financial summary (consistent with Notes 1, 2 and 3 of the management accounts)
and a short review of our operations by business line during the year ended 30 September 2015. TT
uses this type of summary in its analysis of business line performance and sales mix. It also evaluates
those critical or significant changes identified in the cost of sales components affecting gross profit.

Apple Orange Toll Fruit

Juice Juice Processing Trading Total
£000s £000s £000s £000s £000s
Revenue 6,998 17,574 6,195 6,992 37,759
Cost of sales
Production personnel costs 385 1,765 779 - 2,929
Materials: fruit; juice; ingredients 1,074 3,341 - 568 4,983
Materials: bottles; packaging 3,193 4,350 - - 7,543
Logistics 973 1,817 824 4,065 7,679
Juice processing costs 508 1,901 1,301 - 3,710
Agent’s fees - - - 1,399 1,399
Toll contract costs - - 620 - 620
6,133 13,174 3,524 6,032 28,863
Gross profit 865 4,400 2,671 960 8,896
Selling and administrative expenses (5,976)
Operating profit 2,920

Throughout the year TT operated a single shift (a standard 40-hour week of daytime working – with
limited overtime). This was a year of good overall revenue growth (up by more than 25% on 2014)
following the operational changes of the previous year. Individual business lines had varying results.

 Apple juice (AJ) had a moderate increase in revenue with most costs under good control. Apple
costs increased by slightly more than the sales price of the juice. This was caused by a poor initial
UK harvest which increased apple prices but was largely offset by lower-priced apples imported
from Poland later in the year. Currently TT agrees prices with Polish suppliers in sterling (£).
 Orange juice (OJ) revenue experienced good growth as production operations became established.
Production personnel costs dropped to a lower proportion of revenue. However, there was a large
increase in fruit costs caused by the switch to a new Spanish supplier early in the financial year
(which is expected to continue). Logistics became more efficient as the linked-up juice processing

ICAEW/CS/N16 Page 19 of 45
 and delivery operations became established. Similarly, during this year juice processing costs were
better controlled and more closely aligned with revenue. There was a drop in the OJ proportionate
share of total revenue but an increase in absolute gross profit.
 A full year of toll processing (TP) meant a substantial growth in revenue and gave it a bigger share
of total revenue. Most TP costs were carefully monitored and, because of the way contracts were
negotiated and structured – with appropriate mark-up on costs – TP revenue was linked to those
costs. As a result, TP gross profit moved in line with TP revenue. The effect of the increase in
revenue was a big absolute increase in gross profit/contribution to £2,671k.
 Although fruit trading revenue grew by £1,186k (20.4%) from £5,806k to £6,992k, in terms of
share of sales mix it declined slightly from 19.3% to 18.5%. Overall fruit costs have remained
almost constant against revenue because of compensating changes in costs from Jat and Kadar.
There has also been a slight decrease in logistics costs, due to a drop in fuel prices which has
created an increase in the gross profit of £247k and resulted in a strong annual gross
profit/contribution from this business line of £960k.

The total gross/profit contribution from the four business lines of £8,896k more than covered the TT
overheads of selling and administrative (S&A) expenses of £5,976k, meaning that there was a very
healthy operating profit of £2,920k. S&A has risen quite sharply over the past two years – due to
expenditure on a major marketing and sales drive as TT went through its transition – as well as
reflecting the increasing size of the business. These S&A expenses are expected to remain around their
current level going forward – thereby maintaining the effectiveness of the marketing and sales
campaigns.

When considering the various costs included in cost of sales for each business line, the following facts
are important:

 Production personnel costs appear now to have reached a state of equilibrium (of around £250k per
month) after all the changes in 2014. These are allocated against the AJ, OJ and TP business lines
based on levels of activity on each of those lines.
 The cost of materials (comprising fruit, juice and related ingredients) can vary significantly from
year to year depending on external factors. In 2015 there was a major increase in juice costs for the
OJ business line due to a switch to a higher-quality and more consistent new supplier in Spain.
 With the new in-house processing equipment fully operational throughout this financial year, the
use and cost of bottles and packaging have become more established for the AJ and OJ business
lines. These costs can now be more carefully controlled and are consistent with volume of activity.
 Logistics costs comprise the cost of external haulage and transport contractors, as well as the cost
of our own van delivery fleet. These costs are a relatively stable proportion of AJ revenue,
reflecting the fact that deliveries tend to be local, and during 2015 there have been some
efficiencies in those deliveries. Logistics costs have increased with OJ operations because of the
expanding nature of that business line in terms of volume and an increasing geographical spread.
Logistics and distribution are a significant direct cost element in fruit trading and are affected by
changes in transport mode.
 Juice processing costs comprise: the costs of setting up and operating each processing activity;
staff costs; plant depreciation; cleaning and maintenance; related IT implementation, monitoring
and control systems as well as costs such as power and location taxes. These appear to have
stabilised at approximately £300k per month. These costs are allocated to AJ, OJ and TP.
 Agent’s fees apply solely to fruit trading and are a contracted proportion of that revenue.
 Toll contract costs relate solely to TP and include the cost of legal agreements, quality audit
agreements and arrangements, insurances and management costs.

More operational details of each of these business lines are provided in the following documents.

ICAEW/CS/N16 Page 20 of 45
 EXHIBIT 7

True Taste: apple juice operations

Bottled apple juice is TT’s original and basic business line. Manufactured originally from UK apples,
it is sold in standard green glass bottles to local independent grocers, restaurants and other retail
outlets. It is also very popular as a drink for younger people and those customers looking for a good
quality alcohol-free drink.

There are ten different flavours of this juice, but the basic production process is identical. All are based
on a single variety of apple or various blends of different apples with root crops, plus berries and
spices. All juice contains 100% pure fresh apple juice pressed on location at the factory in Hampshire.
Traditionally only the freshest hand-picked farmed fruit is used and there are no added sugars,
sweeteners or artificial preservatives. The shelf-life is enhanced because the juice is bottled in green
glass bottles. This naturally preserves it for up to nine months, but it significantly increases costs.

All fruit used by TT is assessed for quality after picking. Any apples found to be ‘unsound’ are
removed. Each type of apple is juiced separately and then either bottled separately to allow the
individual flavour to be retained, or blended with other varieties or with additional ingredients to add
distinctive flavour. A popular example is the blending of Cox and Bramley, which provides a good
balance of rounded sweetness and sharp tartness. Ingredients that might be added include extracts from
rhubarb, berries such as blackcurrant, or a spice such as ginger.

All apples and ingredients are crushed and pressed on-site to extract and manufacture the different
varieties of apple juice. The juice created is then pasteurised before being immediately bottled to lock
in the fresh taste. There are no additives except for ascorbic acid (vitamin C) which is used as an anti-
oxidant. This is added to prevent the apple juice from turning a cloudy brown. This happens whenever
an apple is cut and is a side-effect of the natural oxidisation process (the brown effect is a form of
edible rust – in its initial state it is harmless but is generally not considered attractive).

A major marketing breakthrough occurred for TT in the financial year ended 30 September 2010 when
the company had the idea of attaching empty smaller green plastic bottles to the larger glass bottle. The
small, virtually unbreakable, bottles had various motifs, characters or inspirational words written on
the labels. They were a variety of shapes and were considered ideal for parents to fill with apple juice –
diluted where appropriate – for their children to take safely to school, or on outings, as part of a packed
meal. A new marketing campaign aimed at younger customers accompanied the launch of these
bottles. As a result, over the following two years sales of apple juice increased significantly.

The apple juice production and bottling process also benefited from the investment in production
equipment made in October 2013, which has since meant a more efficient juice processing system.

Attached below are some extracts from TT’s quarterly marketing bulletins to apple juice customers
which describe operational activities in the year to 30 September 2015. These bulletins began when the
original TT apple juice operation started and have continued ever since as part of a marketing and
information service to customers.

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Apple juice manufacturing operations through the year to 30 September 2015

October to December 2014

TT is always a busy place for the production of apple juice, but especially in October because of the
UK apple harvest which started in September – although it is not our busiest month in terms of sales.
The process of making our apple juice is simple, but we are fanatical about detail to ensure that we
make the best juice possible. Apples are transported in from local farms and other suppliers in large
delivery boxes. The apples are conveyed onto a carefully monitored sorting area so that we can ensure
that only the best apples which pass our inspection are made into our juice.

TT starts November by juicing Cox apples and finishes the month by beginning to juice Bramley
apples, which are added to the Cox juice to create another dimension to the juice. When it is served
chilled, this sweet and sharp juice is great with any meal.

At this time TT is also gearing up its production and sales towards Christmas, and many of its regular
customers have already placed orders for the TT Christmas boxed “special” of ten bottles of apple
juice – offered in a selection of different varieties.

TT has been juicing a number of different varieties of apple to be blended with ginger for the very
popular apple and ginger juice. This juice is excellent as a “mulled” (warmed) drink on a cold winter’s
evening or served chilled to provide a non-alcoholic drink of real class.

There are still some local apples being picked in December. Apples that are picked late in the season
have had time to ripen fully through the whole of autumn, making them silky smooth, fairly sweet and
absolutely delicious – ideal for juicing.

January to March 2015

The New Year has started very successfully because in January 2015 TT has been complimented in the
national press, which described one of our natural apple juices as “outstanding”. This has added to the
fact that we were the winner of the Winchester Good Drink awards for non-alcoholic drinks for our
Christmas selection – demand for which was exceptionally high this year.

Juicing is still going on. We are processing more of the Cox crop, and then we will continue with
Braeburn later in the month. There are a number of farmers with very large “cool storage” barns,
which means that they supply apples (at an increasingly higher price) throughout the spring and
summer months, thereby enabling us to maintain our production process.

February and March are the months when TT holds its highest inventory of apple juice ready for the
increase in sales that occurs from April onwards as warmer weather starts.

We are updating and re-launching our e-commerce site in April so that all our retail customers can
select and purchase their favourite juice more efficiently and will get it delivered directly to their
premises. The work has been ongoing since the summer of 2014 and forms part of TT’s increased
expenditure on the production process and IT.

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April to June 2015

The new website and links have gone live – so far without any major problems. It is always pleasing
when a critical transition occurs seamlessly. We are all indebted to Su Fin Zhang and her team who
worked so tirelessly to make it happen – we’ll all be drinking (our own apple juice) to that success.

Although we had believed that the local suppliers (who store apples in cool storage units throughout
the winter) would provide sufficient apples for our juicing needs, we are facing a difficult shortage of
supplies – caused by a weak harvest in autumn 2014. Those remaining UK apples available for sale are
increasingly expensive. We have a difficult business decision to make. Pay increasingly higher prices
and pass those increases on to our customers; pay higher prices and absorb those increases which will
increasingly squeeze our margins; or try to find alternative supplies of apples. With the third option
appearing to be the best solution, Myra visited Poland – from where her parents originate – in order to
try to source equivalent apples from that country for our juicing needs.

As a result of Myra’s successful search, a new supply of Polish apples has been established. We are
trying and testing the new imported variety, the Idared, which matches our existing type of apple in
terms of quality and taste. Early feedback on our bottled samples from established customers is very
positive, which is excellent news.

July to September 2015

The early euphoria over the prediction of a good British summer faded into the reality of lengthy wet
and cold spells in July – particularly here in the south of the UK. Despite the dampening effect of all
this cold rain, our apple juice sales are continuing to grow steadily – largely as a result of word-of-
mouth recommendations. It is a very pleasing trend.

Ever since June we have been bottling Idareds in various blended juices – to universal customer
approval. The supply of these top-quality apples at a very competitive price has meant that although
there was pressure on our margins from the earlier increase in UK apple prices, this has now eased
significantly. Despite that success, we are looking to renew our contracts to purchase English apples
from local farms as soon as the early (apparently bumper) crops are harvested – the rain has actually
helped this year’s crop – isn’t nature wonderful!

It is now September near the end of our financial year, but the juicing and selling continue without
pause. We are confident that this year has been a good year for our apple juice sales both quantitatively
and qualitatively – and we hope all our customers agree. We look forward to the next twelve months!

Apple juice profit or loss

Year ended 30 September 2015 2014 2013
£000s £000s £000s
Revenue 6,998 6,431 5,999
Cost of sales
Production personnel costs 385 472 309
Materials: fruit; juice; ingredients 1,074 917 875
Materials: bottles; packaging 3,193 3,081 3,006
Logistics 973 938 841
Juice processing costs 508 463 433
6,133 5,871 5,464
Gross profit 865 560 535

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 EXHIBIT 8
True Taste: orange juice operations

Supply of orange juice

Although apple juice has been the product on which the TT business was founded and expanded, the
reality is that there is a much higher demand for orange juice as a staple fruit juice drink in the UK. TT
had initially concentrated on apple juice production and sales because it was a local product with a
local market. At that stage TT did not consider moving into supplying orange juice because of the
competition from major drinks companies and supermarkets with their “own brand” orange juice,
which dominate the retail consumer market.

However, after attending a trade fair in London, Daria Marchewka and Kelan Teague were both
impressed by the suggestion that there was a big and relatively untapped market for the supply of
good-quality orange juice. This market comprises organisations that have their own internal sales
points for juice, by way of cafeterias or canteens on their sites – which need an appropriate supply of
quality orange juice. From their knowledge of the juicing industry, Daria and Kelan knew that they
could source good-quality orange juice for this market. They decided to seek approval from the TT
board for a move into a new business venture of filling large plastic bottles and supplying good-quality
orange juice to this new, different customer base.

The success of the new venture lay in persuading these potential customers to buy the juice which TT
would supply. The customers identified were organisations which had either a large employee base or
a large number of people who used their facilities on a daily basis, namely: hospitals (visitors and
staff), colleges and universities. The large number of potentially thirsty people would be the final
consumers of the juice being dispensed from various cafeterias and food and drink sales points within
these organisations. The plan was simple, and TT’s focused marketing and sales drive to the target
organisations was effective – and successful.

TT’s sales team visited every hospital, college and university within a 100-kilometre radius of their
site with samples of orange juice. TT managed to sign up the majority of these organisations as
customers for an initial free trial period, followed by a contract to supply the orange juice
commercially for at least a three-month period. Many organisations which started buying the orange
juice from TT extended their initial contracts. Demand for this orange juice grew very strongly.

TT had to adapt its existing apple juice production and bottle filling system to cope with filling the
large plastic bottles with orange juice. The imported pure orange juice from South America was
purchased (in sterling) from a UK bulk importer based in Southampton and supplied to TT’s factory in
5,000-litre tanks. However, Kelan quickly realised that TT’s existing production system could not cope
with having to adapt to this rapidly expanding operation on a long-term basis, and so he set about
trying to organise a better production process. As well as struggling to achieve production targets, TT
had to invest in more drivers and vehicles to maintain the orange juice sales and delivery service.

Realising that TT itself was not set up properly to meet the increasing demand for filling the large
orange juice bottles, Kelan started to look for a possible solution. At that time, TT did not have the
funds or source of financing available to make the significant investment needed to change and
upgrade its full production system. Kelan’s research uncovered that there were organisations that
offered a “toll processing” or “toll manufacturing” service. One such company was AB Juicing, based
just 20 kilometres from TT’s factory.

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Toll processing agreements

A toll processing or toll manufacturing agreement involves two parties:

 Company procuring the tolling service: this is the customer, also called the “principal”, who
provides all or any of the raw materials, any process information and necessary instructions.
 Toll processor or manufacturer: this is the provider of service, also called the “toller”, who –
depending on the situation and the contract – provides infrastructure, required equipment, operating
staff and technical support.

In a toll processing arrangement, a company provides its raw materials or semi-finished goods to a
third-party service provider. The toller, who often has specialised equipment or infrastructure, provides
a subset of manufacturing processes on behalf of the customer using the materials or goods supplied by
the customer for a fee. The toller provides the customer with the end-product, delivered to an
appropriate location – either to its premises or directly to its own customers. Storage or distribution
may accompany the tolling operation, but does not in itself constitute toll processing.

AB Juicing toll processing agreement with TT

In 2010 TT agreed a toll processing arrangement with AB Juicing for filling the large plastic bottles
with orange juice. Because AB Juicing was used to dealing with very large toll contracts with major
supermarkets and large juice companies, for all different types of juice and similar products, it could
handle TT’s fledgling toll processing requirements with ease. It also offered sensible advice to TT on
the purchasing of bulk orange juice. AB Juicing suggested that it would be commercially wise to buy
the orange juice by way of direct tanker delivery – which AB Juicing’s system was set up to
accommodate in terms of both receipt of large tankers and the storage of bulk juice for TT’s
production needs. Whilst this change increased the toll processing cost, it significantly reduced the cost
of buying the bulk juice for TT and having to deal with large empty bulk juice containers.

In the financial years ended 30 September 2011 and 2012, TT used the toll manufacturing facilities
available in AB Juicing to meet its target supplies. Over time AB Juicing steadily increased its charges
and TT became aware of these increasing costs and the impact on its profitability. In the financial year
ended 30 September 2013 the situation became noticeably more difficult. AB Juicing increased its
prices significantly, citing important upgrades in its processing facilities, and therefore its costs, which
it needed to pass on to its toll customers. TT realised that this subcontracting of the filling process was
becoming a large and somewhat uncontrollable cost. In the year to 30 September 2013, these third
party toll processing costs (from AB Juicing) rose to above 18% of revenue from the sale of orange
juice and TT’s gross profit margin on orange juice sales fell below 30% for the first time.

TT suspected that AB Juicing had seen the significant increase in volumes of orange juice which TT
required to be processed and appeared to be trying to “share” that success. AB Juicing may also have
believed that it would be difficult for TT to find an alternative local toll processor for its volume of
work – hence the price increases. Whatever the truth, the price increases made TT realise that a change
in its orange juice processing operations would have to be made. Fortunately, in early October 2013
TT was notified through a trade associate that Sqeasyjuice, a recently-formed juicing organisation
located in the north-east of the UK, had ceased trading and gone into liquidation. Sqeasyjuice’s
corporate failure had been caused by an inability to meet a breakeven position on its non-current asset
investment – it had been operating using very expensive fully-integrated production equipment.

Supported by the bank, which agreed to provide a new loan of £7 million, TT was able to contact the
liquidator in October 2013 and negotiated the purchase of the entire computer automated juice
production and processing system (original cost £20 million) for the price of £7 million. A further
£300k was invested to transport and install the equipment in TT’s production warehouse – where, with

ICAEW/CS/N16 Page 26 of 45
the necessary construction of an additional production floor, there was adequate space for this
operation. The whole process was in place by January 2014. TT set up a maintenance agreement for
this equipment and its systems with the original supplier.

Following its purchase and installation of this production equipment, TT stopped renewing its toll
contracts with AB Juicing and took its processing of orange juice back in-house from January 2014.

The positive effect on orange juice processing costs was noticeable in the year to 30 September 2014 –
with savings of around £900k. However, that was almost completely offset by an increase in TT’s
production personnel costs, caused by the need to install, adjust, become familiar with and start to run
the new process. There was also a noticeable increase in the cost of orange juice towards the end of
that financial year, caused by a weak South American orange harvest. In addition, following a review
of the durability of the orange juice bottles, TT decided that it was necessary to use higher-quality and
more expensive plastic bottles from March 2014, which also resulted in an increase in the purchase
cost and recycling charges for these more durable items.

Early in the financial year to 30 September 2015 the variability in supply and quality of orange juice
from South America forced TT to switch to a more reliable and consistent higher-quality supplier in
Spain. This supplier also had to conform to regulations on waste disposal (in particular for the orange
peel discarded). The overall effect of regulation and quality of supply in a market where other crop
harvests were weak was that the cost of orange juice for TT increased substantially. However, most
other expenses stabilised in this year, and gross profit remained above £4 million.

Orange juice profit or loss

Year ended 30 September 2015 2014 2013
£000s £000s £000s

Revenue 17,574 15,048 13,807

Cost of sales
Production personnel costs 1,765 2,514 1,639
Materials: fruit; juice; ingredients 3,341 1,984 1,556
Materials: bottles; packaging 4,350 3,575 2,869
Logistics 1,817 1,264 1,095
Juice processing costs 1,901 1,611 2,552
13,174 10,948 9,711
Gross profit 4,400 4,100 4,096

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 EXHIBIT 9
True Taste: toll processing operations

The change from toll customer to toll processor

TT’s investment in the new processing system meant that it had spare juice processing capacity.
Seeing a new business opportunity, TT started to advertise and market its own availability to perform
toll processing of any juices for other enterprises. Because of its initial investment and the relatively
low overheads that resulted, plus its own knowledge of commercially negotiating prices from the
customer side of the AB Juicing agreement, TT was able to create a successful new business line of
toll processing.

In the last nine months of the year to 30 September 2014, the toll processing operation grew rapidly.
Using its spare capacity, TT signed up an increasing number of new contracts. Initially, in order to
increase its toll processing business, some of these contracts were too generous to toll customers and
did not take account of the actual cost of a specific toll processing activity for that customer. However,
the positive impact of this new business line can be seen in the overall management accounts for the
year ended 30 September 2015 and in the figures shown below.

Although TT had knowledge of toll processing from the point of view of a customer, the commercial,
contractual and operational reality as a supplier of this process was different (see also Exhibit 12). To
a large extent customers delivered (or TT collected) the relevant goods (juice and packaging) and then
expected everything to be done on schedule – effectively passing over the responsibility for the
production and delivery of their final product to TT. A continuous range of new and sometimes
complex problems had to be solved by TT – which took considerable advisory and management time
to identify, negotiate, agree, organise and complete.

Within a few months of the start of this business line TT set up a new internal “Contracts” department,
with Paul Klakter as its head, to handle all aspects of the negotiation, management and delivery
relating to any toll processing service. Paul’s department covers the entire interface between TT and a
toll processing customer. This includes all the commercial arrangements and legal agreements, as well
as toll processing cost identification and control for each contract. It also includes managing the
specific processing timing arrangements for a customer and dealing with any disputes. Fees with
customers are negotiated in advance, based on suggested volumes of material to be processed; the
numbers, type and size of bottles and packaging to be delivered; the frequency and size of processing
runs required; final delivery locations; TT’s related contract costs; plus a mark-up. The mark-up is
usually between 50% and 100%. At the outset some of the estimates were not very sophisticated, but
with experience TT’s estimates have become more reflective of the cost of toll processing operations.

A typical toll processing job (XY) might have been estimated (or suggested by the client) as being
approximately £5,000 per month to process and deliver 5,000 bottles of juice. The following financial
summary might be drawn from the TT records and estimates relating to that XY job:

Summary of XY toll processing job Notes £

Production personnel costs 1 536
Logistics 2 718
Juice processing costs 3 995
Toll contract costs 4 500
Total costs 2,749
Margin achieved 5 2,251
Total revenue for XY job 5,000

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Notes

1. Production personnel costs are allocated to toll processing jobs based on information captured by a
series of electronic timesheets.
2. All logistics costs, both inward and outward, are included as part of cost of sales – which means
that all toll processing logistics costs to and from the customer are included as part of cost of sales
for that customer. TT’s juice processing system works most effectively with specially-adapted
goods inward vehicles for inward delivery of the bulk liquid and designated materials, so the more
closely a customer conforms to TT standards the better. Similarly, if customers make use of TT’s
specifically designed goods outward systems and packaging for the delivery of the processed and
packaged juice, the cheaper it is for them. In addition, all goods outward delivery costs are
dependent on distances to final customer delivery destinations, and as a result TT’s charges for
these costs can vary significantly between customers.
3. TT’s juice processing costs are allocated between its own apple and orange juice processing
activities and the different toll processing jobs based on the complexity and number of set-up
activities and the processing times for each job. TT’s total juice processing costs include: set-up
costs for each change of processing; depreciation based on machine hours; machine cleaning and
maintenance costs; power, heat (or air-conditioning) and light costs and the related IT and systems
costs. It has proved difficult to identify and allocate all of these costs across the business lines in a
timely fashion, so in recent months TT has allocated (or charged) to each job a figure of
approximately 20% of its agreed fee to cover juice processing costs.
4. Toll contract costs comprise the costs within Paul’s department. These can be affected by the
complexity of the toll processing arrangements and agreements for each customer. TT allocates a
standard 10% of the estimated agreed fee to each toll processing contract to cover these overheads.
Experience of toll processing to date has shown that this is an appropriate method of allocating the
costs of this department.
5. Although TT aims for an average mark-up of around 75% on cost – which enables it to identify
and maintain its margin / gross profit made on each contract – this mark-up can vary with each
contract. It provides an indication of the contribution that each contract is making towards covering
selling and administrative overheads. In fact, because the XY contract was agreed at £5,000 for
5,000 bottles, TT actually made a higher gross profit margin than the average contract.

Information such as the above allows TT to monitor each toll processing contract and, over time, to
become more sophisticated and accurate in its estimates in the negotiation related to a new contract.

The overall figures for toll processing are shown below. The figures for 2014 were affected by all the
changes in that year. The 2015 figures show more established individual costs and estimates in the toll
processing operation.

Toll processing profit or loss

Period ended 30 September 2015 2014
£000s £000s
Revenue 6,195 2,767

Cost of sales
Production personnel costs 779 352
Logistics 824 361
Juice processing costs 1,301 583
Toll contract costs 620 281
3,524 1,577
Gross profit 2,671 1,190

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 EXHIBIT 10
True Taste: fruit trading operations

In 2009, as part of its search for additional berries to add new flavours to the fresh apple juice
production for that season, TT started to purchase various berries from a fruit market based in
Southampton. One of the berry suppliers informed TT that there were farming co-operatives based
abroad who were looking for new markets for their produce.

One such co-operative, Jat Grapes (Jat), was based in India. It had been set up by a group of women
who had initially taken out local micro-credit loans to fund a grape farming operation. In order to
develop its business, Jat was looking to sell its grapes to markets outside India – but had neither the
business contacts nor the experience of exporting.

The initial fruit trading arrangement

The TT board gave its approval for Myra Ashyana to contact Jat Grapes and, simultaneously, to try to
become an approved UK supplier to supermarkets for the supply of grapes. As it transpired, Jat already
possessed a global Good Agricultural Practice (GAP) certificate – which had been one of the key
conditions for obtaining initial credit – meaning that Jat met a crucial criterion for the export of fruit into
any EU country. Similarly, it also had access to local accredited BRIX testing facilities. (The BRIX
chart is the scale that any producer or buyer of fruit can use to determine poor, average, good or
excellent quality in a product. A BRIX press can be used on all fruits and vegetables to enable rapid
quality testing of a sample relating to a specific harvest.)

All UK supermarkets follow the same process for their fruit purchasing. Their regional or national
purchasing managers buy fresh fruit products through approved suppliers who usually specialise in
different fruits from throughout the UK or other countries. All products have to be GAP certified and
must meet specific criteria on the BRIX chart, as well as passing a test for being below permitted
maximum levels of pesticides on fruit. Supermarkets also stipulate the weight of each fruit pack
(punnet) and the method of packaging.

Price negotiations are conditional on all these factors being met, as well as being heavily affected by
supply and demand for specific fruit. The supply of any specific fruit is in turn affected by local harvest
conditions, as well as what might be happening to the harvests of other global suppliers of the same
fruit. As a result, prices for any fruit can vary from week to week. However, once agreement is reached
in principle, supermarkets are very good customers, buying many container-loads of fruit on a weekly
basis throughout a season.

Myra, on behalf of TT, managed to make all the business connections, and in January 2010 TT started a
fruit trading operation buying from Jat and selling to UK supermarkets. Container-loads of good-quality
grapes were bought from Jat, transported to a port in India, and then shipped to the Port of Southampton
in the UK. From there they were delivered directly to the supermarkets’ distribution centres. In this way,
the containers of grapes were never on TT’s premises. Provided that the price negotiations were
realistic, then – as well as opening up an export market for Jat, and supplying appropriate produce for
the supermarkets – there was also a reasonable profit margin for TT on each container shipped. As more
containers were shipped from India during the grape harvest (from February to April initially), TT’s
revenue from fruit trading grew, as did the related gross profit and contribution.

Once the export supply chain was established, Jat experimented successfully with prolonging the
harvest period and increasing harvest quantities in the following year. Some early variety grapes already
in existence meant that harvesting and shipping could actually start in January. Other varieties together
with the holding back of slow-ripening grapes meant that shipments could continue into May. This

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extended the period for the supply and sale of Jat grapes from India into the UK from 13 up to 17 weeks
in 2011, during which time an average of 6 containers a week were shipped.

TT agreed to pay a price to Jat which, as well as being appropriate for the harvested fruit, also included
a payment for training and retaining local personnel, who would be responsible for establishing and
maintaining local quality control. Retaining the quality standards needed for the necessary international
certifications would guarantee the long-term success of this venture. Providing funds to enable this
training programme for Jat ensured that this aspect of quality control occurred.

The appointment of a fruit trading agent

Initially Daria led the negotiations with the supermarkets over prices, quantities and timings of grape
deliveries. However, it became clear that these negotiations required considerable skill – which was
based not only on the produce that TT could deliver and its timings, quality and quantities, but also on
an awareness of what was happening in the grape market as a whole. In addition, public awareness of
the sources of a product, such as grapes, from a location which had a positive or negative political
connotation could drastically change demand for those grapes. Any negotiator has to be aware of all
these external factors, as well as having to know what was happening in detail to the actual produce
being transported to the supermarkets in order to confirm final delivery details. Negotiators also have to
deal with the inevitable fact that supermarkets wanted to pay the lowest possible price for the fruit they
are buying – and, as a result, supermarkets can and do change their suppliers to suit their needs.

On 1 January 2011 TT decided to appoint Dax, an independent fruit trading consultancy organisation, as
its chief negotiator and operations controller – at a fee of 20% of the negotiated sales price for all grapes
sold to a supermarket. Although this was a substantial fee, TT was confident that it would be good value
for money. With Dax in charge of all aspects of the Jat fruit trading operation, together with TT’s
approved supplier status, this business line flourished and became an established part of TT’s business.
Dax’s role included: assessing and ensuring the quality of the grapes; contracting and monitoring all
logistics; negotiating prices and ensuring the successful delivery of grapes to the supermarkets. As the
average number of containers being delivered per week increased each season – reaching 8 for the 17
weeks of the 2015 season – Dax negotiated increasingly competitive discounts on shipping and related
costs. Dax expects this trend to continue.

Expanding the fruit trading operation

Dax’s appointment removed the responsibility of the detailed management of this operation from both
Daria and Myra, allowing them to consider other fruit importing opportunities on behalf of TT.
Although a number of such opportunities were identified from different locations in different parts of
the world, TT decided to use its experience of the grape growing industry. As a result, TT looked for
other grape growers whose harvests could complement the Jat grape crop, but which were not already
exporting to the UK. TT identified Kadar Agricultural Company (Kadar), based in Iran, as one such
grower. Because of specific micro-climate conditions in Kadar’s vicinity and access to sufficient water
from a local natural source, Kadar produced good-quality grapes from mid-June / early July through to
mid-September – a period of approximately 12 weeks.

TT helped Kadar to register for and obtain the necessary quality assurance certification for the import of
fruit from Iran into the EU. This involved rigorous tests relating to the 2012 harvest, which TT could
therefore not import. In addition, TT had to obtain clearance from the UK government that the trade
which it was proposing with Kadar did not and would not contravene the UN sanctions in place for
trading with Iran. (UN sanctions relate mainly to armaments and oil, and there is also an upper trading
limit of £20 million per annum for any importer or exporter.)

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As soon as the initial parameters for the import from Kadar were established, Dax took over the
management of the operation. The main difference between the Jat operation and the Kadar operation
was that transport from Iran was overland by truck and it took just six days. In addition, each truck
carries 50% more grapes than one container from India.

Apart from some administrative problems with the paperwork relating to the transport of fruit through
Turkey and across its borders, the truck transport of these grapes was a success. The fruit from Kadar
filled a gap in the supply of grapes into the UK during the summer season of June-September. The
quality of these grapes was high, and that, together with the unique timing, meant paying Kadar a
premium of between 10-12% above the cost of Jat grapes. In turn, Dax negotiated a price with the
supermarkets that was at least 20% higher than the equivalent price for Jat grapes. This Kadar trade
became established, and in the summer of 2015 it averaged five trucks per week for 12 weeks (60 truck-
loads overall).

Details of the fruit trading from the two locations during the year to 30 September 2015 were:

Fruit trading per shipment Jat Kadar

Container Truck
Average trades £ £
Cost of fruit per container / truck 2,400 4,020
Local packaging, certification, arrangement costs 5,560 10,800
Transport (refrigerated) costs to UK port 9,680 18,340
UK port charges and documentation costs 650 1,240
Truck transport in UK to final destination 450 340
Total: logistics & distribution 16,340 30,720
Cost of fruit to UK destination 18,740 34,740

Negotiated gross price 28,600 51,700

Less: Agent’s commission @ 20% (5,720) (10,340)
Net price 22,880 41,360
Less: Cost of fruit to UK destination (as above) (18,740) (34,740)
Gross profit 4,140 6,620

The summary of the total annual fruit trading for TT is as follows:

Fruit trading profit or loss

Year ended 30 September 2015 2014 2013
£000s £000s £000s
Gross revenue 6,992 5,806 5,376
Cost of sales
Fruit 568 464 323
Logistics and distribution 4,065 3,468 3,433
Agent’s fees 1,399 1,161 1,075
6,032 5,093 4,831
Gross profit 960 713 545

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 EXHIBIT 11
True Taste: operational and strategic review (October 2015)

The board of True Taste meet frequently to review and consider updates on all operational issues and
factors. There is also a regular review of the company’s strategy, taking into account the known
strategic risks for the business.

Current operational issues include:

1. Continuous monitoring of local UK apple crop production and expected harvest times and yields
through our local agents and our own weather tracking systems

2. Monitoring competitor businesses and organisations for any changes which might affect supply or
demand of produce

3. Contracting for an investment of £1,200k in tangible assets to increase productivity – based on the
successful growth achieved in the year ended 30 September 2015.

Strategic review

Issues Evaluation
1. Supply of TT relies on the supply of fruit or juice from its various primary suppliers at the
ingredients expected time of the year. The timing is crucial and is affected by weather and
growing conditions throughout the season. An early or late harvest of fruit by the
primary suppliers can have significant repercussions for both production and
supply of products to market.
2. Cost of The cost of ingredients is heavily affected by harvest conditions worldwide. A glut
ingredients or scarcity of a fruit crop can affect the prices which have to be paid throughout
the supply chain. The extent to which these costs can be fully passed on to the next
point in the supply chain affects the profitability of the company. Consumers are
very resistant to price rises.
3. Exchange rate TT currently conducts its business, including its purchases of grapes from abroad,
changes in sterling (£). As a result, we believe that we are avoiding some of the key risks in
foreign exchange fluctuations in our trading. However, we are aware that TT is
simply passing this exchange risk to its suppliers, who will want to protect
themselves against any adverse fluctuations from their perspective. We need to
understand their concerns.
4. Political and Many countries have to deal with significant internal unrest, or unrest on their
economic risk borders and in neighbouring countries. The effect of this unrest can cause
significant physical disruption to the population and to the products which sustain
that population. There can also be significant disruption to supply routes for goods
and services both into and out of a country. Sometimes countries and individuals
adapt themselves successfully to a long-term low level of disruption. Sometimes
the disruption can overwhelm a country. These conditions can change rapidly in
different parts of the world.
5. Other supply In its business TT faces other supply disruption issues – such as shipping delays or
issues handling disputes. These disruptions create problems for us and our customers and
often lead to financial and/or reputational loss.

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 EXHIBIT 12
Toll processing contract issues – a review by independent consultants
The increase in toll processing

The concept of outsourcing support for a business is something that is becoming more and more
popular. Business owners make the decision to outsource work to toll processing companies for two
main reasons: cost efficiency and expertise. A toller can move a project from the development stage all
the way to full-scale production using its expertise and physical resources in a comparatively short
timescale, and share economies of scale with its customers.

Toll processing (TP) agreements

A business or manufacturer may not always possess the skilled employees, time, special equipment,
storage space or facilities needed to perform a specific operation on raw materials. When these
shortfalls prohibit production or interfere with operational efficiency, the business or manufacturer can
contract the work to a toll processor in order to get the job done. However, these reasons for seeking a
toll processor are also reasons why a toll customer may be at a distinct disadvantage in negotiating a
good TP contract.

TP agreements usually involve contracts which are six months or more and which define the terms and
conditions relating to the TP arrangement. A clear TP agreement is expected to provide benefits to
both the processor and the customer – however, many would argue that what is a benefit to one side
could easily be seen as a risk or concern to the other party.

A typical TP contract for an organisation involved in juicing services would cover the following main
headings:

1. Product details – type of drink and basis of processing (is it just a filling operation or does it
require any blending?)
2. Delivery inward details: which company is responsible; timings; quantities; products
3. Which company retains ownership of which products at which stage of processing
4. Confidentiality agreement concerning technology, manufacturing process, ingredients
5. Packaging details: plastic bottles; glass bottles; small cartons
6. Bulk packaging details: boxes; pallets; containers
7. Delivery out details: which company is responsible; timings; quantities
8. Responsibility (and boundaries) for dealing with quality control issues
9. Responsibility for achieving deadlines and any system failures
10. Basis for charges for the toll processing service depends on
• Volumes
• Complexity of blending operation
• Agreed production schedule: earliest and latest timings
• ‘Urgent need’ production schedule – as might be caused by a long period of hot weather
11. Payment details: invoicing; payment terms
12. Dispute arrangements

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The benefits of toll processing to the customer

An organisation acting as a customer in a TP arrangement may receive the following benefits:

 A short lead time for the set-up of the process and the delivery of output or installation
 An elimination of the need for capital investment and installation of processing equipment
 The advanced engineering skills necessary are supplied by the TP company
 The absence of (direct) equipment-related maintenance expenses, or spare parts costs
 The minimisation of inventory holding costs – if properly managed
 The avoidance of the need for additional employees
 The absence of the need for additional manufacturing permits or operating licences
 Production levels can be adjusted easily to changing demand – within agreed ranges of activity
 Most costs are predetermined and can be included in business financial plans with certainty
 TP completion times can be operated to an agreed (fast) customer timetable
 There is an opportunity to work with another company’s team of experienced professionals
 A TP company can (and should) advise a customer on any difficulties, potential conflicts or
extenuating circumstances affecting the customer’s proposals
 A TP company should be aware of the legal or regulatory factors affecting a customer proposal

A successful TP company should be able to demonstrate to a potential or existing customer that it can
provide or deal with all of the above. These factors can be of great assistance to a customer because it
can help the customer to decide important issues regarding the managing, processing and output of its
products, together with timings, quality and quantity control.

Toll processing concerns for the processor

Many analysts believe that unless a company is uniquely involved in TP, it is simply doing work for its
rivals. It seems obvious that a TP company would only offer services in a type of manufacturing or
processing in which it was an expert. This invariably means offering such services in a line of work in
which the TP company may have its own customers – an obvious potential conflict of (self) interest.

Similarly, TP customers can have a damaging effect on a TP company’s business because they are
often seen as being significant credit-takers who use the TP arrangement as a cheap form of short-term
funds.

Furthermore, when things go wrong, TP companies frequently cannot easily sell to anyone else the
products that they have produced for a particular toll customer. If a TP customer cannot pay, then there
is more than just financial disruption as the TP company has to dispose of the customer’s products, or
it has the problem of those products clogging up manufacturing space and processes.

In general, the TP customer usually owns the process technology and know-how, as well as the end-
product(s). This fact differentiates a toll processing agreement from a standard supply contract.

TP agreements are usually confidential. In particular, the customer may not want to reveal to its final
clients the identity of the TP company, or to disclose that there is a toller acting on its behalf.

In reality, any problems in processing – for example, with poor-quality produce supplied by the
customer – can affect the processor as much as the customer. Using tainted goods or poor-quality
containers can affect or damage the processing equipment, as well as the TP’s reputation. Lost time
caused by one customer’s defective produce can impact the complex timetables under which toll
processing companies operate.

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 EXHIBIT 13
EMAIL
From: Myra Ashyana
To: True Taste board cc: Andy Rode
Subject: Fruit imports from Kadar
Date: 16 October 2015

Despite the overall trading success of our supply of grapes from Iran this season, we have
experienced a number of difficulties. Dax just sent me the following report citing its concerns.

Report on grape trading with Iran (Kadar) up to 30 September 2015

1. Because of the recent sudden departure of our key contact at Kadar, Kadar has been using
a local agency to ensure its quality control and obtain the official quality documentation
required. We have noticed some inconsistencies in this documentation:

 There are errors and alterations to some document dates

 The descriptions have not been as specific as before
 The BRIX documentation for one week’s produce (5 truck-loads) all indicated
exactly the same sugar content level – which does not normally happen

Kadar has offered some explanations and assurances concerning these issues, but we
are aware that inconsistencies of quality control may affect TT’s fruit trade.
2. Throughout August and September 2015 there have been slight delays (a matter of a few
hours) at the border between Iran and Turkey because of additional military roadblocks
and security checks. We know and accept that the security is necessary. We will monitor
this situation in case the delays become more prolonged. Dax representatives are located
at these borders to help expedite the passage of the trucks carrying our grapes –
sometimes having to make extra administrative cash payments to facilitate the process.

3. During the summer months there have been more serious delays at the Turkish border.
Despite attempts to find alternative routes, these delays can be as long as 24 hours.
Given the lack of reliable and available electricity supplies for refrigerated trucks at these
borders, drivers are obliged to keep their engines running to maintain the cooling system
for the grapes. Transport companies, and their drivers, have been demanding additional
ad-hoc payments from Dax to cover this cost.

4. Driving up through Europe is now much more controlled, with numerous internal EU
borders being re-established and additional security checks for armaments and illegal
immigrants slowing the journey. Increased journey times increase costs.

5. The port crossing points into the UK are also operating much more slowly and have
caused the greatest concern. In September a truck was opened illegally during the night.
When the break-in was discovered, the truck was searched and the load of grapes was
disturbed. Nothing was found and the truck continued into the UK, but the fruit could not
be sold to our supermarket customer – which had to find alternative supplies – and these
grapes could only be sold through local market buyers at 25% of the expected price.

Overall the transport costs and all risks involved in this operation have increased during
2015. The 2015 fruit trading season with Kadar is now complete and was successful (with 60
truck-loads shipped), but TT needs to be aware of these ongoing problems.

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 EXHIBIT 14a

UK Medical Research November 2015

The danger of sugar in children’s drinks

Professor Susan Jebb, head of the diet and obesity research group at the Medical Research Council's Human
Nutrition Research unit at Cambridge University, is strongly against fruit juice. "I would support taking it out of
the 5-a-day guidance." [This refers to the UK Government guidance that everyone should try to eat 5 portions
of fruit or vegetables per day to maintain a healthy diet.]

She continued, "Fruit juice isn't the same as intact fruit. It has as much sugar as many classical sugary drinks".
So why is fruit good, but fruit juice bad – even when fruit juice just has fruit in it?

Fruit in its natural state, such as fresh fruit picked from trees, is full of essential vitamins and minerals, and it is
a good source of fibre. Giving your children apples or oranges or any other variety of fruit is a good way to
provide them with a balanced diet and should be part of their daily menu.

However, fruit also contains fructose (a form of sugar) in the cells of fruit. If you eat a raw apple, for example,
the sugar stays mostly within the cell walls and is only released and broken down when it enters your digestive
system. That means that it is released slowly into your body, with the fruit fibre helping to slow digestion even
more. The other good thing about fresh, raw fruit is that most of the fructose doesn't hit your teeth – as it's
still contained within the fruit cells.

But, when fruit is pulped, squeezed, pureed or pasteurised to turn it into a fruit drink, the fructose in the cells
is released and will do two things. Firstly, when you drink the juice, the fructose will attack your teeth causing
decay. Secondly, it will enter directly into your bloodstream, causing a surge in your blood sugar which can
lead to weight gain and other issues, just like regular sugar.

Guidelines from the Scientific Advisory Committee on Nutrition (SACN) state that only 5% of your diet should
be added or 'free' sugars (these are the natural sugars found in fruit juices). The recommended daily
guidelines, based on average population diets, are:

 18g or 4.5 teaspoons for children aged 4 to 6

 24g or 6 teaspoons for children aged 7 to 10
 30g or 7.5 teaspoons for those aged 11 years and over.

Many fruit drinks exceed these daily limits in just one 200ml glass. The result is that parents should definitely
limit the amount of fruit drinks that their children consume. There are also safer ways for children (and adults)
to drink fruit juice (and therefore consume fruit sugar):

 Dilute juices with water – this decreases the sugar content as long as you don't use a bigger glass!
 Aim for a maximum of 150ml of actual juice per day
 Only give fruit juice during a meal – the protein in the meal will slow-release the sugar and balance blood
sugar
 Eat fruit with a handful of nuts – the protein in the nuts will again slow-release the sugar and balance your
blood sugar.

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 EXHIBIT 14b

Food and Agricultural Organisation of the United Nations – helping to build a world without
hunger (December 2015)

What are Good Agricultural Practices?

A multiplicity of Good Agricultural Practice (GAP) codes, standards and regulations have been
developed in recent years by the food industry and producers’ organisations but also governments
and NGOs, aiming to codify agricultural practices at farm level for a range of commodities.

Their purpose varies from fulfilment of trade and government regulatory requirements (in particular
with regard to food safety and quality) to more specific requirements of speciality or niche markets.

The objectives of these GAP codes standards and regulations include, to a varying degree:

 Ensuring safety and quality of produce in the food chain

 Improving natural resource use, workers’ health and working conditions
 Creating new market opportunities for farmers and exporters in developing countries

The four pillars of GAP are economic viability, environmental sustainability, social acceptability and
food safety and quality. These are included in most private and public sector standards, but the
scope which they actually cover varies widely. Good Agricultural Practices are practices that
address these issues for on-farm processes, and result in safe and quality food and non-food
agricultural products.

The concept of GAP may serve as a reference tool for deciding, at each step in the production
process, on practices and/or outcomes that are environmentally sustainable and socially
acceptable. The implementation of GAP should therefore contribute to Sustainable Agricultural and
Rural Development.

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 EXHIBIT 14c

Juicy News Apple growers in Europe hit by Russian ban on EU imports December 2015

The world table of annual apple production has some little-known facts. Leading the field by a huge margin is
China (40 million tonnes), followed, at one-tenth of its size, by the US (4 million tonnes), and Turkey (3 million
tonnes). However, below these three, a number of the world’s biggest apple growing nations are in the EU.
Poland (2.5 million tonnes) lies in fourth place; Italy (2 million tonnes) is sixth and France (1.5 million tonnes) is
in tenth place. The UK with just over 200,000 tonnes, lies in a lowly 41st place.

Following the ban by Russia in 2015 on EU food imports in retaliation for Western sanctions relating to the
Ukraine, these EU apple growers (particularly those in Poland) have been frantically seeking alternative
markets. Apples represent more than 80% of all fruit production in Poland, and it is the world’s biggest
exporter of apples. It previously exported more than 50% of its production to Russia.

The loss of its biggest customer market had a catastrophic effect on Polish apple growers in terms of revenue –
there was also a significant effect on Russian customers in terms of prices. The Polish government provided
government aid to soften the blow to Polish apple growers.

In a further move to help overcome the impact of the ban and the potential flooding of the market with
surplus apples, Polish growers have been encouraged to form consortia to apply for additional EU and Polish
grants. These are used to help to fund the building of chilled storage warehouse facilities to store the apples
and release them over a longer period.

In other less conventional operations, some Polish apple growing consortia such as Kij I Marchew have taken
to exporting to intermediate countries where middle-men re-label and re-export the apples to Russia, thus
circumventing the Russian ban. However, this operation adds significant costs to the price of a container of
apples.

The most significant long-term effect of the ban has been a further strengthening of the direction of trade
towards EU and other customers and a switch away from Russia as an export market. This has had a mixed
effect on the apple market in other EU countries. Customers in shops have been able to buy cheaper apples all
year round, but other EU apple growers have been hit by the competition and have seen their revenues and
margins drop.

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 EXHIBIT 14d

International Financial Trader April 2015

Mango fruit fly threatens Indian fruit export market

An EU-wide ban on mangoes from India has come into force which currently halts mango
imports into the UK. This could last until December 2015. The ban also includes all
aubergines, two types of squash and a popular leaf used in Indian cooking.

Shipments of mangoes were suspended into all EU countries after consignments were found
to be infested with fruit flies. The discovery of these led to the destruction of the original
consignments of mangoes together with all other fruit transported or stored in the same
locations. As one fruit merchant and importer said, “This type of fruit fly infection is a disaster
for all concerned – a cross-infection into other fruit can easily occur. [Fruit flies undergo three
stages of development before emerging as adults: egg, larva and pupa. At room temperature,
fruit flies can develop into adults within two weeks. The egg and larval stages span
approximately eight days, while the pupal stage lasts six days. The adult fruit fly lives for
several weeks.]

The UK imports around £7m worth of Indian mangoes per year out of a UK mango market
worth £70m in total. In weight terms the UK imports approximately 60,000 tonnes of mangoes
per year, of which around 5,000 tonnes, or 8.3%, come from India – because of their quality
and demand in the UK, the Indian mangoes normally command a premium over mangoes
from other countries. Shipments are made in refrigerated containers, which slows the fruit fly
incubation.

A spokesman for the Indian mango exporters said that they have put checks in place and
have approached the authorities in Brussels to try to get the ban lifted. "Since we got to know
about this issue last month, we've put in place additional elaborate examination and
certification procedures that address the issue raised by the EU," said Ajay Sahai, director
general of the Federation of Indian Export Organisations (FIEO), a body affiliated with the
Indian Department of Commerce.

As a result of this problem, prices in India for mangoes fell around 15% in the few days
before the ban came into force. All growers of fruit in India have been urged to ensure that
they are taking the necessary precautions in terms of monitoring and preventative spraying of
all fruit crops.

The UK’s Department for Environment, Food and Rural Affairs (Defra), which voted to put the
ban in place, is working urgently with Indian authorities and the European Commission to try
to get the ban lifted.

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 EXHIBIT 14e

UK Geographic February 2016

Water wars
A discreet but extremely intense battle is raging in the quiet UK countryside. The battle is being fought
between the major UK juice manufacturers and suppliers in much the same way as oil companies
have historically fought between themselves to discover and register new oil fields.

Using techniques, both ancient and modern, as well as subterfuge and some dirty (or when it comes
to water – not quite clean) tricks, all these companies are desperately looking for new original and, of
course, untapped sources of pure water. Not only are they competing with each other, they are also
competing with all the major UK regional water authorities, water supply companies and sewage
organisations – which may have prior claims on any sources of this new “liquid gold”.

This surge in competitive search activity has been caused by the increase in public awareness of the
dangers of sugary drinks. As a result, all major drinks companies, including those involved in
producing and selling previously “healthy” fruit juices, are looking for commercially acceptable ways of
diluting their drinks – thereby reducing the sugar content per litre. Discovering a new or previously
unused source of water would enable a drinks company to proclaim the purity of the source at the
same time as achieving the desired result – it would be a marketing manager’s dream come true.

The problem facing all these organisations is that although the UK is famous for its wet weather, that
in itself poses one of the difficulties. The main supply of water in the UK comes from rainfall running
into streams and rivers. This normally plentiful, some say endless, source of water is not readily
available to the drinks companies because most of the water from streams and rivers belongs to, or is
under the control of, the various UK water companies. As a result, a drinks company cannot simply
stick a large industrial siphoning system into a river, or drill a forced pumping system into an
underground source, and start extracting water without appropriate authorisation and, almost
certainly, an eye-wateringly large bill for the privilege.

The search is therefore on to discover new independent water sources – springs or unclaimed
underground lakes – which can be used by drinks companies. However, most of these have already
been discovered and are currently being commercially exploited by major bottled water suppliers and
in particular the supermarkets, which sell such bottled water in vast quantities.

A spokesperson for Spring Water of Hampshire Limited (SWH) – an organisation financed by Citrus
Juice Processors Limited and set up specifically to find any new water sources – has stated that “the
likelihood of any organisation finding a new water supply in the UK, along the lines of the
internationally famous French bottled water companies such as Perrier [naturally carbonated water] or
Volvic [naturally still spring water], would be close to a financial miracle. However, if one could be
found by a fortunate organisation – preferably already naturally and attractively flavoured – it would be
a bit like being able to walk on water … all the way to the bank”.

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