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Creating Better in Australia
Growing and Innovating in
Health, Wellness & Beauty
2020 ANNUAL REPORT
Celebrating
160 years
OF CREATING BETTER
IN AUSTR ALIA
McPherson’s Limited
OUR BUSINESS
McPherson’s Limited, established in 1860, is a leading supplier of Health, Wellness
and Beauty products in Australasia and increasingly China, with operations in
Australia, New Zealand and Asia. McPherson’s markets and distributes beauty care,
hair care, skin care and personal care items such as facial wipes, cotton pads and
foot comfort products, as well as a range of kitchen essentials such as baking paper,
cling wrap and aluminium foil.
McPherson’s manages some significant brands for agency partners and via joint
venture arrangements such as Kotia, however, the majority of revenue is derived
from the company’s diversified portfolio of owned market-leading brands, including
Dr. LeWinn’s, A’kin, Manicare, Lady Jayne, Swisspers, Multix, Moosehead and Maseur.
Manufacturing is outsourced to various suppliers, predominantly in Asia and
Australia. McPherson’s maintains a strong presence in Hong Kong and mainland
China, focused on product sourcing and quality assurance.
2020 Annual Report CREATING BETTER IN
Health, Wellness
& Beauty
McPherson’s Limited CONTENTS
F I NAN C IAL H I G H LI G HTS
K EY AC H I EVE M E NTS
C HAI R MAN’S M ES SAG E
MANAG I N G D I R ECTO R’S R E PO RT
E N GAG I N G O U R C O M M U N ITY
R EVI EW O F O P E R ATI O N S
CATEG O RY OVE RVI EW
STR ATEG I C I NVESTM E NTS
B OAR D O F D I R ECTO R S
C O R PO R ATE G OVE R NAN C E STATE M E NT
D I R ECTO R S’ R E PO RT
F I NAN C IAL R E PO RT
C O N S O LI DATE D STATE M E NT O F C O M P R E H E N S IVE I N C O M E
C O N S O LI DATE D BALAN C E S H E ET
C O N S O LI DATE D STATE M E NT O F C HAN G ES I N EQ U ITY
C O N S O LI DATE D STATE M E NT O F CAS H F LOWS
S HAR E H O LD E R I N FO R MATI O N
C O R PO R ATE D I R ECTO RY & F I NAN C IAL CALE N DAR
02
04
0 6
0 8
10
12
16
24
32
34
35
61
61
62
63
64
104
107
01
2020 Annual Report FINANCIAL
Highlights
+25%
Increase +33%
I N U N D E R LY I N G P R O F I T A F T E R TA X
F R O M C O N T I N U I N G O P E R AT I O N S *
(2020: $15.7 million; 2019: $12.5 million)
Increase
I N U N D E R LY I N G P R O F I T B E F O R E
TA X F R O M C O N T I N U I N G
O P E R AT I O N S *
(2020: $23.0 million; 2019: $17.3 million)
+24%
Increase +11%
I N U N D E R LY I N G E A R N I N G S
P E R S H A R E F R O M C O N T I N U I N G
O P E R AT I O N S *
(2020: 14.7 cents per share; 2019: 11.9 cents per share)
I N S A L E S R E V E N U E F R O M
C O N T I N U I N G O P E R AT I O N S *
(2020: $222.1 million; 2019: $199.3 million)
Increase
+18%
Increase $9.2R E S U LT I N G I N A
I N C R E A S E I N S A L E S R E V E N U E
F R O M C O R E 6 B R A N D S
(2020: $175.2 million; 2019: $149.1 million)
L O W G E A R I N G O F 9 . 3 %* *
(2020: $9.2 million; 2019: $7.5 million)
million
net debt **
103%
U N D E R LY I N G O P E R AT I N G C A S H
C O N V E R S I O N * * *
(2020: 103%; 2019: 117%)
* Excluding significant items, Trilogy and Karen Murrell agency sales, and the favourable impact of AASB 16 Leases
** Excluding lease liabilities
*** Excluding the favourable impact of AASB 16 Leases
02
McPherson’s Limited Dr. LeWinn's
Line Smoothing Complex Triple Action Defence
03
2020 Annual Report KEY
Achievements
SAFETY & WELLBEING
OF OUR EMPLOYEES
Safeguards successfully
established by our COVID-19
Rapid Response Team to
minimise risk for our people
across Asia Pacific and
ensure the continuation of
safe operations
INCREASED MARKET
SHARE
With core portfolio supported by
successful innovation programs,
sustainable new products,
marketing differentiation
and strategic partnerships in
pharmacy and grocery
STRATEGIC JOINT
VENTURE WITH
ACCESS BRAND
MANAGEMENT
Strong China-facing business
growing Dr. LeWinn’s sales
from $16.0 million in FY19 to
$37.2 million in FY20, jointly
developing new products
tailored for the China market
with our partner ABM
CONTINUED
INVESTMENT IN
INNOVATION &
SUSTAINABILITY
Over 200 products
internally developed,
resulting in $20.0 million
incremental contribution over
the last 4 years
SUPPLY CHAIN
CONTINUITY
No material adverse disruption
to our supply chain in Australia
and China, thanks to the
resilience of our Sydney &
Hong Kong procurement teams
and our manufacturing partner
Aware Environmental
INVESTMENT IN AWARE
ENVIRONMENTAL
$6.0m investment in our
manufacturing partner to ensure
supply chain continuity to fulfil
strong demand from China
for Dr. LeWinn’s
SOULFUL JOINT
VENTURE
First meaningful move into the
health and nutrition spaces
for McPherson’s
REFINANCING
New three-year $47.5 million
debt facility with Westpac and
National Bank Australia to
support our working capital and
acquisition strategy
04
McPherson’s Limited A’kin
Miracle Shine Conditioning
Hair Mask range
05
2020 Annual Report Chairman's
MESSAGE
of 33% in this important area in FY20.
Over 200 new products were developed
to support the business’s brands, with
an emphasis on the rapid growth
skincare ranges.
This innovation in our skincare product range
has been successfully leveraged through our
commercial partnership with Access Brand
Management (ABM), which has continued to
go from strength to strength in FY20, with
sales increasing 133% from $16.0 million in
FY19 to $37.2 million in FY20.
In FY20 we continued to invest in medium
to long term growth opportunities, with key
strategic investments in the Aware Group
($3.0 million) and the Kotia, Soulful and
SugarBaby joint ventures ($2.7 million).
Despite these investments, net bank debt
remains very low at $9.2 million, with the
Group leverage ratio (Net bank debt /
EBITDA) at 0.4 times.
The Group is well placed with a very strong
balance sheet to execute appropriate new
merger and acquisition opportunities in the
post COVID-19 environment. Management,
supported by the Board, will continue to be
disciplined in its assessment of merger and
acquisition opportunities as they arise.
The Group’s three 51% owned joint
ventures (Kotia, Soulful and SugarBaby)
with $2.7 million seed investments in FY20,
are progressing at a rate which has been
stifled by COVID-19 as key customers
become increasingly focused on risk averse
core ranging. Three of our brands have
been adversely impacted by this change in
consumer demand, consequently the A’kin
and Moosehead brands and our investment
in the Kotia joint venture have been
fully impaired.
DIVIDEND
The Board’s dividend policy to distribute a
minimum of 60 per cent of the Company’s
underlying profit after tax to shareholders,
subject to other cash requirements, remains
unchanged. A final dividend of 7.0 cents
per share fully franked, payable on 24
September 2020 to shareholders on the
register at 7 September 2020, has been
declared. This takes total dividends for the
year to 11.0 cents per share, representing
a 10% increase on the prior year’s
ordinary dividend of 10.0 cents per share
and an underlying payout ratio for FY20
of 72%. Given our strategy to pursue
acquisitions the dividend reinvestment plan
has been retained.
STABLE AND EXPERIENCED
BOARD OF DIRECTORS
Having renewed the Board with the
appointments of Alison Mew, Grant Peck
and Geoff Pearce in fiscal 2018 and 2019
we are now very well placed, with depth of
experience and diversity of skills, to assist
and advise Management as it continues to
execute its Strategic Plan.
OUTLOOK
While trading over the first two months
of fiscal 2021 has been positive, the high
level of uncertainty regarding progression
of the COVID-19 pandemic and its impact
on both the global and domestic economies
make accurate forecasting of the FY21
year extremely difficult. A further operations
update will be provided at the Annual
General Meeting in early November 2020.
As a leading participant in the Australian,
New Zealand and export markets, with a
very strong product innovation capability
and deep customer relationships, particularly
within the pharmacy, grocery and export
channels, McPherson’s is well positioned to
continue its current trajectory of capturing
greater market share.
The impressive financial results outlined
in this Annual Report for the year ended
30 June 2020 are a reflection of the
strength and experience of our management
team and Board. In Laurie McAllister
and his Executive Leadership Team, we
have creative and capable leadership,
along with a deep understanding of our
various stakeholders and the markets in
which we operate.
The last financial year has presented a
variety of significant challenges for all of
us. During the COVID-19 pandemic the
company has taken every practical step
possible to safeguard all our employees
in the Asia Pacific region. The ongoing
well-being and support of our employees
as they work in challenging circumstances
is our highest priority. Maintaining the
continuity of our supply chain has also been
a major focus over the last six months, with
the minimal level of disruption testament to
the close and valued relationships with our
suppliers and customers.
FISCAL YEAR 2020 OPERATING
RESULTS AND HIGHLIGHTS
The Group’s success in FY20 was driven
by our growth in market share across the
majority of our core 6 brands – Manicare,
Lady Jayne, Dr. LeWinn’s, A’kin, Multix and
Swisspers – partly due to strong demand for
Multix and Swisspers during the COVID-19
pandemic. Management’s commitment to
the strategy we outlined three years ago
is evidenced in FY20 by 16% growth in
total owned brand sales, 20% growth in
underlying profit before tax to $22.8 million
and strong underlying operating cash
conversion of 103%.
A key element driving the growth of our
owned brands is product innovation. To
fuel differentiation, we have increased
investment in our research and development
capability with an increase in headcount
06
McPherson’s Limited The impressive financial results outlined in this
Annual Report for the year ended 30 June 2020
are a reflection of the strength and experience
of our management team and Board.
GRA HA M CUBBI N
Chairman
As a leading participant in the
Australian, New Zealand and export
markets, with a very strong product
innovation capability and deep
customer relationships, particularly
within the pharmacy, grocery and
export channels, McPherson’s is well
positioned to continue its current
trajectory of capturing greater
market share.
Given the company’s strong financial performance and balance
sheet, the team is devoting considerable effort and resources
to identify and evaluate potential acquisition opportunities in
line with our strategy so as to complement organic growth and
leverage McPherson’s scale efficiencies.
The Board would like to thank Laurie McAllister and his
team for their enthusiasm and dedication to the evolution
of our business as well as the values and behaviours that
enable our success.
On behalf of the Board, thank you to our loyal shareholders for
your continued support of the company.
ANNUAL GENERAL MEETING
This year’s AGM will be held on 4 November 2020 on a fully
virtual basis in the interests of shareholders’ health and safety,
and given the social distancing requirements and relevant travel
restrictions in place due to the COVID-19 pandemic.
Shareholders are encouraged to participate in the AGM and
your participation is important to us. Full details regarding
the matters to be considered at the 2020 AGM and how to
access the virtual AGM using your computer, mobile phone or
other device will be contained in the AGM Notice of Meeting
and related materials, which can also be accessed via the
company’s website.
GR AHAM C U BB I N
Chairman
Manicare
NOVA FIT ® Face Massager
2020 Annual Report
07
Managing Director’s
REPORT
FISCAL YEAR 2020 OPERATING
RESULTS
We have continued to execute our strategic
plan, leading to an outstanding performance
during fiscal year 2020. Despite the
challenges from the COVID-19 pandemic
as a team we have generated significant
positive momentum from the 10 strategic
imperatives that we outlined three years
ago, which were:
1. Refocus our business purely on Health,
Wellness and Beauty
2. Revitalise our owned McPherson’s brands
3.
Improve and maintain financial strength
4. Move from transactional to strategic
partnerships with our top six customers
5.
Integrate and grow acquired skincare
brands: Dr. LeWinn’s and A’kin
6. Create a China facing business
7. Ensure we have our team fit for the
future with appropriate expertise,
capabilities and values
8.
Improve performance in New Zealand
and Singapore, and expand into Asia
9. Gain efficiencies and savings across
the supply chain infrastructure
10. Create a New Business team focused
on M&A and new ventures
We are pleased to report positive results in
FY20 with 20% growth in underlying profit
before tax (PBT) to $22.8m, exceeding
the guidance we provided early in FY20 of
10% growth in underlying PBT. Other key
financial outcomes for FY20 were:
> Underlying PBT of $23.0 million, 33%
growth on the prior corresponding
period (pcp) from continuing
business excluding two discontinued
distribution relationships;
of $9.2m and underlying operating cash
conversion rate of 103%; and
> Strong balance sheet with net bank debt
> 75% growth in Dr. LeWinn’s sales
revenue on pcp through our strategic and
exclusive China facing partner ABM and
strong domestic growth.
08
Amidst our broad portfolio of brands, two
have been adversely impacted by a change
in consumer demand during the COVID-19
pandemic, consequently the A’kin and
Moosehead brands have been fully impaired.
While I am proud of the outstanding fiscal
year 2020 performance, I am even more
excited about our continued positive
momentum in fiscal year 2021, despite
the uncertain external environment. To
complement the strength of our existing
brands, we are now very well placed, with
a strong balance sheet and significant
operational capacity, to assess and
execute appropriate opportunities as they
arise. The transformational opportunity
of an acquisition in the Health, Wellness
and Beauty space is no better illustrated
than the Group’s acquisition of the Dr.
LeWinn’s brand in 2014 for approximately
$20.0 million. This brand has generated
revenue of $57.6 million in FY20 and is on
a remarkable growth trajectory, with sales
to ABM increasing from $0.5 million in
FY17 to $37.2 million in FY20, with 133%
growth in FY20.
Our stellar growth in the Dr. LeWinn’s
brand over the last four years will now
be accentuated through our new joint
venture with ABM. The earnings from
our 49% share in this joint venture, which
commences in FY21, will be incremental
to our existing and highly successful
Dr. LeWinn’s marketing, distribution and
innovation capability.
FOCUS ON INNOVATION,
SUSTAINABILITY AND GROWTH
IN OWNED BRANDS
McPherson’s has continued to invest in
its research and development capability
with an increase in headcount of 33%
in this important area in FY20. Over 200
new products were developed to support
the business’s owned brands, with an
emphasis on the rapid growth skincare
ranges. Internally developed products
have generated incremental contribution
of approximately $20.0 million over the
last 4 years and led to the reduction in our
reliance on revenue from agency brands.
The proportion of revenue from our own
brands increased to 84% of total sales,
compared with 76% in FY19 with the
benefit from growing brands with better
margins. We will continue to pursue growth
of these brands in FY21.
A sustainability agenda has been
established and is gaining momentum with
an elevated, broad focus on all elements of
sustainability across the Group and relevant
interactions with stakeholders.
DEVELOPING A SUSTAINABLE
SUPPLY CHAIN
Having a capable and sustainable supplier
base is fundamental to the success of
the McPherson’s business model. The
strength of the Group’s relationships with its
suppliers has come to the fore through the
challenges of the COVID-19 period, with
our supply chain responding very well to the
requirements of our customers through this
period of unpredictable demand. Having
successfully transferred over 50 products
from other suppliers and produced its one
millionth individual product for McPherson’s
in May 2020, the Australian manufacturer
Aware Group is now McPherson’s key
supplier of Dr. LeWinn’s product, with
approximately 50% of all Dr. LeWinn’s
product forecast to be sourced from Aware
in FY21. In recognition of the importance
of this relationship, McPherson’s converted
$3.0 million in convertible notes in Aware
to equity in October 2019 and made an
additional $3.0 million equity investment in
Aware in FY20, increasing the total equity
investment to $6.0 million. McPherson’s now
owns 10.7% of the Aware Group.
JOINT VENTURES
While the FY20 underlying combined loss
of $1.9 million from the three incubation
joint ventures Kotia, Soulful and SugarBaby
was above expectations, the Group will
continue to progress new product launches
with key retail partners for each joint venture
in FY21, with a substantial improvement
in financial outcomes projected. The Kotia
deer milk product range has received very
McPherson’s Limited We have continued to execute our
strategic plan, leading to an outstanding
performance during fiscal year 2020.
LAURENC E MCA LL ISTER
Managing Director
positive consumer feedback, however the Group’s investment
in the Kotia joint venture ($2.1 million) has been fully impaired
in FY20 as market traction has been difficult to realise in the
current challenging retail environment. We are fully committed
to these innovative and differentiated brands for the future.
The Soulful brand, launching into the export channel in
September 2020, is all about creating smart, wholesome
nutrition and healthy living solutions accessible to everyone.
Proudly Australian, and with a passion for health and wellbeing,
the Soulful range has been developed for different stages of
life offering milk powders with nutritional and immunity support
via lactoferrin and probiotics for adults and children.
OUR RESPONSE TO THE COVID-19 PANDEMIC
The proactive actions taken by the Company since the
COVID-19 pandemic was declared were promptly established
to safeguard all our employees in Asia Pacific. The ongoing
well-being and support of our employees as they work in
challenging circumstances is our highest priority.
To this end, we established consistent, clear and specific
pandemic protocols that were implemented across the
Company. I’m confident that our relentless focus on maintaining
a safe and sustainable work environment will help strengthen
our business continuity and ensure we can continue to produce
products and serve our customers seamlessly.
SUMMARY
As we enter fiscal year 2021, we continue the path of driving
a fundamental transformation in our company. We are creating
and becoming an innovation focussed consumer goods
company that strives to become a highly valued global partner
for our customers. We continue to build capabilities and
processes that leverage our core strengths to generate scale to
deliver profitable growth. While we have taken important steps
on this path, our fundamental transformation is ahead of us. We
have significant work to do to achieve our goals.
I look forward to building on the considerable momentum
generated in fiscal year 2020 and to navigate effectively
through the current crisis with a keen eye toward coming out of
the crisis as an even stronger McPherson’s.
To complement the strength of
our existing brands, we are now
very well placed, with a strong
balance sheet and significant
operational capacity, to assess and
execute appropriate opportunities
as they arise.
+33%
Increase
I N U N D E R LY I N G P R O F I T B E F O R E TA X
F R O M C O N T I N U I N G O P E R AT I O N S *
(2020: $23.0 million; 2019: $17.3 million)
$9.2R E S U LT I N G I N A L O W G E A R I N G O F 9 . 3 %* *
million
net debt **
(2020: $9.2 million; 2019: $7.5 million)
103%
U N D E R LY I N G O P E R AT I N G C A S H C O N V E R S I O N * * *
(2020: 103%; 2019: 117%)
LAUR ENC E M CAL LI STER
Managing Director
* Excluding significant items, Trilogy and Karen Murrell agency sales, and the
favourable impact of AASB 16 Leases
** Excluding lease liabilities
*** Excluding the favourable impact of AASB 16 Leases
09
2020 Annual Report McPherson’s is committed to being socially responsible and dedicated to developing our community through
innovation and collaboration. Our vision is to grow sustainably by enriching lives, inside and out, worldwide,
so we foster and encourage our employees to participate in local programs and initiatives dedicated to
supporting and inspiring others. Our brands are with people in their everyday life and in times of crisis we feel
it is our responsibility to give back to the communities in which we live and work – it is who we are.
SUPPORTING YOU WHEN YOU NEED US MOST
In December 2019, we experienced the outbreak of the novel
Coronavirus across the globe, with the significant disruption and
restrictions that followed. Knowing that our partners needed us
most during this time, the McPherson’s warehouse has remained
fully operational to ensure essential stock has been delivered to
our grocery and pharmacy customers. We have also donated stock
to pharmacies across Australia who have experienced financial
hardship due to the impacts of COVID-19 and we will continue to
look for new ways of supporting our communities through this very
challenging time.
GIVING THE GIFT OF CONFIDENCE
Being true to our vision at the beginning of October 2019, we
announced Lady Jayne’s collaboration with the Variety Charity,
Hair With Heart Initiative. The Variety Charity was established
to support children who are sick, disadvantaged or have
special needs by providing practical equipment, programs
and experiences.
Hair with Heart is Variety's National Hair Donation initiative,
where hair contributions are processed into specialised wigs
for those children who have lost their hair due to a medical
condition. Money raised via this initiative is donated to Variety's
grants and programs including providing funding to families
for mobility equipment, communication devices, medical items
and therapeutic treatments.
This important collaboration will run for two years and
McPherson’s has committed to donating 100% of profits
raised through the sales of our popular Lady Jayne Double
Bar Slide Accessories in Rose Gold to the Variety Charity.
Lady Jayne
Double Bar Slides
10
McPherson’s Limited
CommunityENGAGING OUR PROVIDING ASSISTANCE FOR
BUSHFIRE RELIEF
Australia experienced some of the most
devastating bush fires in our nation's history
in January 2020.
Loss of life, countless missing and thousands
of homes burned to the ground. Committed to
supporting our partners and community through
crises, we donated gift baskets to pharmacies
across Australia, filled with stock to assist with
replenishment for those pharmacies that had been
affected by the fires.
We knew the devastation to our communities meant
we needed to do more so we provided support and
assistance through donations to the NSW Rural
Fire Service and to the Country Fire Authority
(CFA) as well as isolated a number of our products
that addressed these charities' requirements.
Throughout the devastation McPherson's continued
to actively contact various government aligned
agencies and charities to confirm their needs and
coordinated the delivery of products they required.
Our values underpin everything we do
Be Bold Be Brave
Create BetIer
LENDING A HAND TO DISADVANTAGED CHILDREN
McPherson’s volunteers lent a hand to Disadvantaged Children in
December 2019 at the annual Variety Kid's Christmas Party where
selflessly they assisted with set up and manning different stations from
face painting, hat making, and helping children enjoy fun rides.
The Variety Kid's Christmas Party is an annual event where 5,000
disadvantaged children, their parents and carers can enjoy the spirit of
the holidays. Organised by the Ladies of Variety (LOVs), the party gives
families a much-needed break from the stresses of financial hardship or
caring for a child with a disability, chronic illness or in need of critical care.
In addition, across June 2020 we supported the Bear Cottage, an initiative
of The Children’s Hospital at Westmead through gift pack donations for
their fundraising auctions. Bear Cottage is the only children’s hospice in
NSW dedicated to caring for children with life-limiting conditions.
11
Sydney Children’s Hospitals Foundation2020 Annual Report REV IEW OF
SALES ($M)
349.1
312.6
Operations
NET DEBT* ($M)
77.2
279.5
255.8
222.2
210.3
49.9
36.4
GEARING* (%)
34.9
32.3
29.2
9.8
7.5
9.2
9.9
9.3
7.2
2015
2016
2017
2018
2019
2020
2015
2016
2017
2018
2019
2020
* Net debt excluding lease liabilities
*
2016
2020
2015
Net debt excluding lease liabilities / (shareholders’ funds +
net debt excluding lease liabilities)
2018
2019
2017
RESULTS FOR THE YEAR
McPherson’s has reported sales of
$222.2 million for the year ended 30 June
2020, a 6% increase on the previous
year’s $210.3 million. The Group reported
an 11% increase in total sales revenue
from continuing operations (excluding two
discontinued distribution relationships) to
$222.1 million (FY19: $199.3 million). The
strong result was primarily due to 75%
growth in Dr. LeWinn’s sales revenue on
prior corresponding period (pcp) through our
strategic and exclusive China facing partner
ABM and strong domestic growth, 4%
growth in sales of Multix products and 3%
growth in sales of Manicare products.
Underlying EBIT (earnings before interest
and tax) was $23.5 million, 18% above
FY19 ($19.9 million), excluding the following
significant items in FY20: (i) Impairment of
A’kin brand ($7.3) million; (ii) Impairment
of Moosehead brand ($1.2) million; (iii)
Impairment of investment in the Kotia joint
venture ($2.2) million; and (iv) favourable
impact of AASB16 Leases $1.6 million.
Underlying PBT (profit before tax)
was $22.8 million, 20% above FY19
($19.0 million), excluding the same
significant items (i), (ii) and (iii) as noted
above in relation to underlying EBIT and
(iv) favourable impact of AASB16 Leases
$1.1 million. Underlying earnings per
share (EPS), excluding significant items,
increased 12% from 13.0 cents in FY19 to
14.6 cents in FY20.
Inclusive of the aforementioned significant
items, McPherson’s reported a 56%
decrease in statutory profit after tax of
$6.1 million (FY19: $13.7 million).
McPherson’s achieved strong underlying
cash conversion of 103% in FY20
(FY19: 117%). Net debt remains low at
$9.2 million (FY19: $7.5 million), despite key
12
strategic investments in the Aware Group
($3.0 million) and the Kotia, Soulful and
SugarBaby joint ventures ($2.7 million in
total) in FY20. The Group’s leverage ratio
(net bank debt / EBITDA) is low at 0.4
times. The Company's gearing ratio (net
bank debt / total funds employed) was 9.3%
at 30 June 2020 (FY19: 7.2%).
McPherson’s Directors declared a total
ordinary dividend of 11.0 cents per share
(cps) fully franked for the full year, 10%
above the FY19 total ordinary dividend of
10.0 cents per share fully franked, noting
that an interim, fully franked special dividend
of 2.0 cps was also paid in March 2019.
The ordinary dividend payout ratio for the
year ended 30 June 2020 was 72% of
underlying EPS.
McPherson’s refers to its owned brands Dr.
LeWinn’s, Manicare, A’kin, Swisspers, Lady
Jayne and Multix as its “core six brands”. The
majority of these brands are market leaders
in their categories. In FY20, McPherson’s
recorded 18% growth in sales revenue from
its core six brands.
STRATEGIC PARTNERSHIPS
The progression in growth of Dr. LeWinn’s
sales to ABM has been remarkable, with
sales of $0.5 million in FY17, $3.1 million
in FY18, $16.0 million in FY19 and now
$37.2 million in FY20. ABM has now
qualified for 51% ownership of the Dr.
LeWinn’s Intellectual Property registered
in China, exceeding the requisite sales
threshold outlined in our Joint Venture
agreement of $35.0 million in any 12-month
period prior to 30 June 2022.
ABM’s commercial partnership with
McPherson’s continued to go from
strength to strength in FY20, driven by
new product innovations. Hero products in
the Dr. LeWinn's range in FY20 included
Triple Action Day Defence, Collagen Surge
Plumping Gel and the Ageless Trinity Pack.
CONTINUED INVESTMENT IN
INNOVATION & SUSTAINABILITY
McPherson’s has continued to invest in its
research and development capability with
an increase in headcount of 33% in FY20
and over 200 new products developed
to support the business’ brands, with an
emphasis on the rapid growth skincare
ranges. Internally developed products
have generated incremental contribution
of approximately $20.0 million over
the last 4 years.
A sustainability agenda has been
established and is gaining momentum with
elevated, broad focus on all elements of
sustainability across the Group, including
interactions with key stakeholders.
Having a capable and sustainable supplier
base is fundamental to the success of
the McPherson’s business model. The
strength of the Group’s relationships with its
suppliers has come to the fore through the
challenges of the COVID-19 period, with
the supply chain responding very well to the
requirements of our customers through this
period of unpredictable demand. Having
successfully transferred over 50 product
ranges from other suppliers and produced
its one millionth product for McPherson’s
in May 2020, the Aware Group is now
McPherson’s key supplier of Dr. LeWinn’s
products, with approximately 50% of all Dr.
LeWinn’s product forecast to be sourced
from Aware in FY21.
In recognition of the importance of this
relationship, McPherson’s converted
$3.0 million in convertible notes to equity
in Aware in October 2019 and made an
additional $3.0 million in equity investment in
Aware in October 2019. McPherson’s now
owns 10.7% of the Aware Group.
McPherson’s Limited Glam by Manicare
Glam Pro Magnetising Eyeliner
& Lash System
RETURN ON AVERAGE
SHAREHOLDERS’ FUNDS* (%)
UNDERLYING EARNINGS & DIVIDENDS PER SHARE* (CENTS PER SHARE)
15.7
14.7
14.2
16.7
12.2
13.2
12.5
13.6
13.2
13.5
13.0
12.0**
14.6
11.0
8.0
8.0
8.0
8.5
2015
2016
2017
2018
2019
2020
2015
2016
2017
2018
*
(Profit after tax excluding significant items and the favourable
impact of AASB 16) / 2-year average shareholders' funds
* Excluding significant items and the favourable impact of AASB 16
**
Includes a special dividend of 2.0 cents per share
2019
Earnings per share
2020
Dividends per share
COVID-19 UPDATE
The proactive actions taken by the
Company since the COVID-19 pandemic
was declared were promptly established to
safeguard all our employees in Asia Pacific.
The ongoing well-being and support of
McPherson’s employees as they work in
challenging circumstances is the highest
priority. McPherson’s supply chain, managed
by the Group’s teams in Hong Kong and
Sydney, has operated without significant
disruption over the COVID-19 period,
with Management striving to increase
safety stock levels as a precaution to
protect against any future additional waves
of pandemic disruption. Independent
manufacturing facility Aware Group
continues to positively support McPherson’s
to ensure sustainable product supply.
The recent second wave of COVID-19
restrictions imposed in Melbourne has not
significantly impacted McPherson’s, with
key Melbourne based suppliers remaining
unaffected and sales orders from Victorian
based retailers relatively stable. Management
will continue to monitor the impact of
COVID-19 closely.
REFINANCING OF GROUP DEBT
FACILITY
The Group recently established a three-
year debt facility with the support of its
existing lenders, Westpac and National
Australia Bank. The $47.5 million facility,
expiring 30 June 2023, comprises a
$35.0 million revolving working capital
facility, $10.0 million acquisition facility and
$2.5 million ancillary document facility. The
Group has comfortable headroom within its
covenant structure.
NEW BUSINESS DEVELOPMENT
Over the last twelve months, the Group’s
New Business Development Team has
applied rigorous criteria to assess three
significant acquisition opportunities and
over twenty start up merger and acquisition
opportunities. After careful consideration,
none of these were progressed for a variety
of reasons, including unrealistic vendor
valuation expectations, unacceptable risk
profiles and sub-optimal strategic alignment.
Consequently, the Group is now well placed
with a very strong balance sheet to execute
appropriate new merger and acquisition
opportunities in the post COVID-19
environment. The Group will continue to be
disciplined in its assessment of merger and
acquisition opportunities as they arise.
JOINT VENTURES
While the FY20 underlying loss of
$1.9 million from the three incubation joint
ventures (Kotia, Soulful and SugarBaby)
was below expectation, the Group will
continue to progress new product launches
with key retail partners in FY21, with
a substantial improvement in financial
outcomes projected. The Kotia deer milk
product has received very positive consumer
feedback, however the Group’s investment
in the Kotia Joint Venture ($2.1 million) has
also been fully impaired in FY20, as market
traction has been difficult to realise in the
current challenging retail environment. We
are fully committed to these innovative and
differentiated brands for the future.
OPERATIONS REVIEW
The Group is currently undertaking a broad
based review of its operations, including
the efficiency and effectiveness of its
supply chain and distribution network,
which has known significant excess
capacity, and the structure of its sales
function. It is anticipated that material cost
reductions, in the order of $1.0 million to
$2.0 million per annum from FY22 will flow
from these reviews.
GEOGRAPHICAL
SEGMENTATION OF SALES
AUSTRALI A
McPherson’s Australian operations’ sales
revenue was $207.4 million, an increase of
7% on FY19 ($193.2 million). Sales from
two now terminated agency brands reduced
by $10.0 million in FY20, consequently
the increase in sales excluding these
discontinued agencies was 13%. This was
driven by a 75% increase in Dr. LeWinn’s, a
4% increase in Multix and a 3% increase in
Manicare sales.
NEW ZEALAND
McPherson’s New Zealand business offers
a similar range of products to those sold in
the Australian market and experienced a
decline in sales revenue from A$9.6 million
in FY19 to A$9.0 million in FY20 due to
a A$1.3 million reduction in agency sales,
largely due to the discontinuation of the
Karen Murrell agency. Sales of owned
brand products increased by 9% in FY20,
largely due to a 77% increase in sales of Dr.
LeWinn’s products.
ASIA
From its Asia sales headquarters in
Singapore, McPherson’s markets an
extensive range of Health, Wellness &
Beauty products throughout the Asian
region. Brands include the key Group-
owned brands of Manicare, A’kin, Lady
Jayne and Swisspers complemented by a
number of licensed brands. Sales reduced
by 22% to A$5.8 million in FY20, due to
a 28% decrease in owned brand sales
and a 74% decrease in private label sales
due to the loss of the Watson’s Footcare
supply contract. The Group also has a
sourcing operation located in Hong Kong
that manages many aspects of product
procurement and quality assurance.
13
2020 Annual Report REV IEW OF
Operations
(Continued)
CORPORATE STRATEGY
In FY20, McPherson’s continued the execution of its 10 strategic imperatives, being:
1
2
3
4
5
6
7
8
9
Refocus our business purely on Health, Wellness and Beauty
Revitalise our owned McPherson’s brands
Improve and maintain financial strength
Move from transactional to strategic partnerships with our top six customers
Integrate and grow acquired skincare brands
Create a China facing business
Ensure we have our team fit for the future with appropriate expertise, capabilities and values
Improve performance in New Zealand and Singapore, and expand into Asia
Gain efficiencies and savings across the supply chain infrastructure
10
Create a New Business team focused on M&A and new ventures
Execution of these strategic imperatives in FY20 provides a solid foundation for growth in FY21.
RISK MANAGEMENT AND
COMPLIANCE
The Board has ultimate responsibility for
the oversight of risk management and
compliance across the Group.
Risk is an integral part of the Group’s
decision-making process and all risks
and opportunities are adequately and
appropriately assessed to ensure that
significant risk exposures are minimised. The
Group’s risk and compliance frameworks
ensure that all risks and compliance
obligations are properly identified and
managed, that insurances are adequate
and that processes are in place to ensure
compliance with regulatory requirements.
The Managing Director is accountable
to the Board for the development and
management of the Group’s risk and
compliance frameworks and is supported
by the Chief Financial Officer in terms of
adopting appropriate risk management and
compliance processes, including regular
and transparent reporting to the Audit, Risk
Management and Compliance Committee of
the Board. The Senior Leadership Team of
the Group is actively involved in the review,
isolation and mitigation of key risks and
each senior manager is responsible for the
management of risk and compliance with
relevant laws and regulations.
The material risks that have potential to
have an effect on the Group’s financial
prospects, and how the Group manages
these risks, include:
14
RED U CT ION IN CONSUMER
D EMA ND
Given McPherson’s reliance on consumer
spending, adverse changes to the general
economic landscape in Australasia or
consumer sentiment for the Group’s
products could impact its financial results.
This risk is addressed through keeping
abreast of economic and consumer data
research, innovative product development
and brand building.
WO RKP LACE HEALTH AND SAFETY
Given the physical nature of the Group’s
operations, workplace health and safety
are of paramount importance. Significant
effort and attention have been placed on
internal policies and processes to ensure
that employees are aware of their legal
obligations and the productivity benefits that
come from working safely. A tone of safety
first is set at the top of the organisation
and is reinforced through commitment of
resources, including a dedicated workplace
health and safety officer.
TH E IM PACT OF COVID-19 AND
FUT U RE PANDEMICS
The potential for significant disruption to
the Group caused by a global pandemic has
been illustrated by the current COVID-19
outbreak. While the potential impact on
workplace health and safety, customer
demand, continuity of supply and availability
of capital has been anticipated and well
managed by the Group, the potential for
future disruption from COVID-19 or a future
new pandemic is self-evident.
FOREIGN CURRENCY AND
INTEREST RATE FLUCTUATION
The Group sources the majority of its
inventory in currencies other than Australian
dollars, with the US dollar the predominant
sourcing currency. Consequently, significant
fluctuations in the AUD / USD exchange
rate can materially impact the Group’s
results. The Board has established, and
regularly reviews the Group’s foreign
currency hedging policy with the objective
of mitigating short to medium term
foreign currency risk.
Consistent with the policy, the Group
continues to operate a comprehensive
foreign exchange hedging program, which
mitigates the impact of Australian dollar and
US dollar movements. The Group’s foreign
exchange hedging and the instruments
used for foreign exchange hedging
remain unchanged, being a combination of
options and foreign exchange contracts on
a rolling basis.
In addition to this, the Group entered into
an interest rate swap contract maturing
in June 2023 to partially restrict the
Group’s interest rate exposure under its
new three-year facility of $47.5 million
expiring in June 2023.
McPherson’s Limited RAW MATERIAL PRICE FLUCTUATION
A significant proportion of the Group’s
inventory costs are influenced by movements
in the price of commodities such as resin
and aluminium. Such commodity prices
are usually denominated in US dollars and
historically are correlated with movements
in the AUD / USD exchange rate. This
correlation provides a degree of natural
hedge against the profit impact of AUD /
USD currency movements. Consequently,
separate risk mitigation measures are not
utilised to manage this risk.
LOS S OF A MA JOR CU STO ME R
OR DE RA NGI NG OF A MA JOR
PROD U CT RANGE
A significant proportion of the Group’s sales
is related to a significant export customer
and two domestic customers in the grocery
channel. The deletion of a material product
range by these customers could materially
reduce McPherson’s profitability. In order
to mitigate this risk, the Group strives to
provide superior customer service, product
innovation and competitive pricing. It is
also pursuing a strategy of channel and
customer diversification, as demonstrated
by the recent joint venture activity in Health,
Wellness and Beauty.
EXPO S URE TO THE CHI NA
MARKET
An increasing portion of the Group's sales
is generated directly and indirectly by
demand from consumers based in China.
Consequently, the Group has an exposure
to any change in the Chinese market
that may impact this demand, such as a
change in government regulations that
may impact sales of the Group's products
to China based consumers. The Group
seeks to mitigate this risk by attempting
to understand and anticipate changes
in the China market that may impact its
sales. Additionally, the Group engages
with business partners and advisors that
are compliant with Chinese regulations
and have a strong understanding of the
Chinese market.
KE Y SUPPLIER REDUNDANCY
The Group has significant reliance on key
suppliers of products. Many such suppliers
are based in China, with key skincare
suppliers predominantly based in Australia.
Alternate suppliers have been isolated for
all key suppliers. The potential for political
instability to impact the Hong Kong sourcing
team is being closely monitored. The capture
of important supplier information on the
Group’s ERP system has improved the
ability of the Group to adapt to any future
disruption to the Hong Kong sourcing team.
The continued transition of significant Dr.
LeWinn’s formulations and production to
Aware Environmental will materially reduce
the risk of disrupted skincare production and
access to formulations.
IN VESTMENT OF CAPITAL
Given the strength of the Group’s balance
sheet and the stated objective of deploying
capital to merger and acquisition activity, the
risk element is the deployment of capital to
investments that do not present acceptable
risk and reward outcomes for the Group’s
shareholders. The following measures are
being taken to manage this risk:
opportunities under review to ensure
appropriate focus and resourcing;
> Restriction of the number of
> Careful assessment of risk and return
> In the case of recent joint ventures, de-
metrics associated with opportunities;
risking of return on investment outcomes
by determining most consideration with
reference to actual EBIT outcomes; and
> Engagement of external assistance, such
as due diligence expertise where deemed
necessary for smaller investments and
mandatory for investments in excess
of $10 million.
Dr. LeWinn’s
Ultra R4 Collagen Surge Plumping Gel
DEFICIENCY IN PRODUCT QUALITY
As a supplier of branded consumer products
to retailers, the Group has an exposure to
product faults which could lead to liability
claims and product recalls. To control this
risk, the Group adopts stringent quality
control and supplier verification procedures.
In addition, it holds adequate product
and public liability insurance and product
recall insurance.
COMPLIANCE WITH DEBT FACILITY
UNDERTAKIN GS
A portion of the Group’s capital requirement
is in the form of debt facilities supplied
by financial institutions that require the
Group to comply with various undertakings,
including specific financial ratios or
covenants, in order for the Group to continue
to access facilities. The Group seeks to
adopt a debt structure that in both quantum
and terms has sufficient capacity to
withstand a short term decline in earnings or
assets that may impact its ability to meet its
various debt facility undertakings.
CY BER S ECU RI TY
The Group places significant reliance on
its Information Technology (IT) systems to
transact with customers and connect with
consumers. The inability to utilise or access
our IT systems through a successful denial
of service, ransomware or other form of
attack could materially impact the Group’s
ability to transact and hence affect its
earnings. The Group uses firewall monitoring
software and anti-virus software to block
potential cyber threats. Additionally, it has
a network monitoring and alert tool that
is designed to detect and signal unusual
network behaviour. Ongoing external review
and input are implemented to ensure the
effectiveness of ‘cyber’ controls to meet
ever evolving threats of this nature, including
business continuity plans and disaster
recovery testing.
TALENT MANAGEMENT
The loss of key management talent
and potential underutilisation of key
management talent represent a key risk to
the business that is mitigated by Human
Resources establishing talent development
plans, well targeted incentive programs and
succession plans.
REGULATORY COMPL IANCE
The general risk of compliance with changes
in Australian Consumer Law and product
standards, with related implications for
supplier and inventory management, as
well as penalties for non-conformance,
is managed by the employment of
appropriately knowledgeable employees
accessing regular updates on changes in
standards. Additionally, regular staff training
is conducted by external legal experts in
Australian Consumer Law.
2020 Annual Report
15
Category OV ERV IEW
M C P H E R S O N ’ S H A S C O N T I N U E D TO I N V E S T I N I T S :
> Market leading owned brands;
> Strong reputable joint ventures that complement the Group's portfolio; and
> Innovation program for the core six brands (Dr. LeWinn’s, A’kin, Manicare,
Lady Jayne, Multix and Swisspers) leveraging key consumer macro trends and
market leading business intelligence from Mintel.
The growth in the core six brands was led by continued investment in:
> Research & development to fuel differentiated superior innovation and leading edge sustainable new products;
> Clinical and consumer user efficacy claims;
> High impact in-store merchandising units;
> Through the line brand campaigns;
> Digital amplification and engagement initiatives; and
> Market expansion plans.
Research and
development to
support innovations
across the brands
core
6
brands
Clinical trials and
consumer user
claims
Integrated sales and
marketing activation
plans
16
McPherson’s Limited
ENRICHING
W ITH OUR
People's lives
Innovative
Brands
Manicare
NOVA FIT ® Face Massager
17
2020 Annual Report Category OV ERV IEW (Continued)
CORE 6Brands
+75%
growth
D R . L E W I N N ’ S S A L E S R E V E N U E
DR. LEWINN’S
2020 was another outstanding year for Dr. LeWinn’s
with 75% growth in sales revenue year on year,
across domestic and international markets.
For over 30 years, Dr. LeWinn’s has been bringing
innovative products to consumers and 2020 was no
exception with the launch of:
Cleansing Jelly;
Multi-Action Toning Mist;
> Ultra R4 Plumping Lip Mask;
> Line Smoothing Complex Melting
> Line Smoothing Complex
> Line Smoothing Complex Hyaluronic Acid &
> Line Smoothing Complex Hyaluronic Acid
Caffeine Under Eye Recovery Mask; and
Boosting Essence, a high potency treatment
that tapped into the global growth of
singular ampoules.
In 1H20, Dr. LeWinn’s entered into the
Dermo Solutions category with the launch of
Recoverëderm™, a superior range scientifically
proven and specifically developed for sensitive and
irritated skin. This strategic initiative has helped to
further strengthen the brand’s expertise in skincare
for all skin types and ages.
While domestic sales remain strong, the
international success in China has fuelled brand
growth exponentially with 133% growth in sales
revenue year on year. By launching key products in
the Line Smoothing Complex sub-range that help
build the skincare regimen and continuing to support
hero products in China, the sub-range continued to
unlock sales prosperity.
Looking ahead, Dr. LeWinn’s is set to reach
new heights through building existing sub-
ranges, introducing new products with advanced
technologies and entering into new categories.
The Dr. LeWinn's brand will continue to invest
in through the line communication programs
and retailer partnerships, as well as accelerate
digital connections with consumers to ensure
sustainable brand success.
18
Dr. LeWinn's
Recoverëderm™ range
McPherson’s Limited A’kin
Natural Face Sheet Mask range
A’ K I N M A S KS S A LE S R A N K E D I N TH E
5
natural sheet
mask category
A’kin
Natural Deodorant range
Top
A’KIN
A’kin has continued to build on its clinically proven credentials and
attract new users to the brand, despite tough trading conditions.
In 2020 A'kin:
following the successful relaunch with clinically proven
efficacy claims;
> Continued +68% growth momentum for the Age Defy range
> Expanded the range of clinically proven natural deodorants
made without aluminium with 2 enticing scents (Rose &
Australian Sandalwood and Australian Desert Lime & Sweet
Orange), which propelled growth for this sub segment by
+155% versus last year;
consumers to A’kin with the launch of brightening, age defy and
hydrating new products made with A-Beauty ingredients; and
> Leveraged the popularity of natural face masks to attract new
> Introduced the scientifically proven Miracle Shine Conditioning
Hair Mask in a larger pack format to capitalise on increased
consumer demand for at home salon treatments.
Moving forward, A’kin will leverage growing macro trends to
strategically launch innovative new products, based on its haircare
foundations, whilst focusing on channel distribution in Australia and
international expansion.
2020 Annual Report
19
Category OV ERV IEW (Continued)
MANICARE
In 2020, Manicare further strengthened its leadership in Beauty Tools
in the pharmacy and grocery channels, driven by accelerated new
product development in “Smart Tech Beauty” and the consumer surge
in at home do-it-yourself beauty during COVID-19 restrictions.
The launch of the premium pediPRO range of foot tools delivered
strong results in pharmacy, accelerated by consumer desire for
salon quality products and do-it-yourself pedicures when beauty
salons were closed.
The launch of NOVA FIT® positioned Manicare as the market leader
of skincare tools launched in 2020. Using salon grade Electronic
Muscle Stimulation Technology (EMS), Manicare® NOVA FIT® face
massager, delivers clinically proven skin firmness with beauty salon
grade technology.
After the successful launch of the innovative Magnetising Eyeliner
and Lash System in 2019, Glam by Manicare released Glam
Xpress® in April 2020, a tech smart all-in-one eyeliner with lash
adhesive for effortless and instant lash application.
With innovation being a strategic pillar, the comprehensive
Glam By Manicare lash portfolio, including Core, Luxe and
New Tech styles, boosted Glam’s market share in the
eye lashes category in pharmacies.
Glam by Manicare
Glam Xpress® Adhesive Eyeliner & Lashes
S M A R T
I N N O VAT I O N
beauty
accounts
for56% of Manicare's sales
revenue growth in FY20
Manicare
NOVA FIT ® Face Massager
20
McPherson’s Limited
Lady Jayne
Premium Brush
LADY JAYNE
Lady Jayne continued to lead the market
with innovative and superior new products
and premium craftsmanship, with a focus on
developing the top tier brush range offer in 2020.
The launch of the Premium Brush in 2020 and
the strong sales performance of the Salon Pro
Brush range have cemented the brand as the
category beacon within the pharmacy channel.
In the grocery channel, further incremental
ranging in October 2020 on a select range of
Lady Jayne’s popular Detangling Brush range
has expanded brand accessibility and connection
with consumers.
As a part of the Group’s Corporate Social
Responsibility strategy, Lady Jayne commenced
a national partnership with Variety's Hair With
Heart initiative. Variety - The Children's Charity,
was established to support children who are sick,
disadvantaged or have special needs by providing
practical equipment, programs and experiences.
Hair with Heart is Variety’s national hair donation
initiative. Hair contributions are processed into
specialist wigs for children who have lost their
hair due to a medical condition. Money raised
via the initiative goes to Variety’s grants and
programs, such as providing funding to families
for mobility equipment, communication devices,
medical items and therapeutic treatments. Lady
Jayne has been committed to raising awareness
for this cause by donating 100% of profits from
the sales of Gold Double Bar slides in 2020
($25,000 donation).
No.
1Hair Tool and
Accessories brand
in Australia
Source: IRI Scan, Hair Tools and Accessories,
Pharmacy, MAT To 02/08/20
21
2020 Annual Report Category OV ERV IEW (Continued)
Swisspers
Biodegradable Facial Wipes
Swisspers
Paper Stem Cotton Tips
biodegradable 100% plant-based facial
cleansing wipes, made from a mix of cotton
and renewable plant fibres designed to
appeal to eco-conscious consumers.
Moving forward, Swisspers will continue to
win the hearts of more consumers through
a commitment towards sustainable product
innovation and entry into new categories.
Strengthening consumer engagement with
a refined, more natural brand essence, will
further reinforce Swisspers as the choice for
pure, soft cotton care… caring for our skin
and our environment.
I N T R O D U C T I O N O F E C O
B I O D E G R A D A B L E 1 0 0%
plant-based
facial cleansing wipes
SWISSPERS
Swisspers, an iconic Australian brand
trusted and loved by Australian families,
had a strong year in 2020, fuelling category
growth and strengthening market leadership
with impressive market share gains.
Sustainable innovation across the cotton
and wipes portfolio was instrumental to the
brand’s success in 2020. Earth Kind™ cotton
tips with paper stems, made from a mix of
sustainably grown wood and recycled paper,
was a key performer which contributed
to the incremental sales growth across
Pharmacy and Grocery channels.
In March 2020, following the market
success of Earth Kind™ paper stems,
Swisspers introduced its first Eco
22
McPherson’s Limited MULTIX
The Multix brand maintained its
leading market position in 2020 within
the bags, wraps and foils category,
driven by sustainable innovation and a
surge of in-home consumption due to
COVID-19 restrictions.
Multix experienced a strong start to FY20
with the expansion of its sustainable offer
through the launch of Multix Greener Plant
Based and Recycled Plastic garbage bag
range. Multix was first to market with this
sustainable innovation in the category and
cemented its leadership in sustainability with
a double digit growth and a higher portfolio
share in sustainable offers than the category.
The COVID-19 lockdowns in 2H20 boosted
sales, driven by panic buying and increased
in-home consumption of garbage bags,
baking paper and freezer bags.
McPherson’s Supply Chain team worked
tirelessly to deliver stock to retail partners,
who were challenged to fill shelves stripped
bare as a result of panic buying.
Looking forward, further innovation in
sustainable products is planned for 2021
with the expansion of the Greener range into
cling, snack and sandwich bags with plant
based and compostable products. Staying
close to consumer trends, sustainable
technology and speed to market will enable
Multix to continue launching consumer
relevant and sustainable innovation
first to market.
M A R K E T L E A D E R I N
sustainability
innovation
in the bags, wraps and foil segments
Multix
Greener Brown
Baking Paper
Multix
Greener Alfoil
Multix
Greener Plant Based
Cling Wrap
23
2020 Annual Report STR ATEGIC
Investments
JOINT VENTURE WITH
The successful relationship between McPherson’s and
Access Brand Management (ABM) was formalised through
the establishment of the joint venture Dr. LeWinn’s China
Limited in November 2019.
This joint venture will develop new brands and products
tailored for the China market and sell them to ABM, which
will be incremental to the continued strong McPherson’s
sales of Dr. LeWinn’s products to ABM.
Key business decisions for the joint venture such as new
product development, intellectual property, marketing, supply
chain and pricing require the unanimous approval from the
joint venture’s Board, which comprises an equal number of
Directors from McPherson’s and ABM.
ABM is a trusted distributor in the People’s Republic of China
market, with a successful track record of brand management
and market expansion.
Dr. LeWinn’s was one of the first brands to partner with ABM
in China, and has grown and firmly established itself as a top
5 brand within the ABM portfolio.
R E M A R K A B L E G R O W T H I N D R . L E W I N N ’ S
S A L E S F R O M M C P H E R S O N ' S T O A B M ,
from $0.5 million in FY17 to
$37.2
million
in FY20
24
McPherson’s Limited AUSTRALIA
Trusted Partnerships
Speed to Market
Agreed Business Model
Flexibility to React to Change
Appropriate Pricing Corridors
Rigorous Processes
Continuity of Supply
Adaptable to Market Dynamics
CHINA
T H E D R . L E W I N N ’ S R E C O V E R Ë D E R M™
R A N G E W A S L A U N C H E D O N T H E
A B M A P P O N 2 1 A U G U S T 2 0 2 0 .
all
Within 16 minutes,
98,000
products were sold out.
Dr. LeWinn's
Recoverëderm™ range
2020 Annual Report
25
STR ATEGIC
Investments
(Continued)
McPherson’s commenced its partnership
with the Aware Group in April 2019 with the
production of the Dr. Lewinn’s number one
SKU Triple Action Day Defence.
In May 2020, Aware reached the milestone
of manufacturing the millionth product for
Access Brand Management, our China joint
venture partner.
Dr. Lewinn’s is now one of the top 3 brands
manufactured by Aware.
McPherson's increased its equity stake
in the Aware Group to 10.7% in October
2019 as a strategic manufacturing
partner to deliver on the high-quality
standards expected from Australian and
Chinese beauty consumers, as well as to
ensure continuity of supply for the fast
growing China market.
Approximately 25% of all Dr. LeWinn’s
production for domestic and export took
place with the Aware Group in FY20 with
plans to accelerate this to 50% in FY21.
Aware has been an integral part of
establishing the credibility benchmark for the
Dr. LeWinn’s brand and provides important
engagement opportunities to support the
growth in China.
In October 2019, Aware hosted the first
ever Dr. LeWinn’s Brand Day celebration.
The event was attended by 250 top
tier ABM resellers who enjoyed a panel
discussion, a formal address by Laurie
McAllister, McPherson's Managing Director,
new product launches and private tours
of the Aware facility and laboratories. The
amplification of this event was supported
by 15 influencers and media, including live
streaming during the event.
In November 2019, Aware supported
Dr. LeWinn’s with an exclusive event to
congratulate the top 10 ABM resellers for
Dr. LeWinn’s. Special awards were presented
by Laurie McAllister, McPherson's Managing
Director. The 10 ABM resellers then enjoyed
a personalised tour of the Aware facility,
including a special opportunity to mix one of
the most famous Dr. LeWinn’s products in
the laboratory.
As McPherson’s continues its strategic
partnership with Aware, the manufacturing
of more brands is being transitioned
over to Aware. To date, over 50 SKUs
across our two leading skincare brands
have successfully achieved a technical
transfer to Aware.
A W A R E R E A C H E D T H E M I L E S T O N E
O F M A N U F A C T U R I N G T H E
millionth
product for ABM in FY20
26
McPherson’s Limited
Hammond Road facility
Dandenong (VIC)
Kotia
New Zealand
Deer Milk Skincare
T H E W O R L D ’ S F I R S T S K I N C A R E M A D E W I T H
100%
pureNew Zealand deer milk
Kotia launched in February 2019 into a
category with over 1,500 competitors
achieving 5% brand awareness, a strong
purchase intent score of 54% amongst
Beauty enthusiasts and was recognised with
11 Beauty Industry Awards.
Initially ranged exclusively in 340 Priceline
stores and online in Australia, and 134
Life Pharmacy and UniChem stores in
New Zealand, the brand has expanded
into a number of new distribution channels
including independent and banner pharmacy
groups such as Health 2000 across
Australia and New Zealand.
The impacts of COVID-19 on the premium
skin care category during the later half of
FY20 have been significant for both sales
and distribution growth as well as brand
momentum. With many pharmacies in
Australia and New Zealand being unable
to open or placing their focus on essential
healthcare items, the category has seen a
22% decline in sales.
The post COVID-19 consumer is expected
to behave very differently, overly cautious
about their health and their spending.
With unemployment forecast to rise
significantly, the brand is taking a cautious
strategy towards future growth and will
target online sales as well as expanded
ranging into specialist online beauty retailers
and low cost retailers.
FY21 will see the launch of three new
products into the fast growing facial skin
care mask category to drive a new entry
point into the brand.
27
2020 Annual Report STR ATEGIC
Investments
(Continued)
The COVID-19 outbreak has seen major social
and economic changes across the globe. As
well as the changes to everyday life, there
have also been drastic changes in consumer
behaviour, one of these being the major
increase in purchases surrounding immunity and
immune system health.
Food and beverage products, which provide
immune benefits, are predicted to see strong
demand well beyond the COVID-19 pandemic.
With Soulful milk formulas offering functional
immune health benefits, this presents a great
opportunity to grow the brand throughout the
current situation and well into the future.
Soulful, a brand of the My Kart joint venture,
is all about creating smart, wholesome nutrition
and healthy living solutions accessible to
everyone. Proudly Australian, and with a passion
for health and wellbeing, the Soulful product
range has been developed for different stages
of life to make staying healthy both easy and
effective. Offering nutritional support for adults
and children, Soulful also provides immunity
support with added lactoferrin and probiotics.
First shipments to China commenced in
September 2020 to support a flagship store
launch on the Alibaba Tmall platform. This
Cross-Border E-Commerce platform sees over
700 million Chinese consumers visits annually.
Across Australia and New Zealand, Soulful
will focus on ranging in Independent Grocery,
Pharmacy & Health stores prioritising Daigou
shoppers and community health, as well as
e-commerce sales via the Soulful website.
With a goal to help individuals achieve and
maintain healthy and wholesome lifestyles,
Soulful marketing initiatives are scheduled to
activate via online and social media engaging
a range of nutritionists and health experts, who
will develop and share blogs and recipes with a
focus on all aspects of health and wellbeing.
28
Soulful
Junior Lactoferrin Immunity
Milk Formula
4 8 % O F A S I A PA C I F I C C O N S U M E R S
A R E M A K I N G C H A N G E S I N T H E I R D I E T S T O
improve immunity
in the past year alone
(source: FMCG Gurus 2020 report)
McPherson’s Limited Happy Flora
Cleanse Plant-Based Digestive Block
Promoting healthy digestion to support optimal wellbeing, Happy Flora,
a brand of the My Kart joint venture, takes a light-hearted approach to
keeping healthy and regular.
Gut health is becoming an increasingly important category within the health
products market with 2 in 3 Australians reporting to have conditions related
to microbiome imbalance and 1 in 3 Australians buying products targeting
improved microbiome and digestive health in the past 12 months.
Happy Flora will go to market in November 2020 with a range of fruit
based natural digestive aids and will support a flagship store launch on
the Alibaba Tmall. which sees over 700 million Chinese consumers visit
annually and is the #1 Cross-Border E-Commerce platform.
Across Australia and New Zealand, Happy Flora will focus on ranging
in Independent Grocery, Pharmacy & Health stores prioritising Daigou
shoppers and community health, as well as e-commerce sales via the
Soulful website.
The Happy Flora marketing approach of Making Health Easy across social,
digital, influencers & key opinion leaders will be used to drive discovery and
purchase of Happy Flora, using trustworthy information for consumers.
29
A $ 9 M C H I N A D I G E S T I V E H E A LT H M A R K E T
expected to
double
within 5 years
(source Euromonitor July 2020)
2020 Annual Report STR ATEGIC
Investments
(Continued)
SugarBaby is an Australian made and owned beauty brand which has
delivered effective and functional skincare, treatments and tanning
solutions since 1998.
2020 has seen SugarBaby undergo a strategic rebrand and
repositioning with new and improved formulas to target a fresh
demographic of beauty consumers.
SugarBaby's new key messaging of Clean + Kind + Vegan commits
the brand to remain at the forefront of environmentally friendly beauty
products, with both eco-friendly packaging and innovative products that
are kind to both the Earth and skin. SugarBaby has partnered with the
Great Barrier Reef Foundation to show our commitment to our products
doing good as well as feeling good.
The SugarBaby rebrand not only marks a change in the look and feel of
the brand, but also the retail strategy. With over 100,000 loyal followers
on Instagram, e-commerce is a natural channel selection for SugarBaby,
whose e-commerce site will launch in September 2020. SugarBaby also
seeks to partner with select beauty retailers who understand modern
beauty customer needs and share their vision for premium, sustainable
and ethical products that are as individual as they are.
The relaunch will be backed by a strong marketing campaign in FY21
which includes digital, social, influencer and sampling elements.
W E ’ R E C L E A N + K I N D + V E G A N
and serious about
keeping beauty fun!
30
McPherson’s Limited SugarBaby
Australian Skincare range
31
2020 Annual Report BOARD OF
Directors
GRAHAM A. CUBBIN
B.Econ. (Hons)
LAURENCE MCALLISTER
Independent Non‑Executive Director
and Chairman of the Board
Managing Director and
Chief Executive Officer
GRANT W. PECK
B. Bus, CA
Independent
Non‑Executive Director
EXPERTISE AND E XP ERI EN CE
Mr. Cubbin is the Chairman of the
McPherson’s Limited Board. He was
appointed an Independent Non-
Executive Director of the Company on
28 September 2010 and was appointed
Chairman of McPherson’s Limited on 1
July 2015.
Mr. Cubbin was a senior executive with
Consolidated Press Holdings Limited
(CPH) from 1990 until September 2005,
including Chief Financial Officer for 13
years. Prior to joining CPH, Mr. Cubbin
held senior finance positions with a
number of major companies, including
Capita Financial Group and Ford Motor
Company. Mr. Cubbin has over 20 years
experience as a Director and Audit
Committee member of public companies
in Australia and the United States.
SPEC IA L RESPON SIBILIT IES
> Chairman of the Board
> Member of the Nomination and
> Member of the Audit, Risk Management
and Compliance Committee
Remuneration Committee
OTHER CURRE NT DI REC TORSH IP S
IN ASX L ISTED C OMPAN IE S
> Director of WPP AUNZ Ltd, Bell
Financial Group Limited and White
Energy Company Limited
FORME R DI R EC TO RSH IPS IN AS X
LISTED COMPA N IES IN LAST TH RE E
YE ARS
INT ERESTS IN S HA RE S A ND
PERFORMA NC E RIGH TS
> Director of Challenger Limited
> 270,000 ordinary shares in
> No performance rights held
McPherson’s Limited
E XP ER IEN CE AND E XP ERT ISE
Mr. McAllister was appointed Managing
Director and Chief Executive Officer of
McPherson's Limited on 21 November
2016.
Mr. McAllister is an experienced
international senior executive with
strong consumer marketing and dynamic
commercial experience. Prior to this
role, Mr. McAllister worked for over 23
years with the Coca-Cola Company,
managing New Product Development,
M&A, Innovation and the Research
and Development function across
Europe, Eurasia and the Middle East.
Mr. McAllister was also the President
of Nordics and the Chief Commercial &
Marketing Officer for Japan for the Coca-
Cola Company. Throughout this tenure,
Mr. McAllister represented the Coca-Cola
Company on Boards in Germany, Sweden,
Norway, Denmark and Finland.
More recently at Sanofi, Mr. McAllister
was the Managing Director of the ANZ
Affiliate, responsible for six business
units with a turnover of $1.0 billion
and $0.5 billion in profit before tax. In
addition to this, Mr. McAllister was on
the Board of Medicines Australia for
2 years representing the $18 billion
Pharmaceutical Industry and led a
significant turnaround of Sanofi's
Consumer Health Care business in
Australia and New Zealand.
SP ECIAL RE SP ONSIBILIT IES
> Managing Director and
Chief Executive Officer
OT HE R CUR RENT D IRE CTORSHIPS
IN ASX LISTE D COMPANIE S
> Non-Executive Director of
Medlab Clinical Ltd
FORME R D IRE CTORSH IPS IN ASX
LISTE D COM PA NIES IN LAST THREE
YE ARS
IN TE RESTS IN SHARE S AND
PE RFORMANCE RIGH TS
> None
> Nil ordinary shares in
> 2,541,000 performance rights
McPherson's Limited
32
EXPERTISE AND EXPERIENCE
Mr. Peck was appointed an Independent
Non-Executive Director of McPherson’s
Limited on 14 December 2017. With
effect from 20 February 2018, Mr. Peck
was appointed a member and Chairman
of the Board’s Audit, Risk Management
and Compliance Committee, and a
member of the Board’s Nomination and
Remuneration Committee.
Mr. Peck has more than 27 years of
branded consumer goods experience both
domestically and internationally, including
leading the finance and supply chain
functions in both large and mid-sized
FMCG (fast moving consumer goods)
organisations. He has a strong record
of delivering improved performance
outcomes across varied functions,
business sectors and geographies.
Previously, Mr. Peck was the CEO of
Sunny Ridge Farms and the Chief
Financial Officer of Carlton & United
Breweries and the Group Managing
Director of Supply for CUB with the
Fosters Group. Mr. Peck has also held
senior general management roles in
the food industry with McCormick &
Co, where he was responsible for the
industrial products business in Australia,
and also Chief Financial Officer for the
Asia Pacific region with responsibility for
operations in China, Singapore and joint
ventures throughout Asia.
Mr. Peck holds a Bachelor of Business
and is a Chartered Accountant.
SPECIAL RESPONSIBILITIES
Management and Compliance
Committee
> Chairman of the Audit, Risk
> Member of the Nomination and
Remuneration Committee
OTHER CURRENT DIRECTORSHIPS
IN ASX LISTED CO MPANIES
> None
FORMER DIRECTORSHIPS IN ASX
LISTED COMPANIES IN LAST THREE
YEARS
INTER ESTS IN SHAR ES AND
PERFORMANCE RIGHTS
> None
> 14,400 ordinary shares in
> No performance rights held
McPherson’s Limited
JANE M. MCKELLAR
MA (Hons)
Independent
Non‑Executive Director
EXPERTI SE AND EXPERI ENCE
Ms. McKellar was appointed an
Independent Non-Executive Director of
McPherson's Limited on 23 February
2015. With effect from 24 March
2015, Ms. McKellar was appointed a
member of the Board’s Nomination and
Remuneration Committee, and was
appointed Chairman of that committee on
27 April 2015. She was also appointed
a member of the Board’s Audit, Risk
Management and Compliance Committee
on 20 February 2018.
Ms. McKellar is an experienced
international senior executive with
extensive customer-focused, brand,
marketing and digital experience across a
number of high-profile global brands.
Ms. McKellar commenced her career at
Unilever in London and her subsequent
roles have included global CEO of Stila
Corporation, Managing Director of
Elizabeth Arden Australia, Founding CEO
of Excite.com Asia Pacific, Director of
Sales and Marketing for Microsoft (MSN),
and Founding Director of Ninemsn.
Ms. McKellar holds a Master of Arts
(Hons) from the University of Aberdeen
and is a Graduate of the Australian
Institute of Company Directors.
SPECIAL RESPONSI BILITIES
Remuneration Committee
> Chairman of the Nomination and
> Member of the Audit, Risk Management
and Compliance Committee
OTHER CURRENT DIRECTORSHIPS
IN ASX LISTED COMPANIES
> Director of GWA Group, Freedom Foods
Group Limited and NRMA
FOR MER DIRECTORSHIPS IN ASX
LISTED COMPANIES IN LAST THREE
YEARS
> Director of Automotive Holdings
Group Limited
INTERESTS IN SHARES AND
PERFOR MANCE RIGHTS
McPherson’s Limited
> 6,357 ordinary shares in
> No performance rights held
McPherson’s Limited COMPAN Y
Secretaries
PHILIP R. BENNETT
B.Com, CA
PAUL WITHERIDGE
B.Com, CA
Joint Company
Secretary
EXPERTI SE AND EXPERI ENCE
Mr. Bennett was appointed Company
Secretary of McPherson’s Limited on
2 February 2012. Mr. Bennett had
previously held the position of Chief
Financial Officer of McPherson’s
Limited since 2000, and Company
Secretary from 1995, and stepped
down from both these positions in
November 2011.
Mr. Bennett holds a Bachelor of
Commerce from the University
of Melbourne and is a Chartered
Accountant.
Before joining McPherson’s, Mr. Bennett
held senior financial and company
secretarial positions with another
listed company, and prior to that was a
senior manager with a major Australian
chartered accounting firm.
Chief Financial Officer and Joint
Company Secretary
EXPERTISE AND EXPERIENCE
In May 2010, Mr. Witheridge was
appointed the Chief Financial Officer of
McPherson’s Consumer Products Pty
Ltd. Mr. Witheridge was appointed Chief
Financial Officer and Joint Company
Secretary of McPherson’s Limited on 1
December 2011.
Mr. Witheridge holds a Bachelor
of Commerce and is a Chartered
Accountant.
Before joining McPherson’s, Mr.
Witheridge held senior financial and
company secretarial positions with
a number of listed companies in the
retail sector including Angus and Coote
Limited and OPSM Limited. Prior to that,
Mr. Witheridge spent six years within
KPMG’s Audit and Assurance Practice.
ALISON J. MEW
MSc (Hons)
Independent
Non‑Executive Director
E XP ERTIS E AND E XP ERI ENCE
Ms. Mew was appointed an Independent
Non-Executive Director of McPherson’s
Limited on 24 July 2018.
Ms. Mew has more than 30 years of
leadership and executive management
experience in Australasia across a
diverse range of functions within the
biopharmaceutical and health services
sectors. Her experience includes
product manufacturing, quality systems,
logistics, sales and marketing, as well
as research and development. Ms.
Mew is also familiar with the regulatory
environment that governs the healthcare
market. In addition to these technical
and operational activities, Ms. Mew has
been involved in corporate acquisitions
and divestments as well as the strategic
planning process.
Ms. Mew has recently held the positions
of Chief Operating Officer and then
Chief Executive Officer of Genetic
Technologies Limited, an ASX and
NASDAQ listed leading edge genetic
testing services business.
Ms. Mew holds a Bachelor of Science
and a Master of Science (Microbiology),
has undertaken the Executive
Development Programme at Melbourne
Business School and is a Graduate of
the Australian Institute of Company
Directors.
SP ECIAL RE SP ONSIBILIT IES
OT HE R CUR RENT D IRE CTORSHIPS
IN ASX LISTE D COMPANI ES
> None
> None
FORME R D IRE CTORSH IPS IN
ASX L IST ED COMPAN IES IN LAST
T HRE E YEARS
IN TE RESTS IN SHARE S AND
PE RFORMANCE RIGH TS
> None
> 12,000 ordinary shares in
> No performance rights held
McPherson's Limited
GEOFFREY R. PEARCE
Non‑Independent
Non‑Executive Director
EXP ERTISE AN D EXP ERI EN CE
Mr. Pearce was appointed a Non-
Executive Director of McPherson's
Limited on 20 February 2018.
Mr. Pearce has more than 40 years
of experience in the pharmaceutical,
cosmetic and personal care industries.
He has extensive experience in
pharmaceutical and cosmetic
manufacturing as well as raw material
sourcing and product distribution,
having established, operated and grown
a number of personal care businesses
in these industries.
Mr. Pearce is the Chairman of Aware
Environmental Ltd, a key supplier of
McPherson's Limited.
Given the increasing importance
and materiality of the Aware supplier
relationship, the Board does not
consider Mr. Pearce to be an
independent Director.
SPE CI AL RES PON SI BILIT IES
> None
> Non-Executive Director of Cann
OT H ER CU RRENT DI RECTORSH IPS
IN AS X LI ST ED COMPAN IE S
Group Limited
FORMER DIR ECTO RSH IPS IN
ASX LISTE D C OMPANIES IN LAST
THR EE YEA RS
of Probiotec Limited
> Non-Executive Director and Chairman
> Executive Director of BWX Limited
> 695,939 ordinary shares in
> No performance rights held
INTER ESTS IN S H ARE S AN D
PE RFO RMANC E RIGH TS
McPherson's Limited
33
2020 Annual Report Corporate Governance Statement
The Corporate Governance Statement sets out key aspects of the McPherson’s Limited Group’s (“Company” or “Group”) corporate governance
framework and main governance practices. The Board of Directors is committed to achieving and demonstrating the highest standards of
corporate governance, which is considered to be essential for the long term performance and sustainability of the Group and to protect
and enhance the interests of shareholders and other key stakeholders.
The Company and Board regularly review the Group’s governance arrangements, as well as developments in market practice, stakeholder
expectations and regulations. The Company has undertaken a comprehensive review of its corporate governance arrangements during
the year ended 30 June 2020, including with reference to the 4th Edition of the Corporate Governance Principles and Recommendations
(“Corporate Governance Principles”) issued by the ASX Corporate Governance Council in February 2019, and the Board has made a
number of changes to key Board charters and policies following that review. The amended charters and policies were approved and came
into effect from 27 May 2020.
The Group’s corporate governance arrangements have conformed to:
a) The 3rd Edition ASX Corporate Governance Principles for the whole of the year ended 30 June 2020 and to the date of the statement; and
b) The 4th Edition ASX Corporate Governance Principles from 27 May 2020 until the date of the statement.
The Company’s Corporate Governance Statement for FY20 has been approved by the Board and is current as at 18 August 2020. The
statement outlines the Group’s main corporate governance practices in place during the financial year ended 30 June 2020, and currently.
The Corporate Governance Statement for FY20, and copies or summaries of the other governance documents referred to in the statement, can
be found in the Corporate Governance section of the McPherson’s Limited website which is located at the following address:
https://www.mcphersons.com.au/corporate-governance
34
McPherson’s Limited Directors’ Report
The Board of Directors presents its report on the consolidated entity (referred to hereafter as McPherson’s or the Group) consisting of
McPherson’s Limited and the entities it controlled at the end of, or during, the year ended 30 June 2020.
A) DIRECTORS
The following persons were Directors of McPherson’s Limited from the beginning of the financial year to the date of this report except
as indicated:
> G.A. Cubbin (Chairman)
> L. McAllister (Managing Director)
> G.W. Peck (Chairman of the Audit, Risk Management and Compliance Committee)
> J.M. McKellar (Chairman of the Nomination and Remuneration Committee)
> G.R. Pearce
> A.J. Mew
B) PRINCIPAL ACTIVITIES
McPherson’s, established in 1860, is a leading supplier of Health, Wellness and Beauty products in Australasia and increasingly China, with
operations in Australia, New Zealand and Asia. McPherson’s markets and distributes beauty care, hair care, skin care and personal care items
such as facial wipes, cotton pads and foot comfort products, as well as a range of kitchen essentials such as baking paper, cling wrap and
aluminium foil.
McPherson’s manages some significant brands for agency partners and via joint venture arrangements such as Kotia, however, the majority of
revenue is derived from the company’s diversified portfolio of owned market-leading brands, including Dr. LeWinn’s, A’kin, Manicare, Lady Jayne,
Swisspers, Multix, Moosehead and Maseur.
Manufacturing is outsourced to various suppliers, predominantly in Asia and Australia. McPherson’s maintains a strong presence in Hong Kong
and mainland China, focused on product sourcing and quality assurance.
C) DIVIDENDS
Details of dividends paid or declared in respect of the current financial year are as follows:
Interim ordinary dividend of 4.0 cents per fully paid ordinary share paid on 19 March 2020 (fully franked)
Final ordinary dividend of 7.0 cents per fully paid ordinary share declared by the Directors (fully franked)
and payable on 24 September 2020 but not recognised as a liability at year end
Total dividends in respect of the financial year
$’000
4,274
7,509
11,783
The 2019 final ordinary dividend of $6,387,000 (6.0 cents per fully paid ordinary share) was paid on 26 September 2019.
D) CONSOLIDATED RESULTS
The consolidated profit after tax of the Group for the financial year ended 30 June 2020 was $6,062,000 (2019: $13,721,000). The current
year profit after tax is inclusive of significant items amounting to a net expense after tax of $10,274,000 (2019: nil). The consolidated profit
after tax for the year ended 30 June 2020, excluding significant non-recurring items, was $16,336,000. Refer to Note 3 Significant Items for
further information.
E) REVIEW OF OPERATIONS
The review of operations of the Group is set out on pages 12 to 15 of the Annual Report and forms part of the Directors’ Report.
F) SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS
There were no significant changes in the state of affairs of the Group during the financial year.
35
2020 Annual Report
Directors’ Report continued
G) EVENTS SUBSEQUENT TO BALANCE DATE
The recent second wave of COVID-19 restrictions imposed in Victoria and New Zealand has not significantly impacted McPherson’s, with key
Melbourne based suppliers remaining unaffected and sales orders from Victorian and New Zealand based retailers remaining relatively stable.
No other matter or circumstance, other than what has been noted above, has arisen since 30 June 2020 that has significantly affected the
Group’s operations, results or state of affairs, or may do so in future financial years.
H) LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS
In the opinion of the Directors, it would prejudice the interests of the Group to include additional information, except as noted above, and as
reported elsewhere in the Directors’ Report and the financial statements, which relates to likely developments in the operations of the Group and
the expected results of these operations in financial periods subsequent to 30 June 2020.
INFORMATION ON DIRECTORS
I)
The following information is up to date at the date of this report.
Particulars of the qualifications, experience and special responsibilities of each Director as at the date of this report are set out on pages 32 to 33
of the Annual Report and form part of the Directors’ Report.
The interests of Directors in the share capital of the parent entity and/or in a related entity are contained in the register of Directors’ shareholdings of
the Company as at the date of this report, are set out on pages 32 to 33 of the Annual Report and form part of the Directors’ Report.
Meeting of Directors
The number of Board, Audit, Risk Management and Compliance Committee, and Nomination and Remuneration Committee meetings held during
the year ended 30 June 2020, and the number of meetings attended during that period by each Director, are set out below:
Board Meetings
Audit, Risk Management and
Compliance Committee Meetings
Nomination and Remuneration
Committee Meetings
Director
Held
Attended
Held
Attended
Held
Attended
Graham A. Cubbin
Laurence McAllister
Jane M. McKellar
Grant W. Peck
Geoffrey R. Pearce
Alison J. Mew
10
10
10
10
10
10
10
10
10
10
9
10
4
n/a
4
4
n/a
n/a
4
n/a
4
4
n/a
n/a
4
n/a
4
4
n/a
n/a
4
n/a
4
4
n/a
n/a
J) COMPANY SECRETARIES
Particulars of the qualifications and experience of the Company Secretaries are set out on page 33 of the Annual Report and form part of the
Directors’ Report.
36
McPherson’s Limited Directors’ Report continued
K) REMUNERATION REPORT
Letter from the Chairman of the Nomination and Remuneration Committee
Dear Shareholders,
The Board is pleased to present McPherson’s Remuneration Report for the year ended 30 June 2020. Our Remuneration Report provides
shareholders with a clear and transparent explanation of how we aligned our remuneration policies and outcomes with business performance,
reflecting principles which require remuneration to be market competitive, performance based and equitable, and aligned with shareholders’
returns.
2020 remuneration structure
Oversight of executive remuneration is a fundamental responsibility of the Board. The Board, through its Nomination and Remuneration
Committee, regularly reviews and tests McPherson’s remuneration approach to ensure that it remains strongly aligned with shareholder interests,
reflects current industry best practice, is underpinned by robust risk management, and attracts and retains the best talent.
2020 remuneration outcomes
Application of our remuneration framework has ensured that remuneration outcomes for key management personnel (KMP) and other senior
executives in 2020 were strongly aligned with shareholder interests.
One fundamental principle is the link between the realisation of long term incentives (LTI), total shareholder returns (TSR) and earnings per share
(EPS). The execution of the Group’s strategy by KMP resulted in an annual increase of 24% in underlying EPS in 2020, excluding the profit
impact of Trilogy and Karen Murrell agency sales. Over the three years to 30 June 2020, TSR has increased at a compound annual growth rate
(CAGR) of 40.3%.
It is very pleasing to report that consistent with the very strong financial outcomes of the company in 2020, executive key management personnel
have achieved an overall STI outcome equivalent to 96.2% of the maximum STI opportunity.
Overall, the performance for the year demonstrated strong momentum, exceeding the Group’s underlying EBIT target and resulting in a total
variable remuneration for 2020 higher than the prior period. This demonstrates our commitment to performance-based rewards.
2021 remuneration structure and response to COVID-19
2021 short-term incentives
The high level of uncertainty regarding progression of the COVID-19 pandemic and its impact on both the global and domestic economies make
accurate forecasting of the 2021 financial year extremely difficult. Consequently, a decision has been taken to have standalone financial targets
for the first and second halves of 2021.
The Nomination and Remuneration Committee has approved the following short term incentive structure (STI) for 2021, with a maximum STI
opportunity of 40% to 50% of fixed remuneration for senior leadership team members, which will reflect:
> Flexibility to consider events beyond the control of management at the Board’s discretion;
> Higher consideration of non-financial outcomes in a period of increased financial uncertainty arising from the COVID-19 pandemic;
> Separate non-financial KPIs for the two halves;
> Shorter time frames for the assessment of financial and non-financial targets (6-month periods);
> A challenging 2H21 forecast will be determined by the Board based on prevailing conditions at the end of December 2020; and
> STI eligibility being subject to the ongoing financial strength and capacity of the Group to fund incentives.
2021 long-term incentives
The Nomination and Remuneration Committee has also considered the structure and vesting criteria of the 2021 long-term incentives (LTI) and
Performance Rights Plan, including the following relevant factors:
> Prevailing and likely forward macro-economic conditions;
> The CEO’s Exceptional Level Performance (ELP) rights being designed to reward exceptional performance outcomes;
> Alignment with shareholder expectations; and
> Shareholder approved performance rights vesting parameters.
37
2020 Annual Report Directors’ Report continued
K) REMUNERATION REPORT (continued)
Letter from the Chairman of the Nomination and Remuneration Committee continued
Following consideration, the Nomination and Remuneration Committee has approved the following terms in relation to performance rights to be
granted in 2021:
KMP
Chief Executive
Officer
LTI attributes
Maximum LTI
HLP vesting hurdles
Description
The CEO’s total maximum LTI opportunity of $1 million is allocated as follows:
> HLP rights: 40% of the LTI opportunity with vesting based on EPS CAGR; and
> ELP rights: 60% of the LTI opportunity with vesting based on TSR CAGR
The minimum vesting criteria applicable to the HLP rights over a three year performance period
is 3.0% EPS CAGR, with the number of rights vesting determined on a straight line basis from
zero vesting at +3.0% EPS CAGR to 100% vesting at +8.0% (or higher) EPS CAGR
Other KMP and
senior executives
ELP vesting hurdles
The minimum vesting criteria applicable to the ELP rights over a four year performance period
is 10.0% TSR CAGR, with the number of rights vesting determined on a straight line basis from
25% vesting at +10.0% TSR CAGR to 100% vesting at +20.0% (or higher) TSR CAGR
Maximum LTI
The maximum total LTI opportunity is 40% of fixed remuneration
Performance rights
The performance rights granted are split equally between those with EPS CAGR and TSR
CAGR vesting criteria, in each case measured over a three year performance period
EPS CAGR
vesting hurdles
TSR CAGR
vesting hurdles
The minimum vesting criteria applicable to the EPS CAGR rights over a three year performance
period is 3.0%, with the number of rights vesting determined on a straight line basis from zero
vesting at +3.0% EPS CAGR to 100% vesting at +8.0% (or higher) EPS CAGR
The minimum vesting criteria applicable to the TSR CAGR rights over a three year performance
period is 8.0%, with the number of rights vesting determined on a straight line basis from 25%
vesting at +8.0% TSR CAGR to 100% vesting at +13.0% (or higher) TSR CAGR
Base Remuneration
Remuneration consultants will potentially be engaged to evaluate our proposed remuneration levels and structure for the FY22 in the context of
McPhersons’ business strategy, stakeholder feedback, community expectations, relevant market standards and COVID-19 challenges.
We hope you find this report informative and a clear demonstration of our commitment to responsible and effective remuneration practices.
Jane McKellar
Chairman of the Nomination and Remuneration Committee
38
McPherson’s Limited Directors’ Report continued
K) REMUNERATION REPORT (continued)
The McPherson’s Limited 2020 remuneration report sets out key aspects of the Group’s remuneration policy and framework, and provides
details of the remuneration awarded to the Group’s non-executive Directors, Managing Director and other key management personnel.
The remuneration report contains the following sections:
> Key Management Personnel (KMP)
> Principles used to determine the nature and amount of remuneration
> Details of remuneration
> Contractual arrangements for executive KMP
> Share-based compensation
> Additional information
The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001.
Key Management Personnel
Directors
The following persons were Directors of McPherson’s Limited during the financial year:
Name
G.A. Cubbin
L. McAllister
J.M. McKellar
G.W. Peck
G.R. Pearce
A.J. Mew
Role
Term as KMP in 2020
Chairman (Non-executive)
Executive Director & Managing Director
Non-executive Director
Non-executive Director
Non-executive Director
Non-executive Director
Full year
Full year
Full year
Full year
Full year
Full year
Other key management personnel
In addition to the Directors noted above, the following Group executives were also considered to be key management personnel during the
financial year:
Name
P. Witheridge
L. Pirozzi
Role
Chief Financial Officer and Company Secretary
National Accounts Director
Term as KMP in 2020
Full year
Full year
Changes since the end of the reporting period
There have been no changes in KMP since the end of the reporting period.
Remuneration structure for key management personnel
McPherson’s remuneration structure is as follows. It is designed to support the Board’s remuneration strategy and is consistently applied to
all key executive management personnel.
On Boarding
Attract Key Talent into
inclusive environment
Inspire
High Performing
Winning Culture
FR
Fixed
Remuneration
Base plus
superannuation
Salary based on market
and internal relativities,
performance, qualifications
and experience
Market Competitive
Remuneration Package
Career
Succession
Planning
Develop
Talent
Management
STI
Short Term Incentive
(at risk)
Cash
Reward for in-year performance STI outcome paid
in August after the financial year end
STI outcome based on the Group’s financial,
divisional and individual performance
Reward and Recognition for High Performing Key Talent
against determined organisational and individual targets
Retain
Reward &
Recognition
LTI
Long Term Incentive
(at risk)
Equity
Performance Rights subject
to performance conditions
Performance is
measured over
3 and 4 years
Alignment to long term
shareholder value across
strategy supporting
executive retention
39
2020 Annual Report Directors’ Report continued
K) REMUNERATION REPORT (continued)
Key Management Personnel (continued)
Remuneration Governance framework
The illustration below summarises the Group’s remuneration governance framework:
Remuneration principles
Benchmarking
Nomination and
Remuneration Committee
McPherson’s Limited Board
> Align and contribute to
the Group’s key strategic
business objectives and
desired business outcomes
> Align executives’
remuneration with the
interests of shareholders
> Assist the Group in attracting
executives and retaining
the best talent required to
execute the business strategy
> Support the Group’s
performance based culture
against business plans and
shareholder returns
> Be fair, equitable and easy
to understand
> Remuneration consultants
provide independent
advice, information and
recommendations relevant to
remuneration decisions, with
the next review to potentially
take place in FY21 in relation
to the FY22 salary structure
> The Nomination &
Remuneration Committee
receives information from
remuneration consultants
in relation to remuneration
market data and analysis for
the annual executive fixed
remuneration review
> Reviews, evaluates and makes
recommendations to the Board
in relation to the following
remuneration matters:
> Overall responsibility for the
remuneration strategy and
outcomes for executives and
Non-Executive Directors
> Reviews and approves
recommendations from the
Nomination & Remuneration
Committee
> Executive remuneration
and incentive policies
and schemes
Non-Executive Directors
> Remuneration framework for
> Managing Director and other
executives’ remuneration
packages and performance
objectives
performance
> Managing Director’s
> Managing Director and other
> Recruitment, retention
executives’ development plans
and termination policies
and procedures
> Superannuation arrangements
> Diversity policy and assessing
progress against objectives
Principles used to determine the nature and amount of remuneration
The Group’s remuneration strategy is focused on the alignment between performance, prudent risk management and reward outcomes. In a
practical context the remuneration strategy is designed to support the attraction, retention and reward of the high performing talent required to
deliver superior and sustained returns to shareholders. The remuneration strategy is underpinned by the guiding principles outlined below:
McPherson’s business strategy.
> Attract and retain KMP and employees with the necessary capabilities and experience to deliver
> Remuneration structure and quantum benchmarked to the external market applying applicable
> Independent review of KMP remuneration benchmark data by McPherson’s remuneration consultants.
> A blend of fixed and variable remuneration (both short and long-term) based on the responsibilities
remuneration surveys and publicly disclosed data.
of each role.
and its shareholders.
McPherson’s performance.
> Performance and reward aligned to motivate management to deliver long-term growth for McPherson’s
> Differentiation of remuneration outcomes based on superior individual contribution to
> Demonstration of McPherson’s values and associated behaviours assessed in the performance
> Rigorous annual calibration of performance and reward recommendations to ensure internal equity,
management process and accordingly linked to remuneration outcomes.
fairness and transparency.
(TSR) and earnings per share (EPS) performance targets and time-based vesting conditions.
> Long-term share-based awards, with vesting subject to the achievement of total shareholder return
> Remuneration processes and governance in place to ensure that remuneration arrangements
encourage prudent risk management.
Market-competitive
Performance-based
and equitable
Aligned with
shareholders and
underpinned by sound
risk management
40
McPherson’s Limited Directors’ Report continued
K) REMUNERATION REPORT (continued)
Principles used to determine the nature and amount of remuneration (continued)
The overall level of executive reward takes into account the performance of the Group over a number of years, with greater emphasis given to the
current year.
The following table summarises the performance of the Group over the last five years:
2020
2019
2018
2017 1
2016 1
Profit / (loss) after tax for the year from continuing operations ($’000)
6,062
13,721
11,359
(387)
9,330
Profit after tax from continuing operations, excluding significant items ($’000)
16,336
13,721
12,944
11,384
11,277
Basic earnings / (loss) per share (cents) from continuing operations
5.7
Basic earnings per share (cents), excluding significant items from continuing operations
15.3
13.0
13.0
10.9
12.4
(0.4)
11.0
9.4
11.4
Dividends declared for the relevant financial year ($’000)
11,783
12,688
8,866
8,288
7,926
Dividend payout ratio as a percentage of profit / (loss) after tax for the
year from continuing operations (%)
Dividend payout ratio as a percentage of profit from continuing operations
excluding significant items (%)
Increase / (decrease) in period end share price (%)
Total KMP incentives as percentage of profit / (loss) from continuing
operations for the year (%)
Total KMP incentives as percentage of profit after tax from continuing
operations excluding significant items (%)
194.4
92.5
78.1
n/m 2
84.9
72.1
92.5
129.9
(29.3)
68.5
31.2
72.8
48.6
11.5
2.7
5.8
(139.1)
4.3
2.7
5.1
4.7
70.3
54.9
1.0
0.8
1) The comparative numbers of the Group have been restated to show the discontinued operations separately from the continuing operations.
2) Ratio not considered meaningful due to loss after tax recognised for the year.
Executive remuneration
The executive remuneration and reward framework has three components:
> Fixed Remuneration, including superannuation and benefits;
> Short-term performance incentives (STI); and
> Long-term incentives (LTI).
The Remuneration Framework for 2020 is summarised in the following table:
Element
Purpose
Performance Metrics
Potential Value
Fixed
Remuneration
Nil.
Provide competitive market salary
which may be delivered as cash,
prescribed non-cash financial
benefits including motor vehicles
and superannuation contributions.
STI
LTI
Reward for current year performance
available when value has been
created for shareholders and when
profit and other outcomes are
consistent with or exceed financial
targets for the business plan.
Group or divisional earnings before interest
and tax (EBIT) together with pre-determined
significant role specific objectives.
Short-term cash bonuses in relation to the
achievement of specific outcomes associated
with certain significant events.
Alignment to long-term
shareholder returns via the
Performance Rights plan.
Participants benefit from the
vesting of Performance Rights if
performance objectives are met.
Managing Director:
i. High Level Performance Rights (HLP) –
Compound annual growth rate (CAGR) in
earnings per share (EPS) over three years.
ii. Exceptional Level Performance Rights (ELP)
– CAGR in total shareholder return (TSR)
over four years.
Other senior executives:
50% of vesting determined with reference
to CAGR in EPS and 50% with reference to
CAGR in TSR, each over three years.
Market rate.
Reviewed annually to reflect increases
in responsibility and to ensure it remains
market competitive. Increases are not
guaranteed in the executives’ contracts.
50% of fixed remuneration.
New members of the senior leadership
team will have an STI target of 40% of
fixed remuneration.
At the discretion of the Nomination and
Remuneration Committee.
Managing Director:
$1 million per annum in total comprising:
i. HLP – 40% of fixed remuneration.
ii. ELP – remaining balance of
$1 million per annum.
Other senior executives:
40% of fixed remuneration.
41
2020 Annual Report
Directors’ Report continued
K) REMUNERATION REPORT (continued)
Principles used to determine the nature and amount of remuneration (continued)
Short-term incentives (STI)
Each year the Nomination and Remuneration Committee considers the appropriate targets and key performance indicators together with the level
of payout if targets are met or exceeded. The 2020 STI targets for the Managing Director and senior executives were structured as follows:
STI element target
Criteria
i) Financial target
35% of fixed remuneration
Group underlying earnings before interest and tax (EBIT) outcomes for the financial year, excluding significant
items and compared with the prior year, adjusted for actual funds employed outcomes compared with budget
ii) Non-financial target 1
15% of fixed remuneration
Achievement of specific role based key performance indicators, subject to the Group achieving at least
80% of its 2020 EBIT budget
1) Or higher at the discretion of the Nomination and Remuneration Committee in order to recognise the achievement of strategic initiatives.
Assessment
Eligibility for a cash bonus is made by reference to actual performance outcomes when these are known
following the conclusion of the financial year. Short-term incentives are normally payable in late August
following the end of the financial year to which the incentive relates.
STI financial target
Based on the Group’s profit performance in 2020, the Nomination and Remuneration Committee has
determined that the Managing Director, KMPs and other senior executives are eligible for the maximum
target STI in relation to element (i) as the Group underlying EBIT outcome in 2020 was above that
reported in 2019 by 18%.
STI non-financial
target
Based on the Group’s achievement of pre-determined objectives in 2020 and the significant steps taken
to position the business well for 2021, the Nomination and Remuneration Committee has determined that
the Managing Director, KMPs and other senior executives are eligible for an STI in relation to element (ii)
above in 2020.
From time to time additional short-term cash bonuses are paid to senior executives in relation to the achievement of specific outcomes associated
with certain significant events. Examples of such events may include, among others, completing a significant acquisition or investment, achieving
a required divestment outcome, completing a significant restructure project or completing a refinancing of the business. The Nomination and
Remuneration Committee is responsible for determining when such bonus payments are applicable and the amount to be paid.
Specific STI performance metrics and outcomes for each KMP in 2020 are summarised in the table below:
KMP
Metrics
Potential STI outcomes
2020 Outcomes
Managing Director
Financial
i)
If <100% of prior year underlying EBIT
with reference to Group EBIT:
No STI payable
Chief Financial
Officer and
Company Secretary
ii) If between 100% and 110% of prior year
underlying EBIT with reference to Group EBIT:
Pro-rata STI payable
National
Accounts Director
iii) If 110% and above prior year underlying
EBIT with reference to Group EBIT:
Maximum target STI payable
Non-Financial
Achievement of role specific pre-determined
objectives providing at least 80% of budget
Group EBIT is achieved
Financial
Pro-rata to target 35% of fixed remuneration
Financial
$259,000
Non-Financial
15% of fixed remuneration 1
Non-Financial
$83,250
Financial
Pro-rata to target 35% of fixed remuneration
Financial
$138,478
Non-Financial
15% of fixed remuneration 1
Non-Financial
$59,347
Financial
Pro-rata to target 35% of fixed remuneration
Financial
$112,000
Non-Financial
15% of fixed remuneration 1
Non-Financial
$48,000
1) Or higher at the discretion of the Nomination and Remuneration Committee in order to recognise the achievement of strategic initiatives.
42
McPherson’s Limited Directors’ Report continued
K) REMUNERATION REPORT (continued)
Principles used to determine the nature and amount of remuneration (continued)
Long-term incentives (LTI)
Purpose
Performance
Rights Plan
Long-term incentives are provided to executives to align this element of compensation with the objective
of improving long-term shareholder returns. During the current year, the Group continued with its
Performance Rights plan (the McPherson’s Limited Performance Rights Plan) to provide long-term
incentives to executives.
Participants are granted Performance Rights which only vest if certain performance conditions (relating to
compound annual growth in earnings per share and total shareholder return – refer to page 47 for further
information) are met and the executive is still employed by the Group at the end of the vesting period, or
where not employed at the end of the vesting period is deemed to be a “good leaver” by the Board.
Participation
At the discretion of the Nomination and Remuneration Committee and no individual has a contractual right
to receive any guaranteed benefits.
Maximum LTI
Managing Director – $1 million per annum;
Other senior executives – 40% of fixed remuneration.
Subject to the ASX Listing Rules, the Board may determine that a Right will become a Vested Right and
may be exercised, whether or not any or all applicable exercise conditions have been satisfied if, in the
Board’s opinion, one of the following events has occurred or is likely to occur:
LTI outcomes
in particular events
discretion determines exercise to be appropriate;
> The merger or consolidation of the Group into another entity occurs;
> A takeover bid is made in respect of the Group and the Board recommends acceptance to shareholders;
> A scheme of arrangement is made or undertaken in respect of the Group, and the Board in its absolute
> Any event similar to those described above involving a change in ownership or control of the Group or
> Any other event as determined by the Board in its absolute discretion.
all or substantial part of the assets of the Group; or
Further information regarding share-based compensation in the form of Performance Rights is contained later in the Remuneration Report on page 47.
The graph below shows the structure of the 2020 remuneration opportunity mix for KMP, compared to 2019.
Managing Director
2020
2019
37%
37%
Chief Financial Officer
2020
2019
National Accounts Director
2020
2019
Fixed remuneration
STI
LTI 1
53%
53%
53%
53%
17%
17%
46%
46%
26%
26%
26%
26%
21%
21%
21%
21%
1) The LTI is an unvested calculation in accordance with AASB 2 Share Based Payments and reflects the impact of the share based payment transaction on the profit and
loss statement.
43
2020 Annual Report Directors’ Report continued
K) REMUNERATION REPORT (continued)
Principles used to determine the nature and amount of remuneration (continued)
Voting and comments made at the Company’s 2019 Annual General Meeting (AGM)
Of the total votes cast in relation to the adoption of the 2019 remuneration report by shareholders present at the AGM and by proxy, 97.9% voted
in favour of the resolution. Several general questions relating to remuneration and the 2019 remuneration report were asked by shareholders at
the 2019 AGM, which were appropriately responded to by the Chairman and other Non-Executive Directors at the meeting.
Details of remuneration
Amounts of remuneration
Details of the remuneration of the Directors of McPherson’s Limited and the other KMP of McPherson’s Limited and the McPherson’s Limited
Group for the current and previous financial years are set out in the following tables.
Short-term Benefits
Post
employment
Benefits
Long-
term
Benefits
Share-
based
Payments
Total Directors' Remuneration 2020
1,186,531 342,250
58,404
2020
Directors of McPherson’s Limited
G.A. Cubbin (Chairman)
L. McAllister (Managing Director)
J.M. McKellar
G.W. Peck
G.R. Pearce
A.J. Mew
Other Group Key Management Personnel
P. Witheridge
L. Pirozzi 4
Total Other Key Management Personnel
Remuneration 2020
Cash
Salary &
Fees 1
$
Non-
Cash monetary Termination
Super-
Bonus 2 Benefits 3 Benefits annuation
$
$
$
$
Long- Perform-
ance
Rights
$
Service
Leave
$
Total
$
150,247
—
—
708,121 342,250
58,404
91,354
85,349
75,730
75,730
—
—
—
—
—
—
—
—
372,999
197,825
20,472
292,114 160,000
—
—
—
—
—
—
—
—
—
—
14,274
—
— 164,521
25,000
12,777
267,462 1,414,014
8,679
8,108
7,194
7,194
—
—
—
—
— 100,033
—
—
—
93,457
82,924
82,924
70,449
12,777
267,462 1,937,873
24,996
25,000
6,190
4,434
38,143 660,625
32,344 513,892
Total Remuneration 2020 – Group
1,851,644
700,075
78,876
— 120,445
23,401
337,949 3,112,390
665,113
357,825
20,472
—
49,996
10,624
70,487 1,174,517
2019
Directors of McPherson’s Limited
G.A. Cubbin (Chairman)
L. McAllister (Managing Director)
J.M. McKellar
G.W. Peck
G.R. Pearce
A.J. Mew
150,247
—
—
727,747 185,000
58,404
91,354
85,349
75,730
71,167
—
—
—
—
—
—
—
—
Total Directors' Remuneration 2019
1,201,594 185,000
58,404
Other Group Key Management Personnel
P. Witheridge
L. Pirozzi 4
Total Other Key Management Personnel
Remuneration 2019
323,617 100,000
20,472
193,892
80,000
—
—
—
—
—
—
—
—
—
—
14,274
—
— 164,521
25,000
13,781
95,399 1,105,331
8,679
8,108
7,194
6,761
—
—
—
—
— 100,033
—
—
—
93,457
82,924
77,928
70,016
13,781
95,399 1,624,194
24,996
10,253
(28,293) 451,045
15,976
2,932
4,121 296,921
517,509 180,000
20,472
—
40,972
13,185
(24,172) 747,966
Total Remuneration 2019 – Group
1,719,103 365,000
78,876
— 110,988
26,966
71,227 2,372,160
1) Cash salary and fees includes movements in the annual leave provision relating to the Managing Director and other executive key management personnel.
2) Excludes, where relevant, any part of the awarded bonus amount that was paid as a superannuation contribution. Refer to pages 45 and 46 for further information on bonuses awarded.
3) Non-monetary benefits comprise salary sacrificed components of remuneration packages including motor vehicles and related fringe benefits tax and allowances.
4) Ms Pirozzi was on maternity leave from 1 August 2018 to 26 October 2018 which explains the relatively low outcome in 2019.
Amounts disclosed as remuneration of Directors and executives exclude premiums paid by the Group in respect of Directors’ and Officers’ liability
insurance contracts. Further information relating to these insurance contracts is set out in paragraph (m) of the Directors’ Report.
44
McPherson’s Limited
Directors’ Report continued
K) REMUNERATION REPORT (continued)
Details of remuneration (continued)
Relative proportions of remuneration
The relative proportions of remuneration that are linked to performance and those that are fixed are set out in the table below.
Long term incentives relating to Performance Rights form part of the remuneration amounts as disclosed in this report. There were no other
option related amounts included in the current or prior year remuneration. The table below illustrates the relative proportions of remuneration paid
out in 2020 and 2019, except in relation to the LTI element which is determined in accordance with AASB 2 Share-based Payments.
Fixed Remuneration
At Risk – STI
At Risk – LTI
Name
2020
2019
2020
2019
2020
2019
Executive Director of McPherson’s
L. McAllister
Other key management
personnel of the Group
P. Witheridge
L. Pirozzi
57%
75%
24%
16%
19%
9%
64%
63%
84%
72%
30%
31%
22%
27%
6%
6%
(6%)
1%
Performance based remuneration granted and forfeited during the year
The following table shows for each KMP how much of their 2020 STI cash bonus was awarded and how much was forfeited. The table also shows
the value of Performance Rights granted during the year. The Performance Rights are valued in accordance with AASB 2 Share-based Payments.
Name
Executive Director of McPherson’s
L. McAllister
STI Cash Bonus
LTI Performance Rights
Target
Awarded as
Opportunity % of Target
$ Opportunity
Forfeited
%
Value
Granted
$
Value
Exercised
$
Value
Forfeited
$
370,000
93%
7%
819,000
134,676
270,656
Other key management personnel of the Group
P. Witheridge
L. Pirozzi
197,825
160,000
100%
100%
—
—
133,920
107,880
—
—
56,128
—
45
2020 Annual Report
Directors’ Report continued
K) REMUNERATION REPORT (continued)
Details of remuneration (continued)
Summary of KMP Remuneration and KPI Objectives for 2020
KMP
Fixed
Remuneration STI
LTI
KPI Objectives
L. McAllister
Managing
Director
$740,000
including
super
$50,000
motor vehicle
allowance
$395,650
including
super
P. Witheridge
Chief
Financial
Officer and
Company
Secretary
L. Pirozzi
National
Accounts
Director
$290,000
including
super
$30,000
motor vehicle
allowance
46
Rights under the Performance Rights
plan as follows:
Rights to be granted as a long term
incentive on an annual basis with a face
value of up to a maximum of $1 million
per annum:
i) High Level Performance Rights (HLP)
Rights with a face value of 40% of the
maximum LTI opportunity subject to a
target earnings per share compound
annual growth rate hurdle, measured
over a 3 year performance period; and
ii) Exceptional Level Performance
Rights (ELP)
Balance of the maximum LTI
opportunity were subject to an absolute
“total shareholder return” hurdle of
at least 15% per annum, measured
on a compound basis over a 4 year
performance period
Rights under the Performance Rights Plan
equal to 40% of fixed remuneration with:
i) 50% of the maximum opportunity
subject to a target earnings per
share compound annual growth
rate hurdle, measured over a 3 year
performance period; and
ii) 50% subject to an absolute “total
shareholder return” hurdle of at
least 10% per annum, measured
on a compound basis over a 3
year performance period
Rights under the Performance Rights
Plan equal to 40% of fixed remuneration
(including motor vehicle allowance) with:
i) 50% of the maximum opportunity
subject to a target earnings per share
compound annual growth rate hurdle,
measured over a 3 year performance
period; and
ii) 50% subject to an absolute “total
shareholder return” hurdle of at
least 10% per annum, measured
on a compound basis over a 3
year performance period
Target cash bonus
of 50% of fixed
remuneration
(excluding
motor vehicle
allowance),
comprising
35% of fixed
remuneration
based on a
financial metric
and 15% of fixed
remuneration
based on
role specific
pre-determined
KPI objectives
Target cash bonus
of 50% of fixed
remuneration,
comprising
35% of fixed
remuneration
based on a
financial metric
and 15% of fixed
remuneration
based on
role specific
pre-determined
KPI objectives
Target cash bonus
of 50% of fixed
remuneration
(including
motor vehicle
allowance),
comprising
35% of fixed
remuneration
based on a
financial metric
and 15% of fixed
remuneration
based on
role specific
pre-determined
KPI objectives
> Maintain and enhance culture
> Grow market share across the McPherson’s
core 6 brands focused on Australia and
China growth
across Asia
> Deliver compelling capabilities and results
> Progress McPherson’s repositioning as
a clear Health, Wellness and Beauty player
debt position before 30 June 2020
> Coordinate the refinancing of the Group’s
> Drive financial modelling for consideration
of the commercial feasibility of potential
acquisition targets
acquisitions, as they arise
> Oversee due diligence of any material
> Coordinate equity capital raise to part fund
> Maintain and continue to develop close
relationships with existing external analyst
and investor base
a material acquisition
and IT functions
> Drive improved efficiency of the Finance
> Improve the identification, management and
reporting of business risks to the Group Audit,
Risk Management and Compliance Committee
and practices
> Implement and embed forecasting processes
> Lead expansion strategy in new domestic
> Develop and implement integrated customer
channels in Australia and New Zealand
plans to support the growth of our Health,
Wellness & Beauty business, driving growth
for the MCP portfolio and category share
> Continue to optimise the MCP investment
strategy via review of activity and ROI, Trading
Terms & Execution across Key Accounts
strategy and growth
> Build Key Account capabilities to support
> Develop and implement a commercial
model to market supported by a defendable
price architecture
McPherson’s Limited Directors’ Report continued
K) REMUNERATION REPORT (continued)
Details of remuneration (continued)
Contractual arrangements for executive KMP
Remuneration and other terms of employment for the Managing Director and other senior executives are formalised in employment agreements.
Each of these agreements set out details of the base package amount, inclusive of superannuation and other benefits, and provide for
performance incentives. The agreements also provide for participation, when eligible, in the McPherson’s Limited Performance Rights Plan.
The agreements do not normally reflect a fixed term of employment or nominate a specified amount to be paid on termination of employment.
The agreements normally provide that the termination notice period may be paid out by the Group.
The major provisions of the employment agreements relating to remuneration for the executives considered to be key management personnel are
set out below.
Name
L. McAllister
Managing Director
P. Witheridge
Chief Financial Officer and
Company Secretary
Term of
agreement
On-going
On-going
Fixed remuneration
including superannuation
and motor vehicle benefits 1
Termination
$790,000
Contract may be terminated on 6 months’ notice by either
the Company or executive.
$395,650
Contract may be terminated on 6 months’ notice by the Company
and on 3 months’ notice by the executive.
L. Pirozzi
National Accounts Director
On-going
$320,000
Contract may be terminated on 1 months’ notice by either
the Company or executive.
1) The annual fixed remuneration amounts quoted are as at 30 June 2020. They are reviewed annually by the Nomination and Remuneration Committee.
Share-based compensation
Performance Rights
Each Performance Right carries an entitlement to acquire one ordinary share in the Company for no consideration subject to the satisfaction of
the vesting conditions, which are based on performance and time related conditions. The Performance Rights carry no dividend or voting rights.
Approval for the issue of Performance Rights granted to the Managing Director for the years from 2019 to 2021 was obtained, under ASX
Listing Rule 10.14, at the Company’s 2019 Annual General Meeting.
The number of Rights that will vest will be determined proportionately on a straight line basis as follows:
Type of Rights
KMP
Commencement
Rights
High Level
Performance
Rights (HLP) and
Performance Rights
Managing Director
HLP – Managing Director
Performance Rights –
Chief Financial Officer
(and Company
Secretary) and National
Accounts Director
HLP
Managing Director
Performance
Rights
Chief Financial Officer
(and Company Secretary)
and National
Accounts Director
Exceptional
Level Performance
Rights (ELP)
Managing Director
Year of
Grant
2017
2017
2018
Vesting Hurdles
To continue to be the Managing Director of the Company until 1
November 2019. These rights vested in 2020.
Zero Rights vesting at +3.0% (or less) Underlying EPS CAGR,
to
100% of Rights vesting at +8.0% (or higher) Underlying EPS CAGR
Zero Rights vesting at +5.0% (or less) Underlying EPS CAGR,
to
100% of Rights vesting at +10.0% (or higher) Underlying EPS CAGR
2019
&
2020
Zero Rights vesting at +5.0% (or less) Underlying EPS CAGR,
to
100% of Rights vesting at +10.0% (or higher) Underlying EPS CAGR
First 50% of Rights
Zero Rights vesting at +5.0% Underlying EPS CAGR (or less),
to
100% of Rights vesting at +10.0% (or higher) Underlying EPS CAGR
Remaining 50% of Rights
25% of Rights vesting at +10.0% TSR CAGR (at least),
to
100% of Rights vesting at +15.0% (or higher) TSR CAGR
25% of Rights vesting at +15.0% TSR CAGR (at least),
to
100% of Rights vesting at +25.0% TSR CAGR (or higher)
25% of Rights vesting at +15.0% TSR CAGR (at least),
to
100% of Rights vesting at +20.0% TSR CAGR (or higher)
2019
&
2020
2017
&
2018
2019
&
2020
Vesting
Period
3 years
3 years
3 years
3 years
3 years
3 years
4 years
4 years
47
2020 Annual Report
Directors’ Report continued
K) REMUNERATION REPORT (continued)
Share-based compensation (continued)
Performance Rights (continued)
The base year EPS to be used in determining whether the vesting conditions have been satisfied is the reported Underlying EPS for the 30
June financial year immediately prior to when the rights were issued. Subject to the ASX Listing Rules, the Underlying EPS is subject to further
adjustment at the discretion of the Nomination and Remuneration Committee when considered appropriate.
TSR is calculated based on movements in the Company’s share price and total dividends paid by the Company during the relevant performance
period. The base share price to be used in determining whether the vesting conditions have been satisfied for the Managing Director’s ELP Rights
and the 50% of other KMP’s rights which are assessed on TSR CAGR outcomes, is the volume weighted average share price for the 20 trading
days ending on 30 June immediately prior to when the rights were issued.
Details of LTI awards are set out in the following table:
Financial
year in
which
rights
may vest
Financial
year of
grant
Number
of rights
granted
Fair
value of
rights at
grant
date 1
Face
value of
rights
at grant
date 2
Number
of rights
vested
during
the year
Vested
%
Number
of rights
forfeited
during
the year
Forfeited
%
Name
L. McAllister
Commencement
Performance rights
HLP
ELP
P. Witheridge
L. Pirozzi
2017
2017
2018
2019
2020
2017
2018
2019
2020
2017
2018
2019
2020
2018
2019
2020
2020
263,000
$222,235
$300,000
263,000
100
—
2020
2021
2022
2023
2021
2022
2023
2024
2020
2021
2022
2023
2021
2022
2023
318,000
$270,656
$350,000
235,000
$294,410
$350,000
214,000
$276,060
$350,000
182,000
$404,040
$400,000
590,000
$212,990
$650,000
436,000
$245,468
$650,000
398,000
$172,060
$650,000
273,000
$414,960
$600,000
64,000
49,000
89,000
$56,128
$61,446
$71,000
$73,129
$82,058
$146,258
72,000
$133,920
$158,260
43,000
78,000
$53,922
$64,035
$71,916
$128,070
58,000
$107,880
$128,070
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
318,000
—
—
—
—
—
—
—
—
100
—
—
—
—
—
—
—
64,000
100
—
—
—
—
—
—
—
—
—
—
—
—
1) The fair value at grant date is calculated in accordance with AASB 2 Share-based Payments.
2) The face value at grant date is calculated using the 20 day VWAP preceding the date of grant.
48
McPherson’s Limited Directors’ Report continued
K) REMUNERATION REPORT (continued)
Share-based compensation (continued)
Performance Rights (continued)
The fair value of the Performance Rights issued were valued as follows:
Performance Rights
Commencement
Rights and HLP
Fair Value
Independently valued at grant date, applying a discounted cash flow methodology, using the market
price of the related shares at the commencement date or grant date less the present value of expected
dividends forgone prior to vesting
ELP
Independently valued at grant date using the assumptions underlying the Black-Scholes methodology
to produce a simulation model which allows for the incorporation of the Total Shareholder Return (TSR)
hurdle that must be met before these rights vest
Consequently, in addition to being sensitive to the dividend yield, the ELP Rights are also sensitive to
market volatility and the initial TSR, with the risk free rate as a further valuation input
Other
Performance
Rights
Financial year of grant before 2019
Independently valued at grant date, applying a discounted cash flow methodology, using the market price of
the related shares at the grant date less the present value of expected dividends forgone prior to vesting
Financial year of grant 2019 onwards
EPS CAGR element independently valued at grant date, applying a discounted cash flow methodology,
using the market price of the related shares at the grant date less the present value of expected dividends
forgone prior to vesting
TSR CAGR element independently valued at grant date using the assumptions underlying the Black-
Scholes methodology to produce a simulation model which allows for the incorporation of the Total
Shareholder Return (TSR) hurdle that must be met before these rights vest. Consequently, in addition to
being sensitive to the dividend yield, the Performance Rights are also sensitive to market volatility and the
initial TSR, with the risk free rate as a further valuation input
Restriction on removing the ‘at risk’ aspect of any instruments granted as part of remuneration
The Group’s Securities Trading Policy contains a restriction on removing the ‘at risk’ aspect of any instruments granted to executives as part of
their remuneration package. Performance Rights Plan participants may not enter into any transaction designed to remove any ‘at risk’ aspect
before the instruments vest.
Performance Rights (units) held by KMP
Name
L. McAllister
Commencement
Performance rights
HLP
ELP
P. Witheridge
Performance rights
L. Pirozzi
Performance rights
Balance at start
of the year
Granted as
compensation
Vested and
exercised
rights
Cancelled
Balance at the
end of the year
Vested and
exercisable
Unvested
263,000
—
(50,000)
—
213,000
213,000
—
767,000
182,000
1,424,000
273,000
202,000
72,000
121,000
58,000
—
—
—
—
(318,000)
631,000
—
1,697,000
(64,000)
210,000
—
179,000
—
—
—
—
631,000
1,697,000
210,000
179,000
49
2020 Annual Report Directors’ Report continued
K) REMUNERATION REPORT (continued)
Share-based compensation (continued)
Shares held by key management personnel
Name
Directors of McPherson’s Limited
G.A. Cubbin
L. McAllister 1
J.M. McKellar
G.W. Peck
G.R. Pearce
A.J. Mew
Other key management personnel
P. Witheridge
L. Pirozzi
Balance at the
start of the year
Other non-remuneration
changes during the year
Balance at the end of the year
200,000
—
6,277
14,400
690,939
12,000
100,000
—
70,000
—
80
—
5,000
—
(80,000)
—
270,000
—
6,357
14,400
695,939
12,000
20,000
—
1) During the year, Mr. McAllister exercised 50,000 commencement performance rights. The 50,000 shares issued to him were subsequently sold on market.
Employee share schemes
Under the McPherson’s Employee Share Scheme, approved by the Board of Directors, shares with up to $1,000 value may be issued by
the Company to certain employees for no cash consideration. The purpose of this scheme is to improve employee engagement, reward our
employees for service and provide employees with an ownership interest in the company, thereby improving the alignment of investor and
employee objectives.
Eligibility
Shares
All employees, excluding the Managing Director and other members of the Senior Leadership Team who are
entitled to a long term incentive, who have been continuously employed by the Group for a period of at least
one year, at the discretion of the Board of Directors. Employees may elect not to participate in the scheme.
Granted up to $1,000 worth of fully paid ordinary shares in the Group annually for no cash consideration.
The number of shares issued to participants in the scheme is the offer amount divided by the weighted
average price at which the company’s shares are traded on the Australian Stock Exchange during the
week ending the day before the date of issue on 12 August 2020 (2019: 31 July 2019).
Conditions attached
to the shares
> The shares granted in 2019 vested on 31 July 2020, provided the employee remains employed by the Group.
> Shares issued under the scheme may not be sold until the earlier of three years after issue or cessation
> In all other respects, the shares rank equally with other fully-paid ordinary shares on issue.
of employment.
The Board of Directors has determined that the scheme will be continued in 2021 on the same basis as outlined above.
Number of shares issued under the Employee Share Scheme
12 August 2020
31 July 2019
88,288
120,771
The number of shares issued to participants on 12 August 2020 was calculated based on the $1,000 offer amount divided by the weighted
average price of $2.801 (2019: $1.763) at which the company’s shares were traded on the Australian Stock Exchange during the week ending
the day before the date of issue.
50
McPherson’s Limited
Directors’ Report continued
K) REMUNERATION REPORT (continued)
Share-based compensation (continued)
Non-Executive Directors
Fees
Fees and payments to non-executive Directors reflect the demands which are made on, and the
responsibilities of, the Directors. Remuneration of non-executive Directors is determined by the Board
within an aggregate non-executive Directors’ fee pool limit which is periodically recommended for approval
by the shareholders.
Shareholder
approval for
Directors’ fees
The aggregate fee pool was last considered by shareholders at the 2018 Annual General Meeting when
a total remuneration of $650,000, increased from $550,000, (each inclusive of superannuation), was
approved by shareholders.
The Board asked shareholders to approve such increase as a consequence of an increase in the number
of non-executive Directors from four to five, to provide capacity for the fees to be increased if required,
and to provide the flexibility to appoint an additional Director if it was appropriate to do so.
Including superannuation guarantee contributions made on their behalf by the Company, non-executive
Director remuneration for the year ended 30 June 2020 totalled $523,859 (2019: $518,862).
Incentives
Non-executive Directors are not entitled to participate in any incentive scheme, nor are they eligible to
receive share options or performance rights.
Review by the Nomination
and Remuneration
Committee
The remuneration of individual non-executive Directors was last reviewed by the Nomination and
Remuneration Committee on 1 July 2017, at which time non-executive Director fees and committee fees
were increased by 10%, the previous fee increase being 3% on 1 October 2014.
Additional fees
The Chairman and other non-executive Directors receive additional fees for their membership of the
Board’s Audit, Risk Management and Compliance Committee.
The Chairman of the Nomination and Remuneration Committee also receives an additional fee, however
the other members of that committee do not.
Superannuation
Directors may direct the Company to make superannuation guarantee contributions, or additional
superannuation contributions allocated from their Directors’ or committee membership fees, to any
complying nominated superannuation fund.
Directors’ Deeds
At the Annual General Meeting of shareholders held on 7 November 1997, shareholders authorised the
Company to enter into agreements with Directors (called “Directors’ Deeds”) which set out certain rights
and obligations of the Director.
The Directors’ Deeds do not reflect a fixed term of appointment as Directors are subject to retirement and
re-election by shareholders at least every three years.
The following fees applied for the year ended 30 June 2020 and continue to apply at the date of this report:
Base fees
Chairman
Other Non-Executive Directors
Additional fees
Audit, Risk Management & Compliance Committee (Chairman)
Audit, Risk Management & Compliance Committee (Member)
Nomination & Remuneration Committee (Chairman)
2020
2019
$144,243
$144,243
$75,730
$75,730
$9,620
$6,006
$9,620
$9,620
$6,006
$9,620
The above amounts exclude company superannuation guarantee contributions payable on behalf of Directors at a rate of 9.50% on the base fees
and additional fees.
51
2020 Annual Report
Directors’ Report continued
K) REMUNERATION REPORT (continued)
Share-based compensation (continued)
Additional information
Loans to Directors
and Executives
There were no loans made to Directors of McPherson’s Limited or to any KMP of the Group, including
their related entities during the year, nor were there any loans outstanding at the end of the current or
prior financial year.
During the year, the Group sold minor quantities of its products for domestic use to KMP on terms and
conditions no more favourable than those adopted when dealing with other employees at arm’s length in
the same circumstances.
There were no transactions between the Group and the Directors of McPherson’s Limited or with any
KMP of the Group, including their related entities, during the current or previous financial year other than
those disclosed above, and relating to remuneration and to transactions concerning performance rights
and shares, and the following transactions:
Other transactions
with Directors
and Executives
share into 5,000,000 ordinary shares in Aware; and
Subscription Agreement and a Deed of Amendment, which set the terms under which:
> On 10 October 2019, McPherson’s Limited and Aware Environmental Limited (Aware) executed a
> McPherson’s Limited converted its 3,000,000 convertible notes at a conversion price of $0.60 per
> McPherson’s Limited subscribed for 5,000,000 shares in Aware at a subscription price of $0.60 per share.
The Group’s 10,000,000 shares represent 10.7% of the capital of Aware at 30 June 2020.
> Mr. Geoffrey Pearce is a Director and a significant shareholder of Aware. The above transactions were
conducted on normal commercial arm’s length terms and entered into in order to provide a more robust
and reliable basis of skin care product supply to McPherson’s.
L) SHARES UNDER OPTION
Unissued ordinary shares of McPherson’s Limited under option at the date of this report are as follows:
Date options granted
21 November 2016
Expiry date
Number of shares under option
1 November 2024
213,000
No option holder has any right under the options to participate in any other share issue of the company or any other entity.
Shares issued on the exercise of options
The following ordinary shares of McPherson’s Limited were issued during the year ended 30 June 2020 on the exercise of options. No further
shares have been issued since that date and no amounts are unpaid.
Date options granted
21 November 2016
Issue price of Shares
Number of shares issued
$2.69
50,000
M) INDEMNIFICATION AND INSURANCE OF OFFICERS
The Group has agreed to indemnify the current Directors and certain current executives of the Group against all liabilities to another person (other
than the Group or a related body corporate) that may arise from their position as Directors or officers of the Group, to the extent permitted by law.
The agreement stipulates that the Group will meet the full amount of any such liabilities, including costs and expenses.
During the financial year, McPherson’s Limited paid a premium to insure Directors and certain officers of the Group. The Directors and officers
covered by the insurance policy include the current Directors and Secretaries of McPherson’s Limited, Directors or Secretaries of controlled
entities who are not or were not also Directors or Secretaries of McPherson’s Limited, senior management of the Group and senior management
of divisions and controlled entities of McPherson’s Limited. As the insurance policy operates on a claim made basis, former Directors and officers
of the Group are also covered.
The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against
the officers in their capacity as officers of the Company or controlled entities. The insurance policy outlined above does not contain details of
premiums paid in respect of individual Directors and officers of the Company. The insurance policy prohibits disclosure of the premium paid.
N) ENVIRONMENTAL REGULATION
The Group is not subject to significant environmental regulation in respect of its operations. The Group is committed to achieving a high standard
of environmental performance and the Group monitors its compliance with environmental regulations. The Board is not aware of any significant
breaches of environmental regulation during the period covered by this report.
52
McPherson’s Limited Directors’ Report continued
O) PROCEEDINGS ON BEHALF OF THE GROUP
No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company,
or to intervene in any proceedings to which the Group is a party, for the purpose of taking responsibility on behalf of the Group for all or part
of those proceedings.
No proceedings have been brought or intervened in on behalf of the Group with leave of the Court under section 237 of the Corporations Act 2001.
P) NON-AUDIT SERVICES
The Group may decide to employ the external auditor on assignments additional to their statutory audit duties, where the external auditor’s
expertise and experience with the Group are relevant.
Details of the amounts paid or payable to the external auditor (PricewaterhouseCoopers) for non-audit services provided during the year are set
out below.
The Board of Directors has considered the position and, in accordance with the advice received from the Audit, Risk Management and
Compliance Committee, is satisfied that the provision of the non-audit services is compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor, as set out
below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:
impartiality and objectivity of the auditor; and
> all non-audit services have been reviewed by the Audit, Risk Management and Compliance Committee to ensure they do not impact the
> none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for
Professional Accountants.
During the year, the following fees were paid or payable for non-audit services provided by the auditor of the parent entity, its related practices
and non-related audit firms:
Other services
PricewaterhouseCoopers Australian firm:
Consumables review
Total remuneration for other services
Total remuneration for non-audit services
2020
$
2019
$
50,000
50,000
50,000
—
—
—
A copy of the auditor’s independence as required under section 307C of the Corporations Act 2001 is set out on page 54.
Q) ROUNDING
The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 and, in accordance
with that instrument, all financial information in this Directors’ Report and the Financial Report have been rounded to the nearest thousand dollars
unless otherwise stated.
R) AUDIT, RISK MANAGEMENT AND COMPLIANCE COMMITTEE
As at the date of this report, McPherson's Limited has an Audit, Risk Management and Compliance Committee consisting of the following
independent Non-Executive Directors:
> G.W. Peck (Chairman)
> G.A. Cubbin
> J.M. McKellar
Signed in accordance with a resolution of the Directors:
G.A. Cubbin
Chairman
18 August 2020
L. McAllister
Managing Director
18 August 2020
53
2020 Annual Report
Auditor’s Independence Declaration
Auditor’s Independence Declaration
As lead auditor for the audit of McPherson's Limited for the year ended 30 June 2020, I declare that to
the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of McPherson's Limited and the entities it controlled during the period.
Shannon Maher
Partner
PricewaterhouseCoopers
Sydney
18 August 2020
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
54
McPherson’s Limited
Directors’ Declaration
We, Graham A. Cubbin and Laurence McAllister, being two of the Directors of McPherson's Limited, declare that in the Directors’ opinion:
a) the financial statements and notes as set out on pages 61 to 103 and the remuneration report on pages 37 to 52 are in accordance with the
Corporations Act 2001, including:
i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2020 and of its performance, as represented by the
results of its operations and its cash flows, for the financial year ended on that date;
b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and
c) at the date of this declaration, there are reasonable grounds to believe that the parties to the Deed of Cross Guarantee identified in Note 32
will be able to meet any obligations or liabilities to which they are, or may become, subject by virtue of the Deed of Cross Guarantee described
in Note 32.
Note 1(a) confirms that the financial statements also comply with the International Financial Reporting Standards as issued by the International
Accounting Standards Board.
The Directors have been given the declarations by the Managing Director and Chief Financial Officer required by Section 295A of the
Corporations Act 2001.
This declaration is made in accordance with a resolution of the Directors.
G.A. Cubbin
Chairman
18 August 2020
L. McAllister
Managing Director
18 August 2020
55
2020 Annual Report Independent Auditor’s Report
Independent auditor’s report
To the members of McPherson's Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of McPherson's Limited (the Company) and its controlled entities (together
the Group) is in accordance with the Corporations Act 2001, including:
(a) giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial
performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated balance sheet as at 30 June 2020
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant accounting
policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial report section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards
Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code)
that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical
responsibilities in accordance with the Code.
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in
PricewaterhouseCoopers, ABN 52 780 433 757
One International Towers Sydney, Watermans Quay, Barangaroo, GPO BOX 2650, SYDNEY NSW 2001
T: +61 2 8266 0000, F: +61 2 8266 9999, www.pwc.com.au
Level 11, 1PSQ, 169 Macquarie Street, Parramatta NSW 2150, PO Box 1155 Parramatta NSW 2124
T: +61 2 9659 2476, F: +61 2 8266 9999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
56
McPherson’s Limited
Independent Auditor’s Report continued
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial report as a whole, taking into account the geographic and management structure of the Group, its
accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
Our audit focused on where the
Amongst other relevant topics, we
Group made subjective
judgements; for example,
significant accounting estimates
involving assumptions and
inherently uncertain future
events.
Our audit work focussed on the
financial information of
McPherson’s Consumer Products
Pty Limited Australia given its
financial significance to the
Group as a whole. Additionally,
we performed specific risk
focussed audit procedures in
relation to the Group’s other
operations.
communicated the following key
audit matters to the Audit and
Risk Committee:
Impairment of goodwill and
brand names
Provision for inventory
obsolescence
Recoverability of investments in
Joint Ventures and Financial
assets at fair value through
other comprehensive income
(FVOCI)
These are further described in the
Key audit matters section of our
report.
For the purpose of our audit we
used overall Group materiality of
$1.19million, which represents
approximately 5% of the Group’s
profit before tax adjusted for
impairment charges.
We applied this threshold,
together with qualitative
considerations, to determine the
scope of our audit and the nature,
timing and extent of our audit
procedures and to evaluate the
effect of misstatements on the
financial report as a whole.
We chose Group profit before tax
because, in our view, it is the
benchmark against which the
performance of the Group is most
commonly measured. We
adjusted for impairment charges
as they are unusual or
infrequently occurring items
impacting profit and loss.
We utilised a 5% threshold based
on our professional judgement,
noting it is within the range of
commonly acceptable thresholds.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit
of the financial report for the current period. The key audit matters were addressed in the context of our audit
of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters. Further, any commentary on the outcomes of a particular audit procedure is made in that
context.
57
2020 Annual Report
Independent Auditor’s Report continued
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill (carrying value of $15.76
million) and brand names (carrying value of
$48.31 million)
(Refer to notes 1 and 16)
The present challenges in the trading environment and
change in consumer demand during the COVID-19
pandemic, provide uncertainty and require significant
judgement in relation to forecasting future cash flows.
This has an impact on the value in use and the possibility
of impairment of the intangible assets, which is an area of
focus for the directors.
In the current year an impairment charge of $8.52 million
was recognised in respect of brand names.
We have performed procedures over the Group’s
impairment models (models). This involved consideration
of whether the Group’s determination of Cash Generating
Unites (CGUs) was consistent with our understanding of
the nature of the Group’s operations and internal Group
reporting. We also assessed whether the CGUs
appropriately included all assets, liabilities and cash flows
directly attributable to each CGU and a reasonable
allocation of corporate assets and overheads.
In assessing the models and the Group’s ability to forecast,
we evaluated the Group’s future cash flow forecasts in the
models and understood the process by which they were
developed, with reference to the historical performance of
the business.
Significant judgement is required to estimate the key
assumptions in the models prepared by the Group to
determine the recoverable amount of goodwill and brand
names and the amount of any resulting impairment. The
most significant areas of judgement relate to:
-
Forecasting future cashflows; and
- Determining the appropriate growth and discount
rates.
Given the level of judgement involved and the magnitude
of the intangible assets recognised on the Group’s
consolidated balance sheet this was a key audit matter.
Provision for inventory obsolescence ($3.75
million)
(Refer to note 1 and 10)
The Group has gross inventories of $50.83 million with a
provision of $3.75 million for inventory obsolescence/slow
moving and discontinued stock. Inventory consists of raw
materials and finished goods.
As the Group values inventory at the lower of cost and net
realisable value estimates are required to determine the
recoverable amount. These estimates are based on the
Group’s projection of future sales volumes and prices.
Given the level of judgement involved in calculating the
provision and the magnitude of inventory recognised on
the Group’s consolidated balance sheet this was a key audit
matter.
58
In addition, we tested that forecast cash flows used in the
impairment models were consistent with the most up-to-
date budgets and business plans formally approved by the
Board. We also tested the mathematical accuracy, on a
sample basis, of the impairment models’ calculations.
We compared the discount rates and growth rates used in
the models to benchmarks developed by our valuation
expert, which are based on market data and industry
research.
We also evaluated the adequacy of the disclosures made in
note 16, including those regarding the key assumptions and
sensitivities to changes in such assumptions, in light of the
requirements of Australian Accounting Standards.
We performed the following procedures, amongst others:
-
-
Tested the mathematical accuracy and completeness
of the provision calculation against the list of stock on
hand;
Evaluated whether the methodology applied to
calculate the provision was reasonable and consistent
with that applied in prior years;
For a sample of inventory items compared the latest
sales price to their cost to check if items being sold
below cost were being appropriately provided for;
- On a sample basis compared inventory holdings at
-
year-end to forecast sales volumes to identify potential
slow-moving lines and assessed the adequacy of any
related provisioning;
- Assessed post year-end sales to test whether there was
significant movement in relation to line items that the
Group had identified as slow-moving; and
- Attended a physical stocktake where we tested a
sample to verify the existence of the inventory items
and identify damaged inventory items.
McPherson’s Limited
Independent Auditor’s Report continued
Key audit matter
How our audit addressed the key audit matter
We have performed procedures over the Group’s
recoverability assessment models (the models). This
involved testing the mathematical accuracy of the models’
calculations and an evaluation of the cash flow forecasts
against those approved by the appropriate authority within
each entity and performed sensitivity analysis.
In addition, we evaluated the discount rates used in the
models against available market data and considered the
competency, qualification, experience and objectivity of the
Group’s expert.
We also evaluated the adequacy of disclosures made in
notes 13 and 18 of the financial statements, in light of the
requirements of Australian Accounting Standards.
Recoverability of investments in Joint Ventures
(carrying value of $1.91 million) and Financial
assets at fair value through other comprehensive
income (FVOCI) ($6.00 million)
(Refer to note 1, 13 and 18)
Over the past two years the Group has expanded the
business through investing in Joint Ventures and other
equity investments.
Considering the current challenge in the market and that
these investments are in their early development or
production stages, the Group is required to make
significant judgements to estimate the key assumptions
used in the determination of their recoverable amounts.
The most significant areas of judgement relate to:
Forecasting future cash flows; and
-
- Determining the appropriate discount rates assisted
by an external expert.
In the current year an impairment charge of $1.97 million
was recognised in respect of investments in Joint Ventures.
Given the level of judgement involved and the financial
significance of these investments this was a key audit
matter.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report for the year ended 30 June 2020, but does not include the financial report and
our auditor’s report thereon. Prior to the date of this auditor's report, the other information we obtained
included the Director's report. We expect the remaining other information to be made available to us after the
date of this auditor's report.
Our opinion on the financial report does not cover the other information and we do not and will not express an
opinion or any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information and, in
doing so, consider whether the other information is materially inconsistent with the financial report or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of this
auditor’s report, we conclude that there is a material misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
When we read the other information not yet received, if we conclude that there is a material misstatement
therein, we are required to communicate the matter to the directors and use our professional judgement to
determine the appropriate action to take.
59
2020 Annual Report
Independent Auditor’s Report continued
Responsibilities of the directors for the financial report
The directors of the Company are responsible for the preparation of the financial report that gives a true and
fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such
internal control as the directors determine is necessary to enable the preparation of the financial report that
gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance
with the Australian Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial report.
A further description of our responsibilities for the audit of the financial report is located at the Auditing and
Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This
description forms part of our auditor's report.
Report on the remuneration report
Our opinion on the remuneration report
We have audited the remuneration report included in pages 37 to 52 of the directors’ report for the year ended
30 June 2020.
In our opinion, the remuneration report of McPherson's Limited for the year ended 30 June 2020 complies
with section 300A of the Corporations Act 2001.
Responsibilities
The directors of the Company are responsible for the preparation and presentation of the remuneration report
in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on
the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.
PricewaterhouseCoopers
Shannon Maher
Partner
Sydney
18 August 2020
60
McPherson’s Limited
Consolidated Statement of Comprehensive Income
for the year ended 30 June 2020
Revenue
Sales revenue
Interest
Total revenue
Other income
Total revenue and other income
Expenses
Materials and consumables
Employee costs
Advertising and promotions
Cartage and freight
Third party warehousing
Rental expenses
Depreciation
Amortisation of intangibles
Impairment of intangible assets
Other expenses
Borrowing costs
Share of net loss of joint ventures accounted for using the equity method
Profit before income tax
Income tax expense
Profit for the year after tax
Other comprehensive income
Items that may be reclassified to profit or loss
Changes in fair value of cash flow hedges
Exchange differences on translation of foreign operations
Income tax benefit relating to these items
Other comprehensive income for the year
Total comprehensive income for the year
Earnings per share
Basic earnings / (loss) per share
Diluted earnings / (loss) per share
Note
2020
$’000
2019
$’000
222,186
210,337
20
302
70
222,488
210,407
364
—
222,852
210,407
(116,109)
(111,228)
(35,249)
(20,100)
(5,873)
(2,262)
(353)
(4,418)
(479)
(8,517)
(31,643)
(21,189)
(7,010)
(2,237)
(4,311)
(1,475)
(653)
—
(10,881)
(10,246)
(1,455)
(3,894)
13,262
(7,200)
6,062
(956)
(479)
18,980
(5,259)
13,721
(1,178)
(1,138)
52
349
(777)
5,285
490
328
(320)
13,401
Cents
Cents
5.7
5.7
13.0
13.0
3,16
20
18
6
24
24
24
29
29
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
61
2020 Annual Report
Consolidated Balance Sheet
as at 30 June 2020
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Financial asset at fair value through profit or loss
Total current assets
Non-current assets
Financial assets at fair value through other comprehensive income
Property, plant and equipment
Right-of-use assets
Other receivables
Intangible assets
Deferred tax assets
Loan receivable from joint ventures
Investment in joint ventures
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Provisions
Derivative financial instruments
Current tax liabilities
Total current liabilities
Non-current liabilities
Borrowings
Lease liabilities
Provisions
Deferred tax liabilities
Derivative financial instruments
Contingent consideration
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
62
Note
2020
$’000
2019
$’000
8
9
10
11
12
13
14
15
16
17
18
18
19
20
21
11
20
21
22
11
18
23
24
24
7,149
46,695
47,086
—
—
100,930
6,000
6,259
5,034
307
64,713
189
1,457
1,909
85,868
10,472
31,877
36,688
797
2,934
82,768
—
5,930
—
—
73,973
86
1,570
716
82,275
186,798
165,043
49,858
—
4,507
7,910
570
4,291
32,219
1,667
—
6,098
234
2,506
67,136
42,724
16,377
16,269
3,785
732
6,718
45
1,776
29,433
96,569
90,229
—
709
8,813
—
—
25,791
68,515
96,528
159,444
4,342
(73,557)
157,751
4,674
(65,897)
90,229
96,528
McPherson’s Limited
Consolidated Statement of Changes in Equity
for the year ended 30 June 2020
Balance at 30 June 2019
Adoption of new AASB 16 Leases
Balance at 1 July 2019
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with shareholders
Shares issued, net of transaction costs and tax
Dividends provided for or paid
Shares vested and transferred to employees
Share-based payment transactions with employees
Total transactions with shareholders
Balance at 30 June 2020
Balance at 1 July 2018
Profit for the year
Other comprehensive income
Total comprehensive income
Transactions with shareholders
Shares issued, net of transaction costs and tax
Dividends provided for or paid
Share-based payment transactions with employees
Total transactions with shareholders
Balance at 30 June 2019
Note
1(b)
23
4
23
25
23
4
25
Contributed
equity
$’000
Reserves
$’000
Accumulated
losses
$’000
Total equity
$’000
157,751
—
157,751
—
—
—
1,480
—
213
—
1,693
4,674
—
4,674
—
(777)
(777)
—
—
(213)
658
445
(65,897)
(3,061)
(68,958)
6,062
—
6,062
96,528
(3,061)
93,467
6,062
(777)
5,285
—
1,480
(10,661)
(10,661)
—
—
—
658
(10,661)
(8,523)
159,444
4,342
(73,557)
90,229
155,882
—
—
—
1,869
—
—
1,869
157,751
4,828
—
(320)
(320)
—
—
166
166
(70,690)
13,721
—
13,721
—
(8,928)
—
(8,928)
90,020
13,721
(320)
13,401
1,869
(8,928)
166
(6,893)
4,674
(65,897)
96,528
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
63
2020 Annual Report
Consolidated Statement of Cash Flows
for the year ended 30 June 2020
Note
2020
$’000
2019
$’000
Cash flows from operating activities
Receipts from customers, inclusive of GST
Payments to suppliers and employees, inclusive of GST
Interest received
Interest and borrowing costs paid
Income taxes paid
233,863
(207,352)
63
(1,291)
(5,951)
Net cash inflows from operating activities
33
19,332
240,222
(214,376)
30
(890)
(5,208)
19,778
—
(4,119)
(643)
(1,158)
(1,529)
(3,000)
(3,000)
(1,745)
(71)
(630)
(2,698)
—
23
(8,144)
(10,449)
(23)
61,775
(63,334)
(3,767)
(9,159)
(14,508)
(3,320)
10,472
(3)
(10)
62,982
(63,500)
—
(7,048)
(7,576)
1,753
8,607
112
8
7,149
10,472
Cash flows from investing activities
Payments for financial assets at fair value through OCI
Payments for purchase of property, plant and equipment
Payments for purchase of other intangible assets
Payments for acquisition of joint ventures
Loan to joint ventures
Payments for convertible note
Net cash outflows from investing activities
Cash flows from financing activities
Share issue transaction costs
Proceeds from borrowings
Repayment of borrowings
Repayment of lease liabilities
Dividends paid
Net cash outflows from financing activities
Net (decrease)/increase in cash held
Cash at beginning of financial year
Effects of exchange rate changes
Cash held at end of financial year
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
64
McPherson’s Limited
Notes to the Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been
consistently applied to all the periods presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of
McPherson's Limited and its controlled entities.
a) Basis of preparation
These general purpose financial statements have been prepared in accordance with Australian Accounting Standards and Interpretations issued
by the Australian Accounting Standards Board and the Corporations Act 2001. McPherson’s Limited is a for-profit entity for the purpose of
preparing the financial statements.
Compliance with IFRS
The consolidated financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).
Historical cost convention
These financial statements have been prepared under the historical cost convention, except for certain financial assets and liabilities, including
derivative instruments, which are carried at fair value.
New and amended standards
The Group has applied the new AASB 16 Leases for the first time for the annual reporting period commencing 1 July 2019. The impact of the
adoption of the new AASB 16 Leases and new accounting policies are disclosed in Note 1(b) below.
Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2020 reporting periods and
have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future
reporting periods and on foreseeable future transactions.
b) Changes in accounting policies
This section explains the impact of the adoption of AASB 16 Leases on the Group’s financial statements and also discloses new accounting
policies that have been applied from 1 July 2019.
AASB 16 Leases
The Group adopted the standard using the modified transition approach which means that:
> The cumulative impact of adoption has been recognised in retained earnings as of 1 July 2019; and
> The comparatives have not been restated as follows:
Consolidated Balance Sheet (extract)
30 June 2019
$’000
Adoption of
AASB 16
$’000
1 July 2019
$’000
Non-current assets
Right-of-use assets
Equity
Accumulated losses
Current liabilities
Lease liabilities
Non-current liabilities
Deferred tax liability
Lease liabilities
i) Practical expedients applied
The Group has used the following practical expedients permitted by the standard:
—
6,667
6,667
65,897
3,061
68,958
—
(3,910)
(3,910)
(8,813)
—
1,301
(7,119)
(7,512)
(7,119)
contracts as at 1 July 2019;
> Applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
> Relying on previous assessments on whether leases are onerous as an alternative to performing an impairment review – there were no onerous
> Accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-term leases;
> Excluding initial transaction costs for the measurement of the right-of-use asset at the date of initial application;
> Using hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and
> The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead, for contracts
entered into before the transition date, the Group relied on its assessment made applying AASB 117 and Interpretation 4 Determining whether
an Arrangement contains a Lease.
65
2020 Annual Report
Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
b) Changes in accounting policies (continued)
ii) Measurement of lease liabilities
The lease liabilities are measured as the present value of the remaining lease payments from the adoption of the new standard on 1 July 2019, using:
> Fixed payments, including CPI and market review increases, less any lease incentives receivable; and
> Lease payments with reasonably certain extension options.
The lease payments are discounted using the Group’s incremental borrowing rate, being the rate that the Group would have to pay to borrow the
funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and
conditions.
The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 is 5.67% across the Group.
The lease liabilities will be decreased over time by rental payments and give rise to interest expenses.
Reconciliation of lease commitments as at 30 June 2019 to lease liabilities recognised as at 1 July 2019:
Operating lease commitments disclosed as at 30 June 2019
Discounted at the Group’s incremental borrowing rate at the date of initial application
(Less) short-term leases not recognised as a liability
(Less) low-value leases not recognised as a liability
(Less) contracts reassessed as service agreements
Lease liabilities recognised as at 1 July 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
2019
$’000
13,589
(998)
(99)
(4)
(1,459)
11,029
3,910
7,119
iii) Measurement of right-of-use assets
The right-of-use assets are measured as if AASB 16 had always applied, as the present value of the lease payments, and are depreciated over
the shorter of the asset’s useful life and the lease term on a straight-line basis.
iv) Lease term
The Group determines the lease term as the non-cancellable period of a lease, together with the periods covered by an option to extend the lease
if it is reasonably certain to exercise that option.
c) Principles of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the
entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that
control ceases.
The acquisition method of accounting is used to account for business combinations by the Group (refer to Note 1(i)).
Intercompany transactions, balances and unrealised gains on transactions between Group entities are eliminated. Unrealised losses are also
eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by the Group.
Investments in controlled entities are accounted for at cost in the individual financial statements of the parent entity.
Changes in ownership interests
When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value with the change in carrying amount
recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained
interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect
of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously
recognised in other comprehensive income are reclassified to profit or loss.
Joint arrangements
Under AASB 11, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the
contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement.
66
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
c) Principles of consolidation (continued)
Equity method
Under the equity method, investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-
investment profits or losses of the investee, and the Group’s share of movements in other comprehensive income of the investee in other
comprehensive income. Dividends received or receivable from the investee are recognised as a reduction in the carrying amount of the
investment.
When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured
long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the
other entity.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in these entities.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of
equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.
d) Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief
operating decision maker has been identified as the Managing Director of McPherson's Limited.
e) Foreign currency translation
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment
in which it operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is McPherson’s
Limited’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities
denominated in foreign currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate
to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.
Group companies
The results and financial position of foreign operations that have a functional currency different from the presentation currency are translated into
the presentation currency as follows:
> Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;
> Income and expenses for the statement of comprehensive income are translated at average exchange rates, unless this is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the
dates of the transactions; and
> All resulting exchange differences are recognised in other comprehensive income.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial
instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any
borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit or loss, as part of the gain
or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation
and translated at the closing rate.
f) Revenue recognition
Sales revenue
The Group markets and distributes Health, Wellness and Beauty products. Sales are recognised at a point in time when the control of the
products has transferred, being when the products are delivered to the customer, or when the customer has directed the Group to warehouse
finished goods on its behalf, with the risks of control and ownership transferring to the customer. The customer has full discretion over the price
to sell the products, and there is no unfulfilled obligation that could affect the customer’s acceptance of the products. Delivery occurs when the
products have been delivered to the specific location, the risks of obsolescence and loss have been transferred to the customer, and the Group
has objective evidence that all criteria for acceptance have been satisfied.
The Group’s products are often sold on terms that include settlement discounts and volume rebates. Revenue from these sales is recognised
based on the price specified in the contract, net of estimated discounts and rebates, using the expected value method. A contract liability is
recognised for expected discounts and rebates payable to customers in relation to sales made until the end of the reporting period. No element of
financing is deemed present as sales are made with credit term normally between 30 and 60 days, which is consistent with market practice.
A receivable is recognised when the goods are delivered to the customer, or when the customer directs the Group to warehouse finished goods
on its behalf, with the risks of control and ownership transferring to the customer, as this is the point in time that the consideration is unconditional
because only the passage of time is required before the payment is due.
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2020 Annual Report Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
f) Revenue recognition (continued)
Accounting for refunds
When the customer has a right to return the product within a given period, the entity has a potential obligation to refund the purchase price. A refund
liability for the expected refunds to customers is recognised as adjustment to revenue in trade and other payables. At the same time, the Group
has a right to recover the product from the customer where the customer exercises its right of return and recognises an asset in trade and other
receivables and a corresponding adjustment to cost of sales. The asset is measured by reference to the former carrying amount of the product. The
costs to recover the products are not material because the customer usually returns the product in a saleable condition to the Group.
The Group does not have any contracts where the period between the supply of goods or services to the customer and payment by the customer
exceeds one year. Consequently, the Group does not adjust any of the transaction prices for the time value of money.
Other income
Other income is recognised when the income is received or becomes receivable.
Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received, and the
Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in profit or loss over the period
necessary to match them with the costs that they are intended to compensate.
Income tax
g)
The income tax expense or income for the period is the tax payable or receivable on the current period’s taxable income based on the applicable
income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and any
unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the
countries where the Company’s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction
other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax
is determined using tax rates and laws, that have been enacted or substantially enacted by the end of the reporting period and are expected to
apply when the related deferred income tax asset is realised, or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts
will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in
foreign operations where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the
differences will not reverse in the foreseeable future.
Current and deferred tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or
directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
Investment allowances
Companies within the Group may be entitled to claim special tax deductions for investments in qualifying assets (investment allowances) or
qualifying expenditure (research and development tax incentive regime). The Group accounts for such allowances as tax credits, which means that
the allowance reduces income tax payable and current tax expense. A deferred tax asset is recognised for unclaimed tax credits that are carried
forward as deferred tax assets.
Tax consolidation legislation
McPherson’s Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence,
these entities are taxed as a single entity. McPherson’s Limited, as the head entity in the tax consolidated Group, recognises current tax
amounts relating to transactions, events and balances of the wholly-owned Australian controlled entities in this Group as if those transactions,
events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and
balances. Amounts receivable or payable under a Tax Funding Agreement with the tax consolidated entities are recognised separately as
tax-related amounts receivable or payable. Expenses and revenues arising under the Tax Funding Agreement are presented as income tax
expenses or credits.
68
McPherson’s Limited Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
h) Leases
The following is the accounting policy effective 1 July 2019 in compliance with AASB16 Leases. Please refer to the FY19 4E for prior period
accounting policy.
Lease contracts
The Group leases various offices, warehouses, equipment and vehicles. Rental contracts are typically made for fixed periods of 12 months to 20 years,
but may have extension options. Extension and termination options are included in a number of property and equipment leases across the Group.
Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease
components based on their relative stand-alone prices.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not
impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as
security for borrowing purposes.
Lease liabilities
Lease liabilities are initially measured on a present value basis of the following lease payments:
> Fixed payments less any lease incentives receivable; and
> Variable lease payments based on a rate initially measured at the commencement date, such as CPI.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments
are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the
Group, the Group’s incremental borrowing rate is used, being the rate that an individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
Right-of-use assets
Right-of-use assets are measured at present value comprising the following:
> The amount of the initial measurement of lease liability;
> Any lease payments made at or before the commencement date less any lease incentives received;
> Any initial direct costs; and
> Restoration costs.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is
reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.
Short term leases
Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a straight-line basis
as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and
small items of office furniture.
i) Business combinations
The acquisition method is used to account for all business combinations regardless of whether equity instruments or other assets are acquired.
The consideration transferred for the acquisition comprises the fair value of the assets transferred, shares issued, and liabilities incurred or
assumed at the date of exchange. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent
consideration arrangement. Acquisition-related costs are expensed as incurred. Where equity instruments are issued in an acquisition, the value
of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the
published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more
reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured
initially at their fair value at the acquisition date. The excess of the consideration transferred over the fair value of the Group’s share of the
identifiable net assets acquired is recorded as goodwill (refer to Note 1(s)). If the consideration transferred is less than the fair value of the net
assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase, but only after a reassessment of the
identification and measurement of the net assets acquired. Contingent consideration is classified either as equity or a financial liability. Amounts
classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.
Impairment of assets
j)
Goodwill and intangible assets that have an indefinite useful life are tested annually for impairment, or more frequently if events or changes in
circumstances indicate that they might be impaired.
Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash inflows (cash generating units). Non-financial assets other than goodwill that suffered an
impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
69
2020 Annual Report Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
k) Cash and cash equivalents
Cash and cash equivalents include cash on hand and deposits at call which are readily convertible to cash on hand and are used in the cash
management function on a day-to-day basis net of outstanding bank overdrafts. Bank overdrafts, if any, are shown within borrowings in current
liabilities in the balance sheet.
Trade receivables
l)
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less
provision for impairment. Trade receivables are generally due for settlement no more than 60 days from the date of recognition.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. The Group applies
the simplified approach to providing for expected credit losses prescribed by AASB 9, which permits the use of the lifetime expected loss
provision for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk
characteristics and the days past due.
m) Inventories
Inventories are valued at the lower of cost and net realisable value. Costs are assigned to individual items of inventory on a weighted average
basis. Cost includes the reclassification from equity of any gains or losses on qualifying cash flow hedges relating to purchases of inventory. Cost
of work in progress and finished manufactured products includes materials, labour and an appropriate proportion of factory overhead expenditure,
the latter being allocated on the basis of normal operating capacity. Costs of purchased inventory are determined after deducting rebates and
discounts. Unrealised profits on intercompany inventory transfers are eliminated on consolidation. Net realisable value is the estimated selling
price in the ordinary course of business less the estimated costs necessary to make the sale.
n) Non-current assets, or disposal groups, held for sale and discontinued operations
Non-current assets, or disposal groups, are classified as held for sale if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered highly probable. They are measured at the lower of their carrying amount
and fair value less costs to sell, except for assets such as deferred tax assets, assets arising from employee benefits and financial assets.
An impairment loss is recognised for any initial or subsequent write down of the asset, or disposal group, to fair value less costs to sell. A gain
is recognised for any subsequent increases in fair value less costs to sell of an asset, or disposal group, but not in excess of any cumulative
impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset, or disposal group,
is recognised at the date of derecognition.
Non-current assets, including those that are part of a disposal group, are not depreciated or amortised while they are classified as held for sale.
Non-current assets classified as held for sale and the assets of a disposal group classified as held for sale are presented separately from the
other assets in the balance sheet. The liabilities of a disposal group classified as held for sale are presented separately from other liabilities in the
balance sheet.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate
cash-generating unit or a group of cash-generating units and is a separate major line of business or geographical area of operations and is part
of a single co-ordinated plan to dispose of such a line of business or area of operations. The results of discontinued operations are presented
separately in the statement of comprehensive income.
Investments and other financial assets
o)
i) Classification
The Group classifies its financial assets in the following measurement categories:
> Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss); and
> Those to be measured at amortised cost.
The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For
assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income.
ii) Financial assets at fair value through profit or loss
The Group classifies the following financial assets at fair value through profit or loss:
> Debt investments that do not qualify for measurement at either amortised cost or at fair value through other comprehensive income;
> Equity investments that are held for trading; and
> Equity investments for which the entity has not elected to recognise fair value gains and losses through other comprehensive income.
iii) Financial assets at fair value through other comprehensive income
Financial assets at fair value through other comprehensive income are equity investments which are not held for trading, and for which the
Group’s management has elected to present fair value gains and losses in other comprehensive income. There is no subsequent reclassification
of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to
be recognised in profit or loss as other income when the Group’s right to receive payments is established. Impairment losses and reversal of
impairment losses on equity investments measured at fair value through other comprehensive income are not reported separately from other
changes in fair value.
70
McPherson’s Limited Notes to the Consolidated Financial Statements continued
Investments and other financial assets (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
o)
iv) Other financial assets at amortised cost
The Group classifies its financial assets at amortised cost only if both of the following criteria are met:
> The asset is held within a business model with the objective of collecting the contractual cash flows; and
> The contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.
They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as
non current assets. Financial assets at amortised cost are included in receivables in the balance sheet.
v) Impairment
The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and fair
value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in
credit risk. For trade receivables, the Group applies the simplified approach permitted by AASB 9, which requires expected lifetime losses to be
recognised from initial recognition of the receivables.
p) Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair
value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated
as a hedging instrument, and if so, the nature of the item being hedged and the type of hedge relationship designated.
The Group documents at the inception of the hedging transaction the economic relationship between hedging instruments and hedged
items including whether the hedging instrument is expected to offset changes in cash flows of hedged items. The Group documents its risk
management objective and strategy for undertaking various hedge transactions at the inception of each hedge relationship.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more
than 12 months. It is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading
derivatives are classified as a current asset or liability.
Cash flow hedges that qualify for hedge accounting
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow
hedge reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the
hedge. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, within finance costs.
When option contracts are used to hedge forecast transactions, the Group designates only the intrinsic value of the option contract as the
hedging instrument.
Gains or losses relating to the effective portion of the change in intrinsic value of the option contracts are recognised in the cash flow
hedge reserve within equity. The changes in the time value of the option contracts that relate to the hedged item are recognised within other
comprehensive income in the costs of hedging reserve within equity.
When forward contracts are used to hedge forecast transactions, the Group generally designates only the change in fair value of the forward
contract related to the spot component as the hedging instrument. Gains or losses relating to the effective portion of the change in the spot
component of the forward contracts are recognised in the cash flow hedge reserve within equity. The change in the forward element of the
contract that relates to the hedged item is recognised within other comprehensive income in the costs of hedging reserve within equity. In some
cases, the entity may designate the full change in fair value of the forward contract (including forward points) as the hedging instrument. In such
cases, the gains or losses relating to the effective portion of the change in fair value of the entire forward contract are recognised in the cash flow
hedge reserve within equity.
Amounts accumulated in equity are reclassified in the periods when the hedged item affects profit or loss, as follows:
> Gain or loss relating to the effective portion of the intrinsic value of option contracts where the hedged item subsequently results in the
recognition of a non-financial asset (such as inventory), both the deferred hedging gains and losses and the deferred aligned time value of the
option contracts are included within the initial cost of the asset. The deferred amounts are ultimately recognised in profit or loss as the hedged
item affects profit or loss.
> Gain or loss relating to the effective portion of the spot component of forward contracts where the hedged item subsequently results in the recognition
of a non-financial asset (such as inventory), both the deferred hedging gains and losses and the deferred aligned forward points are included within
the initial cost of the asset. The deferred amounts are ultimately recognised in profit or loss as the hedged item affects profit or loss.
> The gain or loss relating to the effective portion of the interest rate swaps hedging variable rate borrowings is recognised in profit or loss within
‘finance cost’ at the same time as the interest expense on the hedged borrowings.
When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative
deferred gain or loss and deferred costs of hedging in equity at that time remain in equity until the forecast transaction occurs, resulting in the
recognition of a non-financial asset such as inventory. When the forecast transaction is no longer expected to occur, the cumulative gain or loss
and deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss.
Hedge ineffectiveness is recognised in profit or loss within finance cost.
71
2020 Annual Report Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
q) Fair value estimation
The fair value of financial assets and financial liabilities must be estimated for recognition, measurement and disclosure purposes.
The fair value of interest rate hedge contracts is calculated as the present value of the estimated future cash flows. The fair value of forward
exchange contracts and other foreign currency contracts are determined using forward exchange market rates and volatility at the balance
sheet date.
The net nominal value of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for
disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group
for similar financial instruments.
r) Property, plant and equipment
All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to
the acquisition of the property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that
future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount
of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance costs are charged to
profit or loss during the reporting period in which they are incurred.
Depreciation on assets is calculated using the straight-line method to allocate their net cost over their estimated useful lives.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount (refer to Note 1(j)).
Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in profit or loss.
Intangible assets
s)
i) Goodwill
Goodwill is measured as described in Note 1(i). Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is not amortised,
but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried
at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the
entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units that
are expected to benefit from the business combination in which the goodwill arose. The units or groups of units are identified at the lowest level
at which goodwill is monitored for internal management purposes, being the operating segments.
ii) Brand names
The Group recognises brand names that are acquired as part of a business combination or that are specifically acquired from a vendor. The
Group does not recognise internally generated brand names. Brand names are initially recognised at fair value, if acquired as part of a business
combination, or at cost, if specifically acquired from a vendor. For brand names specifically acquired from a vendor and held at cost, any
subsequent adjustments arising from a contingent consideration arrangement associated with the brand acquisition are reflected in the carrying
value of the relevant brand name. Subsequent to initial recognition, brand names are recognised at cost less accumulated impairment losses.
The carrying amount of brand names are not amortised as the Directors are of the view that the brand names have an indefinite useful life.
Brand names are tested individually for impairment annually, or more frequently if events or changes in circumstances indicate that they might be
impaired. The recoverable amount of a brand name is determined based on the higher of the value-in-use or fair value less costs to sell.
iii) IT development and software
Costs incurred in developing products or systems and costs incurred in acquiring software and licences that will contribute to future period
financial benefits through revenue generation or cost reduction are capitalised to software. Costs capitalised include external direct costs of
materials and service, direct payroll and payroll related costs of employees’ time spent on the project. Amortisation is calculated on a straight-line
basis generally over three to five years.
IT development costs include only those costs directly attributable to the development phase and are only recognised where the Group has an
intention and ability to use the asset.
iv) Research and development
Research expenditure and development expenditure that do not meet the criteria in (iii) above are recognised as an expense as incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
t) Trade and other payables
These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which remain unpaid. These
amounts are unsecured and are normally settled within 30 days of recognition. Trade and other payables are presented as current liabilities unless
payment is not due within 12 months after the reporting period. They are initially recognised at fair value and are subsequently measured at
amortised cost using the effective interest method.
72
McPherson’s Limited Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
u) Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and the amount has been reliably estimated. Provisions are not recognised for future operating
losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation
at the end of the reporting period.
The cost of products and services provided under warranty is expensed as incurred. The Company provides for warranties based on history of
claims and management’s best estimate of expected claims.
v) Employee benefits
i) Short-term obligations
Liabilities for wages and salaries, including annual leave expected to be settled within 12 months after the end of the period in which the
employees render the related service are recognised in respect of employees' services up to the end of the reporting period and are measured at
the amounts expected to be paid when the liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits.
All other short-term employee benefit obligations are presented as payables.
ii) Other long-term employee benefit obligations
The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the
employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future
payments to be made in respect of services provided by employees up to the end of the reporting period. Consideration is given to expected
future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market
yields at the end of the reporting period on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the
estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in
profit or loss.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at
least twelve months after the reporting date, regardless of when the actual settlement is expected to occur.
iii) Bonus plans
A liability for employee benefits in the form of bonuses is recognised in provisions when there is no realistic alternative but to settle the liability
and at least one of the following conditions is met:
> There are formal terms for determining the amount of the benefit;
> The amounts to be paid are determined before the time of completion of the financial report; and
> Past practice gives clear evidence of the amount of the obligation.
iv) Superannuation
Contributions to employee superannuation funds are made by McPherson’s Limited and controlled entities. Contributions are recognised as an
expense as they become payable.
v) Termination benefits
Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or when an employee accepts
voluntary redundancy in exchange for these benefits. The Group recognises termination benefits at the earlier of the following dates: (a) when the
Group can no longer withdraw the offer of those benefits; and (b) when the entity recognises costs for a restructuring that is within the scope of
AASB 137 and involves the payment of terminations benefits. In the case of an offer made to encourage voluntary redundancy, the termination
benefits are measured based on the number of employees expected to accept the offer. The liabilities for termination benefits are recognised in
other creditors unless timing of the payment is uncertain, in which case they are recognised as provisions.
vi) Employee benefit on-costs
Employee benefit on-costs are recognised and included in employee benefit liabilities when the employee benefits to which they relate are
recognised as liabilities.
vii) Share-based payments
Share-based compensation benefits are provided to employees via the McPherson’s Limited Employee Share Scheme or the McPherson’s
Limited Performance Rights Plan.
The fair value of options or rights granted to employees is recognised as an employee benefit expense with a corresponding increase in equity.
The fair value is independently determined at grant date and recognised over the period during which the employees become unconditionally
entitled to the options or rights.
Non-market vesting conditions are included in assumptions about the number of options or rights that are expected to vest. The total expense is
recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each
period, the entity revises its estimates of the number of options or rights that are expected to vest based on the non-market vesting conditions.
It recognises the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity.
Upon the exercise of options or rights, the balance of the share-based payments reserve relating to those options or rights is transferred to
share capital.
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2020 Annual Report Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
w) Contributed equity and dividends
i) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
ii) Dividends
Provision is made for any dividend declared by the Directors, being appropriately authorised and no longer at the discretion of the entity, on or
before the end of the financial year but not distributed at balance date.
x) Earnings per share
i) Basic earnings per share
Basic earnings per share is determined by dividing the operating profit after income tax attributable to members of McPherson’s Limited by the
weighted average number of ordinary shares outstanding during the financial year (refer to Note 29).
ii) Diluted earnings per share
Diluted earnings per share adjusts the basic earnings per share by taking into account all dilutive potential ordinary shares arising from
commencement rights granted to the Group’s Managing Director and estimated number of shares to be issued under the Employee Share
Scheme (refer to Note 29).
y) Borrowings and borrowing costs
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference
between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including
any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income or financial costs.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan and are amortised over the period of the facility to
which they relate, unless a shorter period is considered more appropriate.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period.
Borrowing costs are expensed as incurred.
z) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the
taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable
to, the taxation authority is included with other receivables or payables in the balance sheet.
Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable
from, or payable to the taxation authority, are presented as operating cash flows.
aa) Rounding of amounts
The Group is of a kind referred to in Australian Securities and Investments Commission (ASIC) Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191 and in accordance with that instrument, amounts in this Directors’ Report and the Financial Report have been
rounded to the nearest thousand dollars unless otherwise stated.
ab) Parent entity financial information
The financial information for the parent entity, McPherson’s Limited, disclosed in Note 35 has been prepared on the same basis as the
consolidated financial statements, except as set out below.
Investments in subsidiaries
Investments in subsidiaries are accounted for at cost in the financial statements of McPherson’s Limited. Dividends received from subsidiaries are
recognised in the parent entity’s profit or loss when its right to receive the dividend is established.
74
McPherson’s Limited Notes to the Consolidated Financial Statements continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ac) Critical accounting estimates and assumptions
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group’s accounting policies. The area involving a higher degree of judgement or complexity, or area
where assumptions and estimates are significant is discussed below.
Estimated recoverable amount of goodwill and brand names with an indefinite useful life
The Group tests goodwill and indefinite lived brand names annually for impairment, or more frequently if events or changes in circumstances
indicate that they might be impaired. In calculating the recoverable amount of these assets, the use of assumptions is required. Refer to Note 16
for details of these assumptions.
Provision for stock obsolescence
Inventories are valued at the lower of cost and net realisable value. Estimates are required to be made in relation to the recoverable amount
of inventory. These estimates are based on projected sales volumes and sell prices determined using current information and past experience.
Estimates of net realisable values for the excess volumes are made and provisions recognised where necessary.
Investments in joint ventures
The recoverability of the investments in joint ventures and receivables from joint ventures is determined based on the net asset position of the
joint ventures, or a value-in-use calculation should the net asset position of the joint venture not exceed the carrying amount of investments in
joint ventures and receivables from joint ventures.
The value-in-use calculations are based on cash flow projections based on financial budgets covering a two-year period. Cash flows beyond the
projected period are extrapolated using estimated growth rates. In performing the value-in-use calculations for the joint ventures, the Group has
applied a post-tax discount rate to discount the forecast future attributable post-tax cash flows.
ad) Reclassification
Certain comparative amounts have been reclassified to conform with the current year’s presentation to better reflect the nature of the financial
position and performance of the Group.
2. FINANCIAL RISK MANAGEMENT
The Group's activities expose it to financial risks such as currency risk, interest rate risk, credit risk and liquidity risk. In order to minimise any
adverse effects on the financial performance of the Group, derivative financial instruments, such as foreign exchange and interest rate hedge
contracts are used to hedge certain risk exposures. Derivatives are used exclusively for hedging purposes and not as trading or other speculative
instruments.
Financial risk management is predominantly controlled by a central treasury function under policies approved by the Board of Directors.
Whilst the Group’s hedging policy only allows for highly effective hedge relationships to be established, at times some hedge ineffectiveness can
arise. Hedge ineffectiveness can arise from the following hedge risks:
Foreign exchange risk
Interest rate risk
hedging instrument;
> If the timing of the hedged highly probable forecast transaction changes from what was originally estimated;
> If the amount of the hedged highly probable forecast transaction decreases to an amount below the associated hedging instrument amount; or
> If differences arise between the credit risk inherent within the hedged item and the hedging instrument.
> If the underlying interest rate inherent within the Group’s borrowing arrangements differs from the underlying interest rate included within the
> If the Group’s outstanding borrowings reduce to an amount below that included within the hedging instrument;
> If the time period of the hedging instrument goes beyond the maturity date of the related borrowings and it is unlikely that the Group would
> If differences arise between the credit risk inherent within the hedged item and the hedging instrument.
refinance its borrowings for a further period; or
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
Credit risk arises from cash and cash equivalents, derivative financial instruments and receivables due from customers.
75
2020 Annual Report Notes to the Consolidated Financial Statements continued
2. FINANCIAL RISK MANAGEMENTS (continued)
Liquidity risk
Liquidity risk is the risk that an entity will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
The Group holds the following financial instruments:
Financial assets
Cash and cash equivalents
Trade and other receivables
Derivatives financial instruments
Financial assets at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Loan receivable from joint ventures
Total financial assets
Financial liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivatives financial instruments
Contingent consideration
Total financial liabilities
Note
8
9
11
12
13
18(d)
19
20
11
18
2020
$’000
2019
$’000
7,149
46,695
—
—
6,000
1,457
10,472
31,877
797
2,934
—
1,570
61,301
47,650
49,858
16,377
8,292
615
1,776
32,219
17,936
—
234
—
76,918
50,389
The fair value measurements of the derivative financial instruments are shown in Note 2(e).
a) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to
the majority of the Group’s foreign currency purchases made in USD. Foreign exchange risk arises from future commercial transactions and
recognised assets and liabilities denominated in currencies that are not the entity's functional currency and net investment in foreign operations.
The Board's foreign exchange risk management policy is to hedge 100% of anticipated cash flows, mainly inventory purchases in USD, for
twelve months. At balance date, 100% (2019: 100%) of projected USD purchases qualified as "highly probable" forecast transactions for hedge
accounting purposes. The Group also hedges material exposures arising in foreign currencies other than USD. The Group uses a mixture of
foreign currency options and forward exchange contracts to hedge its exposures to foreign currency. The weighted average hedged rate for the
AUD/USD hedges the Group had in place at 30 June 2020 was 0.6590 (2019: 0.7023).
The Group's exposure to foreign currency risk (being unhedged payable and receivable amounts, and outstanding hedges associated with
forecast future transactions) at the reporting date was as follows:
A$’000
30 June 2020 (Group)
Trade receivables
Trade payables
Forward foreign exchange contracts - buy foreign currency
Foreign currency options - buy foreign currency
30 June 2019 (Group)
Trade receivables
Trade payables
Forward foreign exchange contracts - buy foreign currency
Foreign currency options - buy foreign currency
USD
EUR
GBP
HKD
AUD
CNY
672
55
31,698
35,628
595
230
32,389
33,224
88
355
—
—
51
194
—
—
—
153
—
—
43
74
—
—
—
106
—
—
—
2,202
—
—
—
6
—
—
7
64
—
—
—
931
—
—
6
14
—
—
Group sensitivity
Based on the financial instruments held at 30 June 2020, had the Australian dollar weakened/strengthened by 5% against other foreign
currencies at that date, with all other variables held constant, it is estimated that equity would have been $905,443 higher / ($1,348,409) lower
(2019: $1,648,153 higher / ($1,265,789) lower), arising from forward foreign exchange contracts and foreign currency options designated as
cash flow hedges. The Group's exposure to unhedged amounts is not material.
76
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
Interest rate risk
2. FINANCIAL RISK MANAGEMENTS (continued)
b)
The Group's main cash flow interest rate risk arises from long-term borrowings with variable interest rates. The Group manages its interest rate
exposure by maintaining a policy to combine, if considered necessary and approved by the Board, fixed and floating rate liabilities through the use
of derivative instruments and entry into fixed rate borrowings.
At 30 June 2020, the Group’s debt at variable rates are:
Weighted average
interest rate
Balance
$’000
% of total
loans
2020
Bank loans at variable rate
Interest rate swaps (notional principal amount)
Net exposure to cash flow interest rate risk
2019
Bank loans at variable rate
Net exposure to cash flow interest rate risk
1.1%
1.3%
2.2%
16,667
(15,000)
1,667
18,000
18,000
100%
100%
c) Credit risk
The maximum exposure to credit risk at balance date is the carrying amount of the financial assets as summarised in Note 2. For derivative
instruments, counterparties are limited to approved institutions with secure long-term credit ratings.
Credit limits are set and monitored by management with respect to individual customers and in some instances, debtor insurance is taken
out against specific customers in order to minimise the credit risk. Credit limits are based on the customers’ financial position and prior
payment history.
For derivative financial instruments, the Board determines and reviews on a regular basis the coverage required by the Group. The Group uses the
major Australian banks as counterparties for most of the Group’s derivative instruments. Derivatives entered into by foreign subsidiaries also use
the major banks from within that country. Refer to Notes 9 and 11 for additional information regarding receivables and credit risk exposure.
Trade receivables
The loss allowance provision as at 30 June 2020 is determined as follows. The expected credit losses below also incorporate forward
looking information.
2020
$’000
Neither past due
nor impaired
Less than
30 days
30 to
59 days
60 to
89 days
90 to
119 days
120 days
or more
Gross carrying amount
Loss allowance provision
Expected loss rate
31,895
—
0.0%
9,781
—
0.0%
769
—
0.0%
247
—
0.0%
187
—
0.0%
134
99
74.1%
Total
43,013
99
0.2%
Credit risk concentration
Two external customers represent respectively $8,499,729 (2019: $8,657,440) and $14,688,687 (2019: $4,454,838) of the closing receivables
balance. These debtor balances are in relation to the Australian business.
d) Liquidity risk
Financing Arrangements
The Group has access to the following undrawn borrowing facilities at the end of the reporting period:
Unused at balance date at floating rate
Bank loans expiring within one year
Bank loans expiring beyond one year
Total undrawn borrowing facilities
Refer to Note 20 for further information regarding the financing facilities available to the Group.
2020
$’000
2019
$’000
—
33,334
33,334
—
27,000
27,000
77
2020 Annual Report
Notes to the Consolidated Financial Statements continued
2. FINANCIAL RISK MANAGEMENTS (continued)
d) Liquidity risk (continued)
Maturity profile of the Group’s borrowings
The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at balance date to the
contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.
Less than
1 Year
$’000
Between
1 & 2 Years
$’000
Between
2 & 3 years
$’000
Total
Between Contractual
4 & 6 years Cash Flows
$’000
$’000
Carrying
Amount
$’000
30 June 2020
Non-derivatives
Payables
Borrowings
Lease liabilities
Total non-derivative financial liabilities
Derivatives
49,858
183
4,507
54,548
—
183
3,486
3,669
—
16,850
268
17,118
—
—
214
214
49,858
17,216
8,475
75,549
49,858
16,377
8,292
74,527
Forward foreign exchange contracts – inflow
Forward foreign exchange contracts – outflow
(31,698)
31,969
Foreign currency options
Interest rate contracts
Total derivative financial liabilities
30 June 2019
Non-derivatives
Payables
Borrowings
Total non-derivative financial liabilities
—
—
—
—
24
24
271
279
20
570
32,219
2,053
34,272
—
16,397
16,397
—
—
—
—
21
21
—
—
—
—
—
—
—
—
—
—
—
—
(31,698)
(31,698)
31,969
31,969
271
279
65
615
271
279
65
615
32,219
18,450
50,669
32,220
17,936
50,156
e) Fair value measurement of financial instruments
The following financial instruments held by the Group were measured and recognised at fair value at 30 June 2020 and 30 June 2019 on a
recurring basis:
30 June 2020
30 June 2019
Recurring fair value measurements
Financial assets at fair value
Derivative financial instruments
Financial assets through OCI
Financial asset through profit or loss
Total financial assets at fair value
Financial liabilities at fair value
Derivative financial instruments
Total financial liabilities at fair value
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
Level 1
$’000
Level 2
$’000
Level 3
$’000
Total
$’000
—
—
—
—
—
—
—
—
—
—
—
—
6,000
6,000
—
—
6,000
6,000
(615)
(615)
—
—
(615)
(615)
—
—
—
—
—
—
797
—
—
—
—
797
—
2,934
2,934
797
2,934
3,731
(234)
(234)
—
—
(234)
(234)
AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level using the following fair value measurement hierarchy:
Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period.
Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise
the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value
an instrument are observable, the instrument is included in Level 2.
Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
The Group holds level 2 and level 3 instruments as at 30 June 2020.
78
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
2. FINANCIAL RISK MANAGEMENTS (continued)
e) Fair value measurement of financial instruments (continued)
Level 2 instruments
The fair value of the derivative financial instruments is determined using valuation techniques. The Group uses a variety of methods and makes
assumptions that are based on market conditions existing at the end of each reporting period. The fair value of forward exchange and option
contracts is determined using forward exchange market rates at the end of the reporting period.
Level 3 instruments
The Group’s Financial Assets at Fair Value through OCI, being the unlisted equity securities of Aware Environmental Limited, are classified as
Level 3 as the timing of cash flows and discount rates are significant non-observable inputs.
The unobservable inputs into the valuation of the Group’s Financial Assets at Fair Value through OCI are determined based on the best
information available, including the Group’s own assessment of the assumptions that market participants would use in pricing the asset.
The Group calculated the fair value of its Financial Assets at Fair Value through OCI using a discounted cash flow to determine the fair value of
its Financial Assets at Fair Value through OCI.
The following table shows a reconciliation of the movement in the fair value of financial instruments categorised with level 3 of the fair value
hierarchy during the financial year:
30 June 2020
30 June 2019
Opening balance
Acquisitions
Unrecognised gain on acquisition
Fair value gains / (losses)
Maturities, disposals and interest
Transfer to other categories
Closing balance
Assets
$’000
2,934
3,000
—
66
—
—
6,000
Liabilities
$’000
—
—
—
—
—
—
—
Assets
$’000
—
4,138
(1,138)
14
(80)
—
2,934
Liabilities
$’000
—
—
—
—
—
—
—
The following table shows the sensitivity of Level 3 financial instruments to a reasonable change in alternative assumptions in respect of
significant non-observable inputs into the fair value calculation:
Fair value
Range of inputs
30 June
2020
$’000
30 June
2019
$’000
Significant
non-observable
inputs
30 June
2020
30 June
2019
Reasonable change in non-observable
inputs & impact to fair value
Financial Assets at Fair
Value through OCI
6,000
—
Discount rate
11.8%
Financial Assets at
Fair Value through
Profit or Loss
—
2,934
Conversion rate
—
— The fair value of the investment would increase
to $11,100,000 if the discount rate decreases
by 1% and would decrease to $8,791,000 if
the discount rate increases by 1%.
$0.60 to
$1.00 per
convertible
note
The fair value of the conversion option,
embedded in the Financial Asset at Fair Value
through Profit or Loss, would increase if the
conversion rate increases.
The fair value of the conversion option
amounts to approximately $61,000 if the
conversion rate is $0.60, per convertible
note and approximately $2,000,000 if the
conversion rate is $1.00 per convertible note.
As at 30 June 2019, the Group’s Financial Assets at Fair Value through Profit or Loss, being the convertible notes with Aware Environmental
Limited, were classified as Level 3 as the timing of cash flows, discount rates, conversion scenario, volatility and dividend yield were significant
non-observable inputs. These convertible notes were converted into shares in Aware Environmental Limited on 10 October 2019, which are
classified as Financial Assets through Other Comprehensive Income as at 30 June 2020.
79
2020 Annual Report
Notes to the Consolidated Financial Statements continued
3. SIGNIFICANT ITEMS
The Group’s profit after income tax includes the following items that are significant because of their nature or size:
i)
Impairment of A’kin and Moosehead brand names
Less applicable income tax benefit
ii) Impairment of investment and shareholder loan with the Kotia joint venture
Less applicable income tax benefit
iii) Share of net loss from the Kotia joint venture relating to the impairment of goodwill
and the release of earn out liability
Less applicable income tax benefit
Total significant items before income tax
Less applicable income tax benefits
Total significant items after income tax
4. DIVIDENDS
Details of dividends declared during the year ended 30 June 2020 are as follows:
Final 30 June 2019 dividend of 6.0 cents per fully paid share (2018: 6.0 cents per fully paid share)
fully franked at 30%
Interim 2020 ordinary dividend of 4.0 cents per fully paid share (2019: 4.0 cents per fully paid share)
fully franked at 30%, and no special dividend (2019: 2.0 cents per fully paid share) fully franked at 30%
Total dividends
Dividends not recognised at year end
2020
$’000
8,517
(358)
8,159
204
(61)
143
1,972
—
1,972
10,693
(419)
10,274
2019
$’000
—
—
—
—
—
—
—
—
—
—
—
—
2020
$’000
2019
$’000
6,387
2,619
4,274
10,661
6,309
8,928
Since the 2020 financial year end, the Directors have declared a fully franked final dividend of 7.0 cents
per fully paid share (2019: 6.0 cents per fully paid share). The aggregate amount of the dividend to be
paid on 24 September 2020 but not recognised as a liability at year end.
7,509
6,380
Franked Dividends
Franked dividends paid after 30 June 2020 will be franked out of existing franking credits or out of franking
credits arising from the payment of income tax in the year ending 30 June 2020.
Franking credits available for subsequent financial years based on a tax rate of 30%
24,470
23,245
The above amounts represent the balance of the franking account as at the end of the financial year, adjusted for the future receipt of the current
tax assets.
Dividend reinvestment plan (DRP)
The Company's DRP continues to operate with a discount of 2.5% and will apply to the upcoming final dividend. Shareholders on the register at the
record date of 7 September 2020 will be eligible for the dividend. Shareholders wishing to participate in the DRP need to have elected to do so by
no later than the trading day immediately following the record date, or by 8 September 2020. Shareholders that have previously elected to participate
in the DRP will continue to do so on the same basis unless a formal election to vary or cease participation is provided by 8 September 2020.
The shares issued under the DRP are fully paid ordinary shares and rank equally with other fully paid ordinary shares. The issue price under the
dividend reinvestment plan is calculated as the volume weighted average price of all shares sold through normal trade on the ASX during the five
trading days commencing on the third trading day after the record date, less a 2.5% discount.
80
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
5. SEGMENT INFORMATION
Operating segments are reported in a manner which is consistent with the internal reporting provided to the chief operating decision maker. The
chief operating decision maker has been identified as the Managing Director of McPherson's Limited.
The internal reports reviewed by the Managing Director, which are used to make strategic decisions, are separated into geographic segments and
are considered on the basis of Australia, New Zealand and the rest of the world.
Segment revenues
Segment revenues are allocated based on the location in which the revenue originated. Sales between segments are eliminated on consolidation.
Revenues from continuing operations of approximately $35,765,218 (2019: $34,698,000) and $37,236,925 (2019: $30,944,000) were derived
from two external customers. These revenues were attributable to the Australian segment.
Segment assets
Segment assets are allocated based on where the asset is located. Assets arising from transactions between segments are eliminated
on consolidation.
Australia New Zealand
$000
$000
Rest of
the World
$000
Intersegment
eliminations Consolidated
$000
$000
2020
Sales to external customers
Inter-segment sales
Total sales revenue
Other income (excluding interest)
Net borrowing costs
Profit before income tax
Income tax expense
Profit after income tax
Segment assets
2019
Sales to external customers
Inter-segment sales
Total sales revenue
Other income (excluding interest)
Net borrowing costs
Profit before income tax
Income tax expense
Profit after income tax
Segment assets
Total segment revenue and other income (excluding interest)
210,824
EBITDA before significant items
Depreciation and amortisation expense
Segment result before significant items
Significant items before tax
Segment result including significant items before tax
30,515
(4,026)
26,489
(10,693)
15,796
Total segment revenue and other income (excluding interest)
196,055
EBITDA before significant items
Depreciation and amortisation expense
Segment result before significant items
Significant items before tax
Segment result including significant items before tax
20,503
(1,861)
18,642
—
18,642
158,863
3,204
24,731
—
186,798
207,391
3,424
210,815
9
193,228
2,827
196,055
—
8,989
—
8,989
118
9,107
(588)
(327)
(915)
—
(915)
5,806
1,317
7,123
237
7,360
380
(544)
(164)
—
(164)
—
222,186
(4,741)
—
(4,741)
222,186
—
364
(4,741)
222,550
—
—
—
—
—
30,307
(4,897)
25,410
(10,693)
14,717
(1,455)
13,262
(7,200)
6,062
9,631
—
9,631
—
9,631
307
(173)
134
—
134
7,478
2,033
9,511
—
9,511
1,254
(94)
1,160
—
1,160
—
210,337
(4,860)
—
(4,860)
210,337
—
—
(4,860)
210,337
—
—
—
—
—
22,064
(2,128)
19,936
—
19,936
(956)
18,980
(5,259)
13,721
137,114
3,793
24,136
—
165,043
81
2020 Annual Report
Notes to the Consolidated Financial Statements continued
6.
a)
INCOME TAX
Income tax expense
Current tax
Deferred tax
(Over) / under provision in prior years
Total income tax expense
Deferred income tax (credit) / expense included in income tax expense comprises:
Decrease / (increase) in deferred tax assets
Increase / (decrease) in deferred tax liabilities
Total deferred tax
b) Numerical reconciliation of income tax expense
Total operating profit before tax
Prima facie income tax expense at 30%
Tax effect of amounts which are not deductible / (taxable) in calculating taxable income:
Impairment of intangible assets
Tax rate differences in overseas entities
Share-based payments expense
(Over) / under provision in prior years
Share of loss from investments
Other
Income tax expense
Note
17
22
2020
$’000
8,343
(389)
(754)
7,200
(106)
(283)
(389)
2019
$’000
4,600
1,144
(485)
5,259
464
680
1,144
13,262
3,979
18,980
5,694
2,197
58
201
(754)
1,168
351
7,200
—
(163)
52
(485)
96
65
5,259
c) Amounts recognised directly in equity
Aggregate current and deferred tax arising in the reporting period and not recognised in net profit
or loss or other comprehensive income but directly credited to equity:
Deferred tax assets
17
(12)
(4)
d) Tax expense relating to items of other comprehensive income
Cash flow hedges
17, 22
349
328
7. KEY MANAGEMENT PERSONNEL
Key management personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Share-based payments
Total key management personnel compensation
2020
$
2019
$
2,630,595
2,162,979
120,445
23,401
337,949
110,988
26,966
71,227
3,112,390
2,372,160
Detailed remuneration disclosures are provided in the Remuneration Report contained within the Directors’ Report, which is in section (k) of the
Directors’ Report.
Loans to key management personnel
There were no loans made to Directors of McPherson’s Limited, or to any other key management personnel of the Group, including their related
entities during the current or previous year, nor were there any loans outstanding at the end of the current or previous financial year.
Other transactions with key management personnel
During the year, the Group sold minor quantities of its products for domestic use to key management personnel on terms and conditions no more
favourable than those adopted when dealing with other employees at arm’s length in the same circumstances.
82
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
7. KEY MANAGEMENT PERSONNEL (continued)
Other transactions with key management personnel (continued)
There were no transactions between the Group and the Directors of McPherson’s Limited or with any KMP of the Group, including their
related entities, during the current or previous financial year other than those disclosed above, and relating to remuneration and to transactions
concerning performance rights and shares, and the following transactions:
set the terms under which:
> On 10 October 2019, MCP and Aware Environmental Limited (Aware) executed a Subscription Agreement and a Deed of Amendment, which
> MCP converted its 3,000,000 convertible notes at a conversion price of $0.60 per share into 5,000,000 ordinary shares in Aware; and
> MCP subscribed for 5,000,000 shares in Aware at a subscription price of $0.60 per share.
> The Group’s 10,000,000 shares represent 10.7% of the capital of Aware at 30 June 2020.
> Mr. Geoffrey Pearce is a Director and a significant shareholder of Aware Environmental Limited. The above transactions were conducted on normal
commercial arm’s length terms and entered into in order to provide a more robust and reliable basis of skin care product supply to McPherson’s.
8. CASH AND CASH EQUIVALENTS
Cash on hand
Cash at bank and on deposit (at call)
Total cash and cash equivalents
9. TRADE AND OTHER RECEIVABLES
Trade receivables
Provision for impairment
Trade receivables, net of impairment
Other receivables and prepayments
Total trade and other receivables
Movements in the provision for impairment of trade receivables
Balance at 1 July
Reversal of provisions for impairment
Net receivables written off as uncollectible
Foreign exchange
Total provision for impairment
2020
$’000
7
7,142
7,149
2020
$’000
43,013
(99)
42,914
3,781
46,695
2019
$’000
7
10,465
10,472
2019
$’000
29,430
(115)
29,315
2,562
31,877
(115)
(121)
16
—
—
2
5
(1)
(99)
(115)
Other receivables do not contain impaired assets and are not past due. It is expected that these amounts will be received in full when due. Due to
the short-term nature of current receivables, their carrying amounts are assumed to be the same as their fair value.
Credit risk
The credit risk relating to trade and other receivables of the Group has been recognised, net of any provision for impairment.
The following provides an overview of the credit risk associated with trade receivables.
2020
$’000
2019
$’000
Neither past due nor impaired
Past due, but not impaired:
> Less than 30 days
> 30 to 59 days
> 60 to 89 days
> 90 to 119 days
> 120 days or more
Gross carrying amount
Provision for impairment
Net carrying amount
31,895
25,250
9,781
2,977
769
247
187
134
43,013
(99)
42,914
752
240
18
193
29,430
(115)
29,315
Credit risk concentration
Two external customers represent $14,688,687 (2019: $8,657,440) and $8,499,729 (2019: $4,454,838) respectively of the closing receivables
balance. These debtor balances are in relation to the Australian business.
83
2020 Annual Report
Notes to the Consolidated Financial Statements continued
10. INVENTORIES
Raw materials
Finished goods
Total inventories
Provision for inventory obsolescence
Total inventories, net of obsolescence provision
11. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are only used for economic hedging purposes and not as trading or speculative instruments.
Current derivative financial instrument assets
Forward foreign exchange contracts – cash flow hedges
Total current derivative financial instrument assets
Current derivative financial instrument liabilities
Interest rate swaps – cash flow hedges
Forward foreign exchange contracts – cash flow hedges
Foreign currency options – cash flow hedges
Total current derivative financial instrument liabilities
Non-current liabilities
Interest rate swaps – cash flow hedges
2020
$’000
9,013
41,821
50,834
(3,748)
47,086
2019
$’000
5,180
34,971
40,151
(3,463)
36,688
2020
$’000
2019
$’000
—
—
20
271
279
570
45
797
797
—
—
234
234
—
Derivative financial instruments used by the Group
The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest and
foreign exchange rates in accordance with the Group's financial risk management policies (refer to Note 2). For information about the methods
and assumptions used in determining the fair value of derivatives please refer to Note 2(e).
Forward foreign exchange contracts – cash flow hedges
The Group enters into forward foreign exchange contracts to hedge a portion of highly probable forecast purchases denominated in foreign
currencies, predominantly in USD. The terms of these commitments are twelve months or less.
Foreign currency options – cash flow hedges
The Group has also entered into foreign currency option contracts to partially hedge a portion of anticipated USD purchases. At balance date, the
outstanding foreign currency option contracts cover the period from July 2020 to June 2021.
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash
flows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by the related amount deferred in equity.
Interest rate swaps – cash flow hedges
The Group has entered into an interest rate swap contract maturing in June 2023 to partially restrict the Group’s interest rate exposure. The
interest rate swap contract is settled on a quarterly basis and compared with the 90-day Bank Bill Swap Bid Rate (BBSY).
12. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Current assets
Convertible note receivable – Aware Environmental Limited
The following gains were recognised in profit or loss:
Fair value gain
2020
$’000
2019
$’000
—
66
2,934
14
Please refer to Note 2 (e) for details on the classification, process, measurement and recognition of this fair value hierarchy Level 3 instrument.
84
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
13. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME
2020
$’000
2019
$’000
Current assets
Unlisted equity securities – Aware Environmental Limited
6,000
—
There were no gains or losses recognised in other comprehensive income in relation to unlisted equity securities in 2020 (2019: nil).
Please refer to Note 2 (e) for details on the classification, process, measurement and recognition of this fair value hierarchy Level 3 instrument.
14. PROPERTY, PLANT AND EQUIPMENT
2020
$’000
2019
$’000
Leasehold improvements
At cost
Accumulated depreciation
Total leasehold improvements
Plant and equipment
At cost
Accumulated depreciation
Total plant and equipment
Total property, plant and equipment
a) Reconciliations
Carrying amount at 1 July 2018
Additions
Disposals
Depreciation expense
Foreign currency exchange differences
Carrying amount at 30 June 2019
Additions
Disposals
Transfer from other intangibles
Depreciation expense
Foreign currency exchange differences
Carrying amount at 30 June 2020
339
(321)
18
37,041
(30,800)
6,241
6,259
Leasehold
Improvements
$’000
Plant and
Equipment
$’000
44
—
—
(8)
(13)
23
—
—
—
(5)
—
18
3,224
4,119
—
(1,467)
31
5,907
1,745
—
335
(1,776)
30
6,241
292
(269)
23
35,080
(29,173)
5,907
5,930
Total
$’000
3,268
4,119
—
(1,475)
18
5,930
1,745
—
335
(1,781)
30
6,259
b) Non-current assets pledged as security
Refer to Note 20 for information on non-current assets pledged as security by the parent entity and certain controlled entities.
15. LEASES
a) Right-of-use assets
Buildings
Equipment and Vehicles
Total right-of-use assets
Additions to right-of-use assets in 2020 were $1,004,244.
2020
$’000
3,651
1,383
5,034
1 July 2019
$’000
4,776
1,891
6,667
85
2020 Annual Report
Notes to the Consolidated Financial Statements continued
15. LEASES (continued)
b) Amounts recognised in the statement of comprehensive income
Depreciation charge of right-of-use assets
Buildings
Equipment and Vehicles
Total depreciation charge of right-of-use assets
Expenses relating to short-term and low value leases (included in Rental Expense)
Interest expense (included in Borrowing Costs)
Cash outflow for leases
2020
$’000
2019
$’000
(1,928)
(709)
(2,637)
(353)
(503)
(4,275)
—
—
—
—
—
—
As disclosed in note 1(b), the new AASB16 Leases accounting standard is effective 1 July 2019 and comparatives were not restated, as allowed
under the modified transition approach.
16. INTANGIBLE ASSETS
Goodwill
Brand names
Other intangibles
Accumulated amortisation
Total other intangibles
Total intangibles
2020
$’000
15,757
48,310
7,662
(7,016)
646
64,713
2019
$’000
15,757
56,827
8,439
(7,050)
1,389
73,973
Reconciliations
Reconciliations of the carrying amounts of each class of intangible assets at the beginning and end of the financial year are set out below:
Goodwill
$’000
Brand names Other Intangibles
$’000
$’000
Total
$’000
Carrying amount at 1 July 2018
15,674
56,827
1,399
73,900
Additions
Impairment charge
Amortisation charge
Foreign currency exchange differences
Carrying amount at 30 June 2019
Additions
Impairment charge
Amortisation charge
Transfer to property, plant and equipment
Foreign currency exchange differences
—
—
—
83
—
—
—
—
643
—
(653)
—
643
—
(653)
83
15,757
56,827
1,389
73,973
—
—
—
—
—
—
(8,517)
—
—
—
71
—
(479)
(335)
—
646
71
(8,517)
(479)
(335)
—
64,713
Carrying amount at 30 June 2020
15,757
48,310
Acquired brand names are not amortised under AASB 138 Intangible Assets, as the Directors consider these to have an indefinite life. The brand
names are subject to an annual impairment test.
86
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
16. INTANGIBLE ASSETS (continued)
Impairment Testing
Goodwill
Goodwill is allocated to the following cash generating units:
Australia
2020
$’000
2019
$’000
15,757
15,757
The recoverable amount of a cash generating unit (CGU) is determined based on a value-in-use calculation. The value-in-use calculations
includes cash flow projections based on the Board approved budgets covering a one year period. Cash flows beyond the projected period are
extrapolated using estimated growth rates. In performing the value-in-use calculations for the CGU, the Group has applied a post-tax discount
rate to discount the forecast future attributable post-tax cash flows.
The assumptions used in the value-in-use calculation of the Australian CGU are set out below:
30 June 2020
30 June 2019
CGU
Australia
Estimated
Growth Rates
Year 2 Onwards
Terminal
Pre-Tax
Post-Tax
Growth Discount Discount
Rate
Rate
Rate
Estimated
Growth Rates
Year 2 Onwards
Terminal
Growth
Rate
Post-Tax
Discount
Rate
Pre-Tax
Discount
Rate
2.0%
2.0%
10.0%
13.7%
2.0%
2.0%
10.0%
13.7%
In addition to the above, it is noted that the year one cash flow projection is a key assumption within the value-in-use calculation. The cash flow
projections used for the year one cash flows are based on the Board approved budgets. The budgets reflect the Board's expectation of cash
flows for the Australian CGU arising from profit optimisation initiatives, new product launches and the inventory rationalisation project. At 30 June
2020, the value-in-use calculation for the Australian CGU exceeded the carrying value of its net assets. The surplus amount for the Australian
CGU is $134,431,322 (June 2019: $102,986,000).
Impairment charge
No goodwill impairment charge was recognised in 2020 (2019: nil).
Impact of possible changes in key assumptions
A sensitivity analysis was undertaken by management to examine the effect of changes in key assumptions which would cause the carrying amount
to exceed the recoverable amount for the Australian CGU. Management is satisfied that any reasonably likely changes in the key assumptions of the
value-in-use calculation would not cause the carrying value of the Australian CGU to materially exceed its recoverable amount.
Brand names
Brand names are tested for impairment on an individual basis annually and more frequently if events or changes in circumstances indicate that
they might be impaired. The recoverable amount of a brand name is determined based on the higher of value-in-use or fair value less costs to sell
calculations.
The value-in-use calculations are prepared using a discounted cash flow analysis of the future net contribution expected to be generated by the
brand, which is based on the Board approved budget covering a one year period. Cash flows beyond the projected period are extrapolated using
estimated growth rates. In performing the value-in-use calculations the Group has applied a post-tax discount rate to discount the forecast future
attributable post-tax cash flows.
The assumptions used in the brand name value-in-use calculations, are set out below.
Estimated annual growth rates
Terminal year growth rates
Post-tax discount rates
Pre-tax discount rates
2020
2019
1.0% – 15.0%
1.0% – 15.0%
1.0% – 3.0%
1.0% – 3.0%
10.0%
13.7%
10.0%
13.7%
In addition to the above, it is noted that the year one cash flow projection is a key assumption within the value-in-use calculations.
At 30 June 2020, the total carrying value of brand names was $48,311,000 (2019: $56,827,000). The value-in-use calculations for these brand
names exceeded their carrying values.
Impairment charge
An impairment charge of $8,517,000 was recognised in 2020 (2019: nil) for the brands A’kin and Moosehead, which were adversely impacted by
a change in consumer demand during the COVID-19 pandemic.
The Group anticipates that these challenges will persist into the medium term based on the decline in retailer scan data in the Natural Skincare
and Haircare categories, and therefore impaired the entire carrying value of the A’kin and Moosehead brands as at 30 June 2020.
87
2020 Annual Report
Notes to the Consolidated Financial Statements continued
16. INTANGIBLE ASSETS (continued)
Impact of possible changes in key assumptions
If the year one projected sales by brand were 10.0% below the current estimates used in the value-in-use calculations, no impairment charge
would arise.
If the year one contribution margin percentages were 2.0% below the current estimates used in the value-in-use calculations, no impairment
charge would arise.
If the terminal year growth rates used in the value-in-use calculations were to be 1.0% lower than management’s estimates, no impairment charge
would arise.
If the post-tax discount rate used in the value-in-use calculations was to be 0.5% higher than management’s estimates, no impairment charge
would arise.
17. DEFERRED TAX ASSETS
The balance comprises temporary differences attributable to:
Employee benefits
Depreciation
Net of right-of-use assets and lease liabilities
Other
Total temporary differences
Note
Set-off of deferred tax liabilities pursuant to set-off provisions
22
Net deferred tax assets
Movements
Opening balance at 1 July 2018
Charged to profit or loss
Charged to equity
Amortisation of transaction costs on share issues
Under/(over) provision in prior years
Foreign currency exchange differences
Closing balance at 30 June 2019
AASB16 adjustment at 1 July 2019
Charged to profit or loss
Charged to equity
Charged to other comprehensive income
Amortisation of transaction costs on share issues
Under/(over) provision in prior years
Foreign currency exchange differences
Note
6
Leases 1
$’000
—
—
—
—
—
—
—
1(b)
6
1,301
(333)
—
—
—
—
—
Employee
Benefits
$’000
1,459
27
—
—
(69)
(1)
1,416
—
249
—
—
—
—
—
Depreciation
$’000
761
(67)
—
—
(37)
—
657
—
219
—
—
—
78
—
2020
$’000
1,665
954
968
622
4,209
(4,020)
189
Other
$’000
735
(424)
4
(8)
126
22
455
—
(29)
12
183
(5)
6
—
2019
$’000
1,416
657
—
455
2,528
(2,442)
86
Total
$’000
2,955
(464)
4
(8)
20
21
2,528
1,301
106
12
183
(5)
84
—
Closing balance at 30 June 2020
968
1,665
954
622
4,209
1) Net of right-of-use assets and lease liabilities
Deferred tax assets to be recovered within 12 months
Deferred tax assets to be recovered after more than 12 months
Total deferred tax assets
2020
$’000
3,012
1,197
4,209
2019
$’000
1,660
868
2,528
88
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
18. INVESTMENT IN JOINT VENTURES
a) Formation of the My Kart joint venture (Soulful)
On 23 July 2019, the Group announced the acquisition of 51% interest in the joint venture My Kart Pty Ltd from privately owned Australian
companies The Beetle Co Pty Ltd, Sandybanks Marketing Pty Ltd and Sodor Investments Pty Ltd (“Soulful shareholders”). The Group’s
investment for this holding comprised the following:
> $0.5 million equity in My Kart;
> $0.5 million shareholder loan to My Kart; and
> $0.2 million working capital loan to My Kart.
My Kart is a consumer goods business based on adult and student milk formulas, pre-packaged dried and organic foods, and digestive related
tonics and bars trading under the “Soulful” brand.
Under the terms of the agreement, the parties entered into the following transactions:
The Group recognised on acquisition date an earn out liability which amounts to $1.8 million at 30 June 2020.
> Earn out payable by the Group, based on a normalised EBIT multiple of My Kart for the financial years ending 30 June 2020, 2021 and 2022.
> The Group has the option to call, after 30 June 2024, the 49% interest in My Kart owned by the Soulful shareholders; and
> The Soulful shareholders has the option to put its 49% interest in My Kart to the Group after 30 June 2024.
b) Formation of the Dr. LeWinn’s China Limited joint venture
On 11 November 2019, the Group announced a joint venture with Access Brand Management (ABM) in order to expand sales of Dr. LeWinn’s
branded products in Greater China, and to jointly develop new brands and products for the Greater China market.
Under the terms of the joint venture agreement:
ended 30 June 2020, 2021 and 2022; and
> The Group and ABM hold respectively 49% and 51% of the HK$100 issued share capital of the joint venture, incorporated in Hong Kong;
> MCP and ABM will execute an Exclusive Distribution Agreement for the Dr. LeWinn’s brand in Greater China until 30 June 2022;
> ABM commits to increase its purchases of Dr. LeWinn’s products by a minimum compound annual growth rate of 5% for the financial years
> If ABM does not achieve a target of $35 million in annual purchases of Dr. LeWinn’s products from McPherson’s in any year prior to 30 June
2022, or aggregate purchases of Dr. LeWinn’s products from McPherson’s of $82.5 million over the three year period ended 30 June 2022,
then the Group may elect to acquire the trademarks of the joint venture for a value agreed with ABM. As at 30 June 2020, ABM had achieved
the annual purchase target.
Interest in joint ventures
c)
The following table summarises the financial information of the equity accounted investees as at 30 June 2020.
Entity
Country
% Interest
Measurement method
Kotia Limited
Sugarbaby & Co Pty Ltd
My Kart Pty Ltd
New Zealand
Australia
Australia
Dr. LeWinn’s China Limited
Hong Kong
51
51
51
49
Equity method
Equity method
Equity method
Equity method
The joint ventures are private entities, for which no quoted market prices are available.
Carrying amount
$’000
Share of loss
$’000
—
—
1,798
111
1,909
3,067
373
454
—
3,894
89
2020 Annual Report
Notes to the Consolidated Financial Statements continued
Interest in joint ventures (continued)
18. INVESTMENT IN JOINT VENTURES (continued)
c)
The new ventures are deemed to represent joint ventures on the basis that the unanimous consent of both shareholders is required for several
key decisions. Consequently, the Group does not consolidate the results of the joint ventures, rather it equity-accounts for its share of the joint
ventures’ profit or loss and movements in other comprehensive income. Any dividends received from the joint ventures in future periods will be
recognised as dividend income and a reduction in the carrying amount of the Group’s investment in this entity.
Movements in carrying amount of equity accounted investments
Opening balance
Acquisition of investment in joint ventures
Share of joint ventures’ loss
Share of joint ventures’ loss recognised against receivable balances
Dividends
Carrying amount of equity accounted investments
Share of joint ventures’ statement of financial position
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets/(liabilities)
2020
$’000
716
2,363
(3,894)
2,724
—
1,909
544
3,040
3,584
(3,935)
—
(3,935)
(351)
2019
$’000
—
1,195
(479)
—
—
716
843
2,795
3,638
(1,963)
(833)
(2,796)
842
d) Loan receivable from joint ventures
The following table summarises financial information in relation to the Group’s loans to the joint ventures as at 30 June 2020:
Name of entity
Loans from the Group
Carrying amount
$’000
Interest
rate
Term
Kotia Limited
Shareholder loan
Sugarbaby & Co Pty Ltd
Shareholder loan
My Kart Pty Ltd
Total
Shareholder loan
Working capital loan
—
530
810
117
1,457
6%
The loan is not expected to be repaid within 12 months
5%
The loan is not expected to be repaid within 12 months
6%
The loan is not expected to be repaid within 12 months
—
The loan is not expected to be repaid within 12 months
The purpose of these loans is to fund the working capital requirements of the joint ventures.
As at 30 June 2020, the Group recognised an impairment charge of $204,000 before tax (2019: nil) against the shareholder loan to Kotia Limited.
19. TRADE AND OTHER PAYABLES
Trade payables
Customer contract liabilities
Other payables
Total trade and other payables
90
2020
$’000
30,043
13,924
5,891
49,858
2019
$’000
17,445
9,908
4,866
32,219
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
20. BORROWINGS
Bank loans – secured
Total current borrowings
Bank loan – secured
Debt issue costs
Total non-current borrowings
Total borrowings
Interest income from continuing operations
Interest income
Borrowing costs from continuing operations
Borrowing costs
Amortisation of refinancing costs
Total borrowing costs
Net borrowing costs
2020
$’000
—
—
16,667
(290)
16,377
16,377
2019
$’000
1,667
1,667
16,333
(64)
16,269
17,936
302
70
(1,391)
(64)
(1,455)
(1,153)
(933)
(23)
(956)
(886)
The Group’s new three-year facility, denominated in Australian dollars, has a facility limit of $47.5 million (2019: $41.9 million) and expires in June
2023. This facility comprises three tranches:
> $35.0 million revolving working capital facility;
> $10.0 million acquisition facility; and
> $2.5 million documentary facility, covering the Group’s bank guarantee and letters of credit requirements.
Drawings under the $35.0 million working capital tranche of the facility are required to be backed by eligible trade debtor and inventory assets.
Under the terms of the new borrowing facilities, the Group is required to comply with the following key financial covenants:
> Secured leverage ratio must not exceed 2.50 times;
> Interest cover ratio must be at least 3.50 times; and
> Total shareholder funds must not be less than $70,000,000.
As at 30 June 2020, the Group was compliant with its debt covenants.
In addition to the new three-year $47.5 million facility, the Group holds a $5 million overdraft facility (2019: $5 million).
Security for borrowings
The Group provides security to its lenders in order to access all tranches of the new debt facility. The Group facilities are secured by the following:
> Fixed and floating charges over the assets of the parent entity and certain controlled entities;
> Mortgages over shares held in certain controlled entities; and
> Cross guarantees and indemnities provided by the parent entity and certain controlled entities.
Assets pledged as security
Fixed charge
Property, plant and equipment
Intangible assets
Total non-current assets pledged as security
The following current assets are also pledged as security:
Fixed charge
Receivables
Floating charge
Cash
Inventories
Receivables
Total current assets pledged as security
Total assets pledged as security
2020
$’000
2019
$’000
6,167
63,229
69,396
5,824
72,489
78,313
41,882
28,162
5,716
46,127
3,271
96,996
8,718
35,641
1,510
74,031
166,392
152,344
91
2020 Annual Report
Notes to the Consolidated Financial Statements continued
21. PROVISIONS
Provisions – current
Employee entitlements
Employee incentives
Other
Total current provisions
Provisions – non-current
Employee entitlements
2020
$’000
5,538
2,372
—
7,910
2019
$’000
4,678
1,320
100
6,098
732
709
a) Employee entitlements
Current employee entitlements reflect annual leave and long service leave accrued for the next 12 months. Based on past experience, the Group
expects that approximately 32% of the current balance will be taken or paid within the next 12 months.
The non-current provision for employee entitlements relates to the Group’s liability for long service leave beyond 12 months from balance date.
b) Employee incentives
Amounts reflect incentive payments to employees on the basis that certain criteria were fulfilled during the financial year.
Movement in provisions
Movements in each class of provision during the financial year, other than employee entitlements, are set out below:
Employee
Incentives
$’000
1,320
2,673
(45)
(1,575)
(1)
2,372
Other
$’000
100
—
—
(96)
(4)
—
Note
2020
$’000
2019
$’000
10,694
11,052
—
44
166
37
10,738
11,255
(4,020)
6,718
38
10,700
10,738
(2,442)
8,813
191
11,064
11,255
Carrying amount at 1 July 2019
Additional provisions charged to profit or loss
Unused amounts reversed to profit or loss
Payments
Foreign currency exchange differences
Carrying amount at 30 June 2020
22. DEFERRED TAX LIABILITIES
The balance comprises temporary differences attributable to:
Brand names
Cash flow hedges
Other
Total temporary differences
Set-off of deferred tax asset pursuant to set-off provisions
17
Net deferred tax liabilities
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities to be settled after more than 12 months
Total temporary differences
92
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
22. DEFERRED TAX LIABILITIES (continued)
Movements
Consolidated
Closing balance at 30 June 2018
Debited/(credited) to profit or loss
Charged to other comprehensive income
Under provision in prior years
Foreign exchange
Closing balance at 30 June 2019
Debited/(credited) to profit or loss
Charged to other comprehensive income
Under provision in prior years
Foreign exchange
Closing balance at 30 June 2020
23. CONTRIBUTED EQUITY
Issued and paid up capital:
Brand
names
$’000
Cash Flow
Hedges
$’000
Note
Other
$’000
Total
$’000
6
6
6
6
11,067
—
—
(15)
—
11,052
(358)
—
—
—
10,694
450
44
(328)
—
—
166
—
(166)
—
—
—
18
636
—
(615)
(2)
37
75
—
(71)
3
44
11,535
680
(328)
(630)
(2)
11,255
(283)
(166)
(71)
3
10,738
2020
$’000
2019
$’000
107,264,580 fully paid ordinary shares (June 2019: 106,329,245)
159,444
157,751
Movements in ordinary share capital
Date
Details
1 July 2018
Opening Balance
Shares issued – DRP for 30 June 2018 final dividend
Shares issued – DRP for 31 December 2018 interim dividend
Transaction costs associated with share issues
Tax effect of share issue transaction costs recognised directly in equity
30 June 2019 Closing Balance
Employee shares scheme
Shares issued – DRP for 30 June 2019 final dividend
Shares issued – DRP for 31 December 2019 interim dividend
Performance rights conversion
Transaction costs associated with share issues
Tax effect of share issue transaction costs recognised directly in equity
Number of Shares
Price $
$’000
104,771,194
368,884
1,189,167
106,329,245
122,517
391,541
371,277
50,000
1.52
1.11
1.74
2.19
1.74
155,882
560
1,319
(14)
4
157,751
213
857
646
—
(35)
12
30 June 2020 Closing Balance
107,264,580
159,444
Ordinary shares
Ordinary shares entitle the holder to participate in dividends, and to share in the proceeds of winding up the Company in proportion to the number
of shares held. On a show of hands, every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a
poll each share is entitled to one vote.
Ordinary shares have no par value and the Company does not have a limited amount of authorised capital.
Options and Performance Rights
Information relating to the Group’s Employee Performance Rights and options plans, including details of Performance Rights issued and
outstanding at the end of the year, is set out in the Remuneration Report within the Directors’ Report and within Note 25.
93
2020 Annual Report
Notes to the Consolidated Financial Statements continued
23. CONTRIBUTED EQUITY (continued)
Capital risk management
One of the Group’s key objectives when managing capital is to safeguard its ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to reduce debt.
One measure the Group uses to assess its capital structure is its gearing ratio. This ratio is calculated as net debt divided by total capital.
Net debt is calculated as total borrowings less cash assets. Total capital is calculated as net debt plus total equity.
Total borrowings
Less: Cash assets
Net debt, excluding lease liabilities
Total equity
Total capital
Gearing ratio
24. RESERVES AND ACCUMULATED LOSSES
a) Reserves
Hedging reserve – cash flow hedges
Share-based payments reserve
Foreign currency translation reserve
Total reserves
Cash flow hedge reserve
Balance 1 July
Revaluation – gross
Deferred tax
Transfer to cost of sales – gross
Deferred tax
Total cash flow hedge reserve
Share-based payments reserve
Balance at 1 July
Share-based payments
FY20 employee share scheme accrued during the year
FY19 employee share scheme issued during the year
Total share-based payments reserve
Foreign currency translation reserve
Balance 1 July
Currency translation differences arising during the year
Total foreign currency translation reserve
b) Accumulated losses
Balance 1 July
Effects from changes in accounting policy
Profit/(loss) after tax
Dividends provided for or paid
Total accumulated losses
94
Note
20
8
Note
17, 22
17, 22
25
25
2020
$’000
16,377
(7,149)
9,228
90,229
99,456
9.3%
2020
$’000
(321)
2,625
2,038
4,342
508
(615)
183
(563)
166
(321)
2,180
428
236
(219)
2,625
1,986
52
2,038
2019
$’000
17,936
(10,472)
7,464
96,528
103,992
7.2%
2019
$’000
508
2,180
1,986
4,674
1,318
722
(212)
(1,860)
540
508
2,014
(39)
205
—
2,180
1,496
490
1,986
1(b)
(65,897)
(70,690)
(3,061)
6,062
(10,661)
—
13,721
(8,928)
(73,557)
(65,897)
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
24. RESERVES AND ACCUMULATED LOSSES (continued)
c) Nature and purpose of reserves
Cash flow hedge reserve
The hedging reserve is used to record gains or losses on hedging instruments in cash flow hedges that are recognised in other comprehensive
income as described in Note 1(p). Amounts are subsequently either transferred to the initial cost of inventory or reclassified to profit or loss as
appropriate.
Share-based payments reserve
The share-based payments reserve is used to recognise the fair value of Performance Rights issued at grant date but not exercised or cancelled
and shares estimated to be issued under the employee share scheme.
Foreign currency translation reserve
Exchange differences arising on translation of foreign controlled entities are taken to the foreign currency translation reserve, as described in
Note 1(e). The reserve is recognised in profit or loss when the net investment is disposed of.
25. SHARE-BASED PAYMENTS
a) Employee Performance Rights Plan
Long-term incentives are provided to executives to align this element of compensation with the objective of improving long-term shareholder
returns. During the current year the Group continued with its Performance Rights plan (the McPherson’s Limited Performance Rights Plan) to
provide long-term incentives to executives. Under this plan, participants are granted Performance Rights which only vest if certain performance
conditions (relating to compound annual growth in earnings per share and total shareholder return) are met and the executive is still employed by
the Group at the end of the vesting period, or where not employed at the end of the vesting period is deemed to be a “good leaver” by the Board.
Participation in the plan is at the discretion of the Nomination and Remuneration Committee and no individual has a contractual right to receive
any guaranteed benefits. The maximum LTI opportunity for the Managing Director is $1 million per annum and for other senior executives in 2020
is 40% of fixed remuneration.
Each Performance Right carries an entitlement to acquire one ordinary share in the Company for no consideration subject to the satisfaction of
the vesting conditions which are based on performance and time related conditions. The Performance Rights carry no dividend or voting rights.
Approval for the issue of Performance Rights granted to the Managing Director for the years from 2019 to 2021 was obtained under ASX Listing
Rule 10.14 at the Company’s 2019 Annual General Meeting.
The number of Rights that will vest will be determined proportionately on a straight line basis as follows:
Type of Rights
KMP
Commencement
Rights
High Level
Performance
Rights (HLP) and
Performance Rights
Managing Director
HLP – Managing Director
Performance Rights –
Chief Financial Officer
(and Company
Secretary) and National
Accounts Director
HLP
Managing Director
Performance
Rights
Chief Financial Officer
(and Company Secretary)
and National
Accounts Director
Exceptional
Level Performance
Rights (ELP)
Managing Director
Year of
Grant
2017
2017
2018
Vesting Hurdles
To continue to be the Managing Director of the Company until 1
November 2019. These rights vested in 2020.
Zero Rights vesting at +3.0% (or less) Underlying EPS CAGR,
to
100% of Rights vesting at +8.0% (or higher) Underlying EPS CAGR
Zero Rights vesting at +5.0% (or less) Underlying EPS CAGR,
to
100% of Rights vesting at +10.0% (or higher) Underlying EPS CAGR
2019
&
2020
Zero Rights vesting at +5.0% (or less) Underlying EPS CAGR,
to
100% of Rights vesting at +10.0% (or higher) Underlying EPS CAGR
First 50% of Rights
Zero Rights vesting at +5.0% Underlying EPS CAGR (or less),
to
100% of Rights vesting at +10.0% (or higher) Underlying EPS CAGR
Remaining 50% of Rights
25% of Rights vesting at +10.0% TSR CAGR (at least),
to
100% of Rights vesting at +15.0% (or higher) TSR CAGR
25% of Rights vesting at +15.0% TSR CAGR (at least),
to
100% of Rights vesting at +25.0% TSR CAGR (or higher)
25% of Rights vesting at +15.0% TSR CAGR (at least),
to
100% of Rights vesting at +20.0% TSR CAGR (or higher)
2019
&
2020
2017
&
2018
2019
&
2020
Vesting
Period
3 years
3 years
3 years
3 years
3 years
3 years
4 years
4 years
95
2020 Annual Report
Notes to the Consolidated Financial Statements continued
25. SHARE-BASED PAYMENTS (continued)
a) Employee Performance Rights Plan (continued)
Set out below is a summary of Performance Rights granted under the plan:
As at 1 July
Granted during the year
Redeemed during the year
Lapsed during the year
As at 30 June
Vested and exercisable
2020
2019
Average fair
value at
grant date
$1.09
$1.88
Average fair
value at
grant date
$0.88
$0.82
Number
of rights
3,424,000
877,000
(50,000)
(512,000)
Number
of rights
3,255,000
1,094,000
—
(925,000)
$1.43
3,739,000
$1.09
3,424,000
213,000
—
Performance Rights outstanding at the end of the year have the following expiry dates:
Grant date
Vesting date
22 September 2016
21 November 2016
21 November 2016
21 September 2017
21 September 2017
21 September 2017
25 September 2018
25 September 2018
25 September 2019
18 November 2019
18 November 2019
Total
25 September 2019
25 September 2019
25 September 2020
22 September 2020
22 September 2020
22 September 2021
25 September 2021
25 September 2022
26 September 2022
26 September 2022
25 September 2023
Number of rights
30 June 2020 30 June 2019
—
213,000
590,000
294,000
235,000
436,000
696,000
398,000
422,000
182,000
273,000
194,000
581,000
590,000
294,000
235,000
436,000
696,000
398,000
—
—
—
3,739,000
3,424,000
The fair value of the Performance Rights issued were valued as follows:
Performance Rights
Fair value
Commencement
Rights and HLP
Independently valued at grant date, applying a discounted cash flow methodology, using the market price of the related
shares at the commencement date or grant date less the present value of expected dividends forgone prior to vesting
ELP
Independently valued at grant date using the assumptions underlying the Black-Scholes methodology to produce a
simulation model which allows for the incorporation of the Total Shareholder Return (TSR) hurdle that must be met
before these rights vest
Consequently, in addition to being sensitive to the dividend yield, the ELP Rights are also sensitive to market volatility
and the initial TSR, with the risk free rate as a further valuation input
Other Performance
Rights
Financial year of grant before 2019
Independently valued at grant date, applying a discounted cash flow methodology, using the market price of the related
shares at the grant date less the present value of expected dividends forgone prior to vesting
Financial year of grant 2019 onwards
EPS CAGR element independently valued at grant date, applying a discounted cash flow methodology, using the market
price of the related shares at the grant date less the present value of expected dividends forgone prior to vesting
TSR CAGR element independently valued at grant date using the assumptions underlying the Black-Scholes methodology
to produce a simulation model which allows for the incorporation of the Total Shareholder Return (TSR) hurdle that must be
met before these rights vest. Consequently, in addition to being sensitive to the dividend yield, the Performance Rights are
also sensitive to market volatility and the initial TSR, with the risk free rate as a further valuation input
96
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
25. SHARE-BASED PAYMENTS (continued)
b) Employee Share Scheme
Under the McPherson’s Employee Share Scheme, approved by the Board of Directors, shares with up to $1,000 value may be issued by
the Company to certain employees for no cash consideration. The purpose of this scheme is to improve employee engagement, reward our
employees for service and provide employees with an ownership interest in the company, thereby improving the alignment of investor and
employee objectives.
All employees, excluding the Managing Director and other members of the Senior Leadership Team who are entitled to a long term incentive, who
have been continuously employed by the Group for a period of at least one year are eligible to participate in the scheme at the discretion of the
Board of Directors. Employees may elect not to participate in the scheme.
Under the scheme, eligible employees may be granted up to $1,000 worth of fully paid ordinary shares in the Group annually for no cash
consideration. The shares granted in 2019 vested on 31 July 2020 provided the employee remains employed by the Group. The number of
shares issued to participants in the scheme is the offer amount divided by the weighted average price at which the company’s shares are traded
on the Australian Stock Exchange during the week ending the day before the date of issue on 12 August 2020.
Applications under the scheme are accepted at the discretion of the Board of Directors. Shares issued under the scheme may not be sold until
the earlier of three years after issue or cessation of employment. In all other respects the shares rank equally with other fully-paid ordinary shares
on issue. The Board of Directors has determined that the scheme will be continued in 2021 on the same basis as outlined above.
Number of shares issued under the Employee Share Scheme
12 August 2020
31 July 2019
88,288
120,771
The number of shares issued to participants on 12 August 2020 was calculated based on the $1,000 offer amount divided by the weighted
average price of $2.801 (2019: $1.763) at which the company’s shares were traded on the Australian Stock Exchange during the week ending
the day before the date of issue.
c) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised during the period as part of employee benefit expense were as follows:
Performance Rights issued under the Employee Performance Rights plan
Shares estimated to be issued under the Employee Share Scheme
Total expenses
26. CONTRACTUAL COMMITMENTS FOR EXPENDITURE
a) Capital commitments
Aggregate capital expenditure contracted for at balance date, but not provided for in the accounts, due:
Not later than one year
2020
$’000
428
230
658
2020
$’000
443
2019
$’000
(39)
205
166
2019
$’000
448
The Group primarily leases offices, warehouses, motor vehicles and equipment under non-cancellable leases expiring within one to seven years.
The leases have varying terms and renewal rights. On renewal, the terms are renegotiated.
b) Operating leases
Aggregate amount of non-cancellable operating leases contracted for at balance date, but not provided for in the accounts, due:
Not later than one year
Later than one year but not later than five years
Later than five years
Total non-cancellable operating leases
2020
$’000
—
—
—
—
2019
$’000
4,713
8,876
—
13,589
AASB16 was implemented from 1 July 2019, consequently all commitments in relation to non-cancellable operating leases contracted for at
balance date have been recognised as lease liabilities in 2020.
97
2020 Annual Report
Notes to the Consolidated Financial Statements continued
27. CONTINGENT LIABILITIES
From time to time, the Group is subject to claims and litigations during the normal course of business. The Board has given consideration to such
matters, which are or may be subject to litigation at year end and, subject to specific provisions raised, is of the opinion that no material liability
exists.
28. REMUNERATION OF AUDITORS
During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and
non-related audit firms:
2020
$’000
2019
$’000
273,800
273,800
327,600
327,600
50,000
50,000
—
—
323,800
327,600
—
—
—
—
323,800
327,600
31,569
31,569
30,211
30,211
355,369
357,811
2020
Cents
5.7
5.7
15.3
15.2
2020
$’000
2019
Cents
13.0
13.0
13.0
13.0
2019
$’000
16,336
(10,274)
6,062
13,721
—
13,721
a) PricewaterhouseCoopers Australia
i) Audit and other assurance services
Audit and review of financial statements
Total remuneration for audit and other assurance services
ii) Other services
Consumables review
Total remuneration for other services
Total remuneration of PricewaterhouseCoopers Australia
b) Network firms of PricewaterhouseCoopers Australia
i) Audit and other assurance services
Audit and review of financial statements
Total remuneration for audit and other assurance services
Total remuneration of PricewaterhouseCoopers Australia
c) Non PricewaterhouseCoopers audit firms
i) Audit and other assurance services
Audit and review of financial statements
Total remuneration of non-PricewaterhouseCoopers audit firms
Total remuneration of auditors
29. EARNINGS PER SHARE
Basic earnings per share
Diluted earnings per share
Basic earnings per share excluding significant items
Diluted earnings per share excluding significant items
Reconciliation of earnings used in calculating earnings per share
Basic and diluted earnings per share
Profit after income tax (excluding significant items)
Significant items after income tax (Note 3)
Profit after income tax
98
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
29. EARNINGS PER SHARE (continued)
2020
Number
2019
Number
Weighted average number of shares used as the denominator
Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share
106,849,062
105,356,954
Adjustments for calculation of diluted earnings per share:
Commencement Rights granted to the Managing Director
Shares issued under the employee share scheme are dilutive and therefore are included in the
calculation of diluted earnings per share
Weighted average number of ordinary shares and potential ordinary shares used
as the denominator in calculating diluted earnings per share
213,000
248,991
76,730
120,771
107,138,792
105,726,716
Information concerning the classification of securities
Performance Rights
Performance Rights granted to employees are considered to be potential ordinary shares and are included in the determination of diluted
earnings per share to the extent to which they are dilutive. The Performance Rights have not been included in the determination of basic earnings
per share.
Except for the Commencement Rights granted to the Managing Director, the remaining outstanding Performance Rights are not included in the
calculation of diluted earnings per share because they are not dilutive for the years ended 30 June 2020 and 30 June 2019. These Performance
Rights could potentially dilute basic earnings per share in the future.
Employee share scheme
The shares estimated to be issued under employee share scheme are dilutive and therefore are included in the calculation of diluted earnings per
share for the year ended 30 June 2020 and 30 June 2019.
30. PARTICULARS IN RELATION TO CONTROLLED ENTITIES
Name of entity
Country of Incorporation
McPherson’s Limited
McPherson's Consumer Products (NZ) Limited
McPherson’s Consumer Products Pty Ltd 1
McPherson's Consumer Products Pte Ltd
McPherson’s America Inc.
McPherson's Consumer Products (HK) Limited
McPherson’s (UK) Limited
McPherson's (Shanghai) Co.,Ltd.
During the financial year, the Group deregistered the following entities:
Name of entity
Domenica Pty Ltd 1
A.C.N. 082 110 101 Pty Ltd
A.C.N. 137 363 038 PTY LTD
Electrical Distributors Australia Pty Ltd
Electrical Distributors Repairs Servicing Pty Ltd
Euromaid Cooking Appliances NZ Limited
Integrated Appliances Group Pty Ltd
A.C.N. 127 192 223 PTY LTD
Multix Pty Ltd 1
McPherson’s Publishing Inc
Regent Sheffield Ltd
McPherson’s Hong Kong Limited
Cork International Far East Limited
Australia
New Zealand
Australia
Singapore
USA
Hong Kong
United Kingdom
China
Country of Incorporation
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
USA
USA
Hong Kong
Hong Kong
1) These subsidiaries have been granted relief from the necessity to prepare financial reports in accordance with ASIC Corporations (Wholly-owned Companies) Instrument
2016/785 issued by the Australian Securities and Investments Commission. For further information refer to Note 35.
All investments represent 100% ownership interest unless otherwise stated.
99
2020 Annual Report
Notes to the Consolidated Financial Statements continued
31. RELATED PARTIES
Directors
Details relating to the insurance of Directors are included in the Directors’ Report.
Controlled entities
Transactions between McPherson’s Limited and its controlled entities in the Group during the year consisted of:
> Amounts advanced to and by McPherson's Limited
> Amounts repaid to McPherson's Limited
> Amounts borrowed by McPherson's Limited
> Payment and receipt of interest on certain advances at prevailing rates
> Payment of dividends to McPherson's Limited
> Receipt and payment of tax, rent, management and license fees
Refer to the Remuneration Report within the Directors’ Report for information relating to key management personnel disclosures.
Transactions with other related parties
On 10 October 2019, MCP and Aware Environmental Limited (Aware) executed a Subscription Agreement and a Deed of Amendment, which set
the terms under which:
> MCP converted its 3,000,000 convertibles notes at a conversion price of $0.60 per share into 5,000,000 ordinary shares in Aware; and
> MCP subscribed for 5,000,000 shares in Aware at a subscription price of $0.60 per share.
The Group’s 10,000,000 shares represent 10.7% of the capital of Aware at 30 June 2020.
Mr. Geoffrey Pearce is a Director and a significant shareholder of Aware Environmental Limited. The above transactions were conducted on normal
commercial arm’s length terms and entered into in order to provide a more robust and reliable basis of skin care product supply to McPherson’s.
Terms and conditions
Transactions with related parties are on an arm’s length basis. Receivable amounts outstanding, other than loans, are repayable in cash and are
due to be settled within two months of balance date. Outstanding loans are unsecured and do not have a specified repayment date.
32. DEED OF CROSS GUARANTEE
McPherson’s Limited and McPherson’s Consumer Products Pty Ltd are parties to a Deed of Cross Guarantee under which each company
guarantees the debts of the other.
By entering into the Deed, McPherson’s Consumer Products Pty Ltd has been relieved from the requirement to prepare a Financial Report and
Directors’ Report under ASIC Corporations (Wholly-owned Companies) Instrument 2016/785.
a) Condensed consolidated income statement of the parties to the Deed of Cross Guarantee
Set out below is a consolidated income statement and a summary of movements in consolidated retained profits for the year ended 30 June 2020
of the parties to the Deed of Cross Guarantee.
Income statement
Revenue
Other income
Expenses
Finance costs
Profit before income tax
Income tax expense
Profit for the year
b) Movements in consolidated retained profits of the parties to the Deed of Cross Guarantee
Summary of movements in consolidated retained profits
Accumulated losses at beginning of the financial year
Profit after income tax for the year
AASB 16 impact
Dividends provided for or paid
Accumulated losses at the end of the financial year
100
2020
$’000
2019
$’000
207,391
309
193,228
1,149
(197,767)
(175,041)
(1,404)
8,529
(7,237)
1,292
(956)
18,380
(4,383)
13,997
(9,371)
1,292
(3,035)
(10,661)
(33,369)
13,997
—
8,928
(21,775)
(10,444)
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
32. DEED OF CROSS GUARANTEE (continued)
c) Balance sheet of the parties to the Deed of Cross Guarantee
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Total current assets
Non-current assets
Other financial assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Financial assets at fair value through OCI
Investments
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Lease liabilities
Derivative financial instruments
Provisions
Current tax liabilities
Total current liabilities
Non-current liabilities
Payables
Borrowings
Lease liabilities
Contingent liabilities
Derivative financial instruments
Provisions
Deferred tax liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Accumulated losses
Total equity
2020
$’000
2019
$’000
4,876
43,747
43,873
—
92,496
1,457
5,926
3,978
64,698
6,000
73,402
8,235
28,152
33,393
788
70,568
4,504
5,572
—
72,898
—
83,511
155,461
166,485
247,957
237,053
63,079
—
3,678
566
7,160
4,331
51,408
1,667
—
234
5,363
2,573
78,814
61,245
—
16,377
3,525
1,776
45
726
6,718
29,167
107,981
—
16,269
—
—
—
706
8,847
25,822
87,067
139,976
149,986
159,444
2,308
(21,776)
157,751
2,679
(10,444)
139,976
149,986
101
2020 Annual Report
Notes to the Consolidated Financial Statements continued
33. NOTES TO THE STATEMENT OF CASH FLOWS
a) Reconciliation of net cash inflows from operating activities to profit after income tax
Profit after income tax
Impairment of brand names
Impairment of investment in joint venture
Share of loss in joint ventures
Depreciation of property, plant and equipment
Amortisation of other intangibles
Depreciation of right of use asset
Share-based payments expense
Changes in operating assets and liabilities, excluding the effects from purchase or disposal of business assets:
2020
$’000
6,062
8,517
205
3,894
1,781
479
2,637
671
17,927
(100)
1,927
1,206
(15,521)
(10,353)
19,332
2020
$’000
1,503
2020
$’000
7,149
—
(4,507)
(16,377)
(3,785)
(17,520)
7,149
(8,292)
(16,377)
(17,520)
2019
$’000
13,721
—
—
—
1,475
653
—
173
4,230
(635)
(372)
196
(1,057)
1,394
19,778
2019
$’000
1,879
2019
$’000
10,472
(1,667)
—
(16,269)
—
(7,464)
10,472
—
(17,936)
(7,464)
Note
23
Liabilities from financing activities
Cash and cash
equivalents
$’000
Borrowings
$’000
Leases
$’000
Total
$’000
10,472
(17,936)
(11,029)
(18,493)
(3,320)
1,559
—
(3)
—
—
—
—
3,767
(1,004)
(26)
—
2,006
(1,004)
(29)
—
7,149
(16,377)
(8,292)
(17,520)
Increase in payables
(Decrease) in other provisions
Increase/(Decrease) in employee entitlements
Increase in net tax liabilities
(Increase) in receivables
(Increase)/Decrease in inventories
Net cash inflows from operating activities
b) Non-cash investing and financing activities
Shares issued under Dividend Reinvestment Plan
c) Net debt reconciliation
Cash and cash equivalents
Borrowings repayable within one year (including overdraft)
Current lease liabilities
Borrowings repayable after one year
Non-current lease liabilities
Net debt
Cash and cash equivalents
Gross debt at fixed interest rates (lease liabilities)
Gross debt at variable interest rates
Net debt
Net debt as at 1 July 2019
Cash flows
Acquisition – leases
Foreign exchange adjustment
Other non-cash movements
Net debt as at 30 June 2020
102
McPherson’s Limited
Notes to the Consolidated Financial Statements continued
34. EVENTS OCCURRING AFTER BALANCE DATE
The recent second wave of COVID-19 restrictions imposed in Victoria and New Zealand has not significantly impacted McPherson’s, with key
Melbourne based suppliers remaining unaffected and sales orders from Victorian and New Zealand based retailers remaining relatively stable.
No other matter or circumstance, other than what has been noted above, has arisen since 30 June 2020 that has significantly affected the
Group’s operations, results or state of affairs, or may do so in future financial years.
35. PARENT ENTITY FINANCIAL INFORMATION
a) Summary financial information
The individual financial statements for the parent entity show the following aggregate amounts:
Balance Sheet
Current assets
Total assets
Current liabilities
Total liabilities
Shareholders' equity
Issued capital
Cash flow hedge reserve
Share-based payments reserve
Accumulated losses – 2016 reserve
Retained earnings – 2017/2018/2019 reserves
Total shareholders’ equity
Profit for the period
Total comprehensive income
2020
$’000
2019
$’000
496
183,416
108,695
128,986
4,681
183,085
113,298
131,074
159,443
157,751
(316)
2,625
499
2,180
(116,096)
(116,096)
8,774
54,430
11,992
11,176
7,443
51,777
11,778
11,016
b) Contingent liabilities and guarantees
The parent entity has guaranteed the repayment of borrowings of certain controlled entities.
The cross guarantee given by those entities listed in Note 32 may give rise to liabilities in the parent entity if McPherson’s Consumer Products Pty
Ltd does not meet its obligations under the terms of the overdrafts, loans, leases, or other liabilities subject to the guarantee.
103
2020 Annual Report
Shareholder Information
The shareholder information set out below was applicable as at 31 August 2020.
SHARE CAPITAL
The ordinary share capital in the Company was held by the following number of shareholders as at 31 August 2020:
Range
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Total
Holding less than a marketable parcel
Total holders
Total shares
% Shares
1,982
1,385
561
778
65
902,501
3,653,890
4,317,502
21,602,424
76,876,551
0.84
3.40
4.02
20.12
71.61
4,771
107,352,868
100.00
361
7,583
0.01
VOTING RIGHTS
Each ordinary share on issue entitles the holder to one vote. Performance Rights have no voting rights.
LARGEST SHAREHOLDERS AS AT 31 AUGUST 2020
HSBC CUSTODY NOMINEES GROUP (AUSTRALIA) LIMITED
NATIONAL NOMINEES GROUP
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES GROUP
BNP PARIBAS NOMINEES PTY LTD
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