Report and Accounts for the
year ended 31 December 2017
Stock code: PMP
Heritage
and
innovation
P
o
r
t
m
e
i
r
i
o
n
G
r
o
u
p
P
L
C
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
7
Highlights
Revenue (£’000)
£84,769
+10.6%
2017
2016
2015
2014
2013
84,769
76,677
68,669
61,370
58,295
Basic EPS (p)
65.07p
+9.2%
2017
2016
2015
2014
2013
65.07
59.60
66.02
57.64
53.26
Pre-tax profit (£’000)
£8,822
+13.0%
2017
2016
2015
2014
2013
8,822
7,806
8,649
7,611
7,009
Dividends paid and proposed
per share (p)
34.66p
+7.5%
2017
2016
2015
2014
2013
34.66
32.25
30.00
26.50
24.00
Financial Highlights
• Ninth consecutive year of record Group revenue which
increased by 10.6% to £84.8 million (2016: £76.7 million).
• Profit before tax increased by 13.0% to £8.8 million
(2016: £7.8 million).
• EBITDA increased by 12.9% to £11.0 million (2016: £9.7 million).
• Earnings per share increased by 9.2% to 65.07p (2016: 59.60p).
• Total dividends paid and proposed for 2017 increased
by 7.5% to 34.66p per share (2016: 32.25p).
• Strong cash generation with a £3.9 million improvement in
net cash resulting in a positive balance of £1.6 million (2016:
net borrowings of £2.3 million).
• Operating margin increased to 10.7% (2016: 10.4%).
Operational Highlights
• Strong progress on growth and diversification
in export markets.
• Completed integration of Wax Lyrical business, including
the launch of over 200 home fragrance products under
the existing Portmeirion Group brands.
• Senior management team strengthened with the
appointments of Mike Raybould as Group Finance
Director, Mick Knapper as Operations Director, Moira
MacDonald as Company Secretary and Andrew Andrea
as a Non-executive Director.
25
Annual Report and Accounts 2017 • Portmeirion Group PLC
Pictured on front cover (clockwise from top left):
Sophie Conran for Portmeirion home fragrance,
Spode Woodland and Royal Worcester Destiny.
Pictured above: Sophie Conran for Portmeirion.
STRATEGIC REPORT Strategic Report
IFC Highlights
02 At a Glance
04 Chairman and Chief Executive’s Review
07 Business Model
08 Our Strategy
10 Key Performance Indicators
11 Our Brands
16 Risk Management
17 Principal Risks and Uncertainties
18 Financial Review
20 Going Concern and Outlook
21 Sustainability
Corporate Governance
24 Board of Directors
26 Corporate Governance Statement
30 Directors’ Remuneration Report
38 Report of the Directors
42 Statement of Directors’ Responsibilities
43 Independent Auditor’s Report
Financial Statements
47 Consolidated Income Statement
48 Consolidated Statement of Comprehensive Income
49 Consolidated Balance Sheet
50 Company Balance Sheet
51 Consolidated Statement of Changes in Equity
52 Company Statement of Changes in Equity
53 Consolidated Statement of Cash Flows
54 Company Statement of Cash Flows
55 Notes to the Financial Statements
87 Five-year Summary
88 Company Information and Financial Calendar
89 Retail Outlets
01
At a Glance
Portmeirion Group PLC is a British company with its headquarters in Stoke-on-Trent.
Our shares are traded on the Alternative Investment Market (“AIM”) of the London Stock
Exchange. We sell ceramic tableware, cookware, giftware, glassware, home fragrance products
and associated housewares worldwide; our main markets are detailed on page 3.
Who we are
Portmeirion Group encompasses five high quality brands:
Portmeirion, Spode, Wax Lyrical, Royal Worcester and
Pimpernel, and has a long track record of creating value
for our shareholders.
Our vision is to be a leading force in the global homeware
sector focused on growing our great British brands. To
achieve this we need to grow profitable sales, strive for
operational excellence, create high quality products, engage
our people and possess a strong sense of community.
We have 786 valued employees and sell into over 60 countries
around the world where our brands and products are enjoyed
by millions of consumers.
A Business Model 07
A Our Strategy 08
Our Brands
Product design and development
Our value lies with our strong brands and the patterns which
underpin them. Some of our major tableware patterns are also
brand names in their own right such as the classic Portmeirion
Botanic Garden range, which has a worldwide following.
Design is key to our business. We continue to develop, extend,
refresh and refine our existing patterns, and to launch new
patterns and products, so as to retain and improve customer
appeal. Working closely with our major customers, our design
studio in Stoke-on-Trent is the creative hub for new designs and
extensions to existing ranges. Design talent comes from a strong
in-house team working together with freelance artists and
designers to deliver a broad portfolio. Our product offering is
complemented by licensed designs such as the new Sara Miller
London Portmeirion collection and popular Royal Worcester
Wrendale Designs range.
Fashionable yet
timeless collections
of tableware and gifts
Tableware and
cookware
rich in history
and heritage
The UK’s largest
manufacturer
of home fragrance
Established in 1751
and celebrated
for prestigious
tableware and
cookware
The premier brand
for placemats and
coasters
02
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Production and sourcing
Routes to market
We manufacture finest English earthenware from our factory in
Stoke-on-Trent and home fragrances at our factory in Ulverston,
as well as sourcing bone china, porcelain products and other
associated homeware. All are produced to the same exacting
quality standards. The mix between own manufactured and
sourced product was 49:51 for 2017. Our manufacturing plant
in Stoke-on-Trent is well placed to produce in line with anticipated
demand and our facility in Ulverston has sufficient capacity to grow
as more home fragrance collections are launched through
Portmeirion Group’s existing distribution channels.
Portmeirion Group sells its products to a worldwide marketplace
through a variety of channels including to trade customers such
as large high street retailers and independent stores, via a network
of agents and distributors as well as from our own retail shops
and websites.
We serve our customers from our warehouses in the UK,
the US and China.
Where we operate
United Kingdom
Portmeirion: Stoke-on-Trent incorporating head office,
manufacturing operation, warehouse and retail outlets.
Wax Lyrical: Lindal-in-Furness, Cumbria, incorporating head
office, manufacturing operation, warehouse and retail outlet.
Our routes to market include major department stores, over 500
independent retailers, twelve retail outlets, nationwide mail order
companies and UK-based websites dedicated to each of the
five Portmeirion Group brands.
United States
Connecticut warehouse and logistics centre, New York
showrooms and New Jersey office.
We sell to major department stores, over 1,200 independent
retailers, major internet retailers of both general and home
goods merchandise, national chains of “big box” retailers and
warehouse club merchandisers and via a website.
Sales of £28.8m
34% of Group revenue.
Sales of £25.2m
30% of Group revenue.
South Korea
Exclusive distributor
We sell through an exclusive distributor, with routes to market
via wholesale outlets, over 100 retail stores, major department
stores, TV home shopping channels and third-party websites.
Other markets
Other markets around the world are serviced either via
a distributor or agent, directly to retail stores or from our
international e-shop stores.
Sales of £6.6m
8% of Group revenue.
Sales of £24.2m
28% of Group revenue.
Annual Report and Accounts 2017 • Portmeirion Group PLC
03
Chairman and Chief Executive’s Review
Ninth successive year
of record revenue
Lawrence Bryan
Chief Executive
Dick Steele
Non-executive Chairman
Summary
• Ninth consecutive year of record
revenue and earnings driven to their
highest ever levels.
• Total dividends paid and proposed
for 2017 of 34.66p per share, an
increase of 7.5% over 2016.
• Senior management team
strengthened by new appointments
to Group Board.
• Strong performance of new product
introductions including Sara Miller
London Portmeirion.
• Wax Lyrical business now integrated
into Group operations, with over
£1 million of home fragrance sales
through Portmeirion UK and
Portmeirion USA.
Portmeirion Group is pleased to report
a strong trading performance in the year
under review, which culminated in a ninth
consecutive year of record sales and
earnings being driven to their highest ever
levels. This outcome, combined with our
confidence in future trading performance,
has enabled us to increase our dividend for
the ninth successive year. We have reported
revenue growth in our core UK and USA
markets, but also a decrease in South
Korea which is going through a period of
rebuilding. However, the Group’s other
export markets showed excellent growth
with sales to “rest of the world” up 54.4%
over 2016. The growth across the Group
has benefited from diversification into new
products and new markets, including the
integration of our Wax Lyrical home
fragrance business.
Financial highlights
Revenue was £84.8 million for the year,
an increase of 10.6% over the previous
year (2016: £76.7 million). At a constant
US dollar exchange rate our revenue
increased by 8.4%. We enjoyed a full year
of Wax Lyrical Limited (“Wax Lyrical”) sales
consolidated within the total revenue of
£84.8 million compared to eight months of
the previous financial year; on a like-for-like
basis this reduces the revenue growth to 5.6%.
Profit before taxation was £8.8 million,
an increase of £1.0 million or 13.0% on
the previous year. Earnings before interest,
taxation, depreciation and amortisation
(EBITDA) increased by 12.9% to £11.0 million
in the year (2016: £9.7 million). Both of
these figures represent all-time records
for Portmeirion Group.
Basic earnings per share increased by 9.2%
to 65.07p per share (2016: 59.60p), while
dividends have increased by 7.5%, with
dividend cover of 1.85 times maintained just
below our long-term target of two times.
Dividend
The Board is committed to a progressive
dividend policy and aims to maintain
a sustainable and appropriate level of
dividend cover. Our policy is to increase
the interim dividend each year by the same
percentage as the final dividend of the
preceding year, subject of course to
prevailing conditions. The Group will
look to increase our dividends whenever
appropriate driven by our results, cash
balances, future prospects and other
investment requirements.
04
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT The Board is recommending a final dividend
of 27.26p (2016: 25.25p) per share bringing
the total paid and proposed for the year to
34.66p (2016: 32.25p) per share, an increase
of 7.5% over the total amounts paid in respect
of 2016. This is an 8.0% increase over the
final dividend for 2016.
The dividends paid and proposed for 2017
are projected to be covered 1.85 times
by earnings (2016: 1.85 times). The Board
continues to consider that a level of dividend
at or close to two times covered is an
appropriate and sustainable level for
the business.
Corporate governance
As an AIM-listed company we recognise
and welcome the benefits of corporate
governance requirements over and above
those required by AIM and we implement
them when we can see tangible shareholder
and stakeholder benefits. We are members
of the Quoted Companies Alliance and
believe good corporate governance
provides incremental shareholder value.
We consider our approach to be proactive
in a number of areas, in particular in seeking
re-election of all continuing Directors each
year and in our shareholder engagement.
Senior management
The management team has been
significantly strengthened during the year.
Mike Raybould joined the Board on 26 May
2017 as Group Finance Director, and also
has management responsibility for Wax Lyrical.
Mick Knapper was promoted to the Group
Board as Operations Director on 1 March
2017; he is responsible for production,
sourcing, logistics, information systems and
human resources and has been with the
Group since 1998. Andrew Andrea was
appointed as a Non-executive Director
on 20 June 2017, bringing wide-ranging
experience in finance and consumer brands.
Moira MacDonald, who joined the Group in
2007, was promoted to Company Secretary
on 1 March 2017.
We are delighted with these promotions
and appointments, the business is now
benefiting from the fresh perspective that
such changes bring.
“We are delighted to be reporting a ninth consecutive year of record
revenue and a record profit before taxation. Our core values of
innovation, targeted product development and operational excellence
remain unchanged, and we are pleased to report on the successful
integration of the Wax Lyrical home fragrance business into the Group.”
Operational overview
Overall revenue increased by 10.6%
to £84.8 million (2016: £76.7 million).
The Group benefited from a full twelve
months’ ownership of Wax Lyrical in 2017,
together with good underlying growth in
our core ceramics business.
Geographical performance
From a geographical perspective, the
United Kingdom has become our largest
market following the acquisition of Wax
Lyrical, due to the majority of their sales
being in that market. Total UK sales were
£28.8 million (2016: £27.1 million). The
domestic retail sector continues to be
challenging and uncertain; despite this
we remain cautiously optimistic in this
market. Our expanded product offering
and encouraging performance of some
of our ranges such as the growing Royal
Worcester Wrendale Designs collection
and the new Sara Miller London Portmeirion
line provide this optimism.
The United States, our second largest
market, reported an increase in revenue
of 3.9% in translated figures, which is
equivalent to a decrease of 1.2% in local
currency. We remain confident about the
prospects in the USA, with the Group’s sales
seeing double digit growth in the second
half of the year, including the important
Thanksgiving and Christmas period,
recovering from a disappointing first half.
Sales into South Korea fell by 32.1% in
2017 to £6.6 million (2016: £9.7 million).
This market continues to prove challenging
and we are working closely with our exclusive
distributor in South Korea to diversify our
product portfolio and target new customers
in order to rebuild sales.
Sales to the rest of the world showed the
most significant growth during the year,
increasing by 54.4% to £24.2 million (2016:
£15.7 million). Growing sales into Europe and
some Asian markets such as Hong Kong and
Taiwan has reduced our reliance on sales in
our three major markets and has been aided
by sales of home fragrance product into our
existing distribution channels.
Online sales continued to grow during the
year, with a strong second half sales growth of
over 13% particularly pleasing. This channel
remains an area of focus for 2018.
Segmental performance
Following the acquisition of Wax Lyrical
in 2016, the Group will now report under
three business segments: home fragrance,
Portmeirion Group UK Limited (“Portmeirion
UK”) and Portmeirion Group USA, Inc.
(“Portmeirion USA”). The home fragrance
segment performance will include all home
fragrance sales made within the Group.
Portmeirion UK and Portmeirion USA
performance will refer to ceramic sales only.
Portmeirion UK
Portmeirion UK, the main trading entity
of the Group, had a strong performance
during the year, driven by new product
launches and diversification into new
export markets. Sales grew by 9.1%
to £46.1 million (2016: £42.3 million).
Production in our UK factory reduced
slightly during the year compared to 2016,
but demand steadily grew throughout 2017
and we are now back at a level that will
improve efficiency going forward. This is
essential in order for the business to achieve
its long-term strategic goals as manufacturing
efficiency translates to cost competitiveness.
Annual Report and Accounts 2017 • Portmeirion Group PLC
05
Chairman and Chief Executive’s Review continued
Operational overview continued
Segmental performance continued
Portmeirion USA
The USA remains our largest export market
and is serviced by our trading subsidiary,
Portmeirion USA. The company has an office
in New Jersey, showrooms in New York and
a national warehousing and logistics centre
in Connecticut.
Sales at Portmeirion USA have grown
by 3.7% in the year to £24.7 million
(2016: £23.8 million). This growth has
largely been driven by the lower US dollar
exchange rate compared to sterling, as
underlying US dollar sales are marginally
below prior year. This performance was
pleasing given a weak first half and meant
that second half sales were 12.9% higher
than 2016. The H2 performance demonstrates
that this market is starting to show signs
of growth.
Home fragrance
The Group acquired Wax Lyrical on
4 May 2016 and therefore revenue
benefited from a full year of sales in 2017.
Home fragrance sales were £13.9 million,
showing growth of 32.0% over the prior
year and includes over £1 million of
home fragrance sales through existing
Portmeirion UK and Portmeirion USA
distribution channels.
The Wax Lyrical business responded well to
the increased production demands during
the year and has the capacity to grow in
line with the Group’s targets.
We are pleased with the integration benefits
obtained so far and are optimistic about
the potential for further revenue synergies
and ongoing cross-product development.
Products and brands
We have five major brand names –
Portmeirion, Spode, Wax Lyrical, Royal
Worcester and Pimpernel. Supporting our
brands is central to our business strategy
and we continue investing in both our
historical patterns and key new launches.
Portmeirion Botanic Garden, launched in
1972, is a major pattern with worldwide
recognition; it is hard to identify any other
tableware pattern with such a level of sales.
On an ongoing basis Botanic Garden
generates over £30 million of sales per
annum and there are over 50 million pieces
of Botanic Garden in use worldwide today.
We are ever vigilant of imitators to Botanic
Garden, or indeed any of our other patterns,
and hardnosed in legal protection.
Profitable sales growth underpins all of the
Group’s objectives and will be achieved by
targeted product development within our
key markets. 2017 saw the Group achieve
its ninth consecutive year of record sales
and 10.6% revenue growth over the prior
year, with an improvement in operating
margin from 10.4% to 10.7%. Our focus will
be on export market growth and continuing
to build on the home fragrance acquisition
within our key markets.
Product development is a vital component
of brand value. We continue to develop,
extend, refresh and refine our existing
patterns and products so as to retain and
build customer appeal. During 2017 we
launched a number of new ranges including
Sara Miller London Portmeirion, which
received a strong reception and is already
generating a positive sales return. We also
launched over 200 new home fragrance
products under the existing Portmeirion
Group brands. Royal Worcester Wrendale
Designs continues to perform strongly
following its launch in 2013.
A list of our current patterns can
be found at www.portmeirion.co.uk,
www.spode.co.uk, www.wax-lyrical.com,
www.royalworcester.co.uk and
www.pimpernelinternational.co.uk.
Customers in the United States should
go to www.portmeirion.com.
We continue to be well served by our
strategy of diversifying products, customers,
geographic markets and routes to market.
This strategy enables us to exploit
opportunities when they appear.
Ongoing strategy
The Group’s long term strategy is focused
around five key areas: profitable sales growth,
introducing new products, investing in our
brands, enhancing our operational capabilities
and supporting this with complementary
strategic acquisitions.
New product introduction includes both
new ranges and extension of our biggest
patterns to fit the needs of the modern
consumer. During the year we launched
successful additions to ranges such as
Royal Worcester Wrendale Designs and
Portmeirion Botanic Garden, our biggest
selling pattern. New collections included
working with talented artists such as Sara
Miller London to allow us to reach new
consumers, as well as developing over 200
new home fragrance products under the
existing Portmeirion Group brands.
Supporting our brands means that we
continue to invest to ensure we are
maintaining our market position.
Our operational capabilities are constantly
reviewed in order to position the Group
to meet the requirements of our customers.
We continue to drive operational
effectiveness to ensure manufacturing
and distribution competitiveness.
The Group remains committed to acquiring
businesses where there is a strategic fit and
the combination would be earnings enhancing.
We have successfully integrated the Wax
Lyrical business and will continue to drive
our sales synergies.
Dick Steele
Non-executive Chairman
Lawrence Bryan
Chief Executive
14 March 2018
06
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Business Model
Nurturing our brands
Our vision is to be a leading force in the global homeware sector focused
on growing our great British brands.
Our strengths
A diverse portfolio of brands
Much of the value of the Group lies within our five brands
and the patterns which underpin these brands; our brands
are described in detail on pages 11 to 15.
A varied and diverse market
The Group sells into over 60 countries around the world
and continues to aim for diversification in product, market
and customer.
Our business
Nurturing our brands
The Group continues to invest in our five brands in order
to refresh and renew our product offering.
Continued product development
The Group launched 1,175 new products during the year,
including over 200 new home fragrance products under the
existing Portmeirion Group brands.
A strong leadership team
Experienced leadership team strengthened during the year
with additions to the Group Board of Mike Raybould as
Group Finance Director, Mick Knapper as Operations
Director, Moira MacDonald as Company Secretary and
Andrew Andrea as a Non-executive Director.
Good financial backing
Portmeirion Group PLC is listed on the AIM, which gives us
access to equity capital should we require it. Funding for the
business is provided by our own cash resources and a £2 million
overdraft, a £10 million revolving credit facility and a £10 million
term loan provided by Lloyds Bank plc.
Operating across the globe
The Group’s revenue is generated from a variety of channels,
markets and currencies. Products are sold directly to consumers
from our own UK shops and via the internet in the UK, the USA
and elsewhere, and are sold to consumers via third parties
from a network of agents, distributors and retailers throughout
the world. We enjoy some royalty income from the valuable
intellectual property embedded in our brands, patterns and
designs. Our continued concentration on customer-attentive
product development and brands is reflected in the longevity
of our patterns.
How we create value
For shareholders
Progressive dividend policy and capital
appreciation. Portmeirion Group has
a strong track record of increasing
dividends and enhancing
shareholder returns.
For customers
Working closely with customers and
targeted product development ensure
that we launch innovative products that
reflect current consumer requirements
and are priced competitively to appeal
across multiple sales channels.
For employees
The Group has nearly 800 employees
across the world. We provide
employment opportunities in our local
communities and opportunities for
long-term career development.
Annual Report and Accounts 2017 • Portmeirion Group PLC
07
Our Strategy
Driving consistent
shareholder value growth
Our strategy is focused around five key areas: profitable sales growth, introducing
new products, investing in our brands, enhancing our operational capabilities and
supporting this with complementary strategic acquisitions.
1.
Profitable sales
growth
2.
New product
introduction
3.
Supporting
our brands
The Portmeirion Group aims to
drive profitable sales growth by
targeted product development
within our key markets.
We continue to introduce new
ranges and extend our biggest
patterns to fit the needs of the
modern consumer.
The Portmeirion Group encompasses
five high quality brands: Portmeirion,
Spode, Wax Lyrical, Royal Worcester
and Pimpernel.
Achievements
Achievements
• Double digit sales growth
• Highly successful additions
over the prior year.
• Ninth consecutive year
of record sales.
• 2017 sales increase driven
by expanding export markets.
• New products contributing strongly.
• Successful introduction of home
fragrance to new markets.
Strategy
• Focus on export market growth.
• Leverage home fragrance
acquisition using key Portmeirion
Group markets.
• Invest behind online sales
channels and operational fulfilment
for our direct customers.
• Continue to grow core UK and US
markets through targeted
product development.
Link to KPIs
Revenue
Return on sales
New products launched
Basic EPS
Dividends paid and proposed
Dividend cover
to Royal Worcester Wrendale
Designs range.
• New line extensions to
Portmeirion Botanic Garden,
our biggest selling pattern.
• New development with talented
artists such as Sara Miller London
allows us to reach new consumers.
• Development of over 200 new
home fragrance products under
existing Portmeirion Group brands.
Strategy
• Continually advance and refresh
key heritage patterns including
Portmeirion Botanic Garden
and Spode Blue Italian.
• Develop new contemporary
patterns for today’s consumer.
• Continuing to develop our home
fragrance ranges for UK, USA
and export markets.
• Develop extended gifting appeal.
Link to KPIs
Revenue
Return on sales
New products launched
08
Annual Report and Accounts 2017 • Portmeirion Group PLC
We continue to develop these
brands and invest in sustaining
their market positioning.
Achievements
• Continued investment behind
historical patterns both in core
and export markets, including
international trade shows.
• Supported key new lines such
as Sara Miller London Portmeirion
with PR launch events.
• Launch of home fragrance
collections under our key
Portmeirion brand such as
Portmeirion Botanic Garden
and Sophie Conran for Portmeirion.
Strategy
• Use of websites and social media
to drive brand awareness.
• Targeted investment behind key
product launches.
Link to KPIs
Revenue
Return on sales
New products launched
STRATEGIC REPORT 4.
Operational
capabilities
5.
Mergers and
acquisitions
Find out more:
A Key Performance Indicators (KPIs) 10
A Risk and Risk Management 16 – 17
The Portmeirion Group manufactures
ceramics and home fragrance in the
UK and distributes worldwide.
Our operational effectiveness
continues to drive our ability to
maximise sales opportunities.
Achievements
• Supported significant revenue
growth in 2017 over prior year.
• Successfully fulfilled double digit
increase in demand in next day
drop ship deliveries during key
seasonal period.
• Wax Lyrical factory produced
over 200 new skus for Portmeirion
Group ranges.
Strategy
• Build warehousing capabilities to
cope with future growth in online
single parcel fulfilment.
•
Invest behind our key factories to
ensure future cost competitiveness.
• Ensure we maximise operational
efficiency and working capital
performance.
Link to KPIs
Revenue
Return on sales
Basic EPS
We remain committed to acquiring
businesses where there is strategic
fit and the combination would be
earnings enhancing.
We will continue to seek out
acquisition opportunities to match
our demanding criteria.
Achievements
• Successful integration of newly
acquired Wax Lyrical business,
driving our sales synergies.
• Successfully launched over
200 new home fragrance skus
under Portmeirion Group brands.
• Return to net positive cash
position 20 months after
Wax Lyrical acquisition.
Strategy
• Look to identify value adding
acquisitions in global homewares
market that complement our
strategy for profitable sales growth.
Link to KPIs
Revenue
Return on sales
Basic EPS
Dividends paid and proposed
Annual Report and Accounts 2017 • Portmeirion Group PLC
09
Key Performance Indicators
The following charts illustrate a number of key performance indicators
that the Group reviews on a regular basis and by which overall
business performance is measured.
Revenue (£’000)
£84,769
+10.6%
2017
2016
2015
2014
2013
84,769
76,677
68,669
61,370
58,295
Return on sales (%)
10.7%
+2.9%
2017
2016
2015
2014
2013
10.7
10.4
12.5
12.3
12.1
Revenue growth is the key driver
of profit growth. 2017 was our ninth
successive year of revenue growth,
benefiting from a full year of
ownership of Wax Lyrical and growth
in export markets. Sales growth was
delivered in both existing and
new markets.
Return on sales expresses operating
profit as a percentage of revenue.
Due to the Group’s manufacturing
fixed cost base, increases in revenue
growth can have a significant impact
on return on sales. Return on sales
growth was positive in 2017 and we
aim to continue to build the return
in future years.
New products launched (number)
1,175
+153%
2017
2016
2015
2014
2013
465
359
604
540
1,175
New products launched include new
ranges and extensions to existing
ranges; these are essential to help
drive revenue growth in future years
and so in many ways represent
expenditure today for benefit
tomorrow. The Group has a strong
track record of launching new products
and in 2017 launched over 200 new
home fragrance products into our
established ceramic ranges.
Basic EPS (p)
65.07p
+9.2%
2017
2016
2015
2014
2013
65.07
59.60
66.02
57.64
53.26
Earnings per share is a shorthand
measure of profitability; it takes all of
the revenue and costs from the year
and divides the post-tax profit arising
by the number of active shares in issue.
It is a measure which helps determine
the amount of dividend which can
be declared and paid and, as such,
together with dividend cover,
summarises the annual output
for shareholders.
Dividends paid and proposed per share (p)
Dividend cover (x)
34.66p
+7.5%
2017
2016
2015
2014
2013
34.66
32.25
30.00
26.50
24.00
1.85x
2017
2016
2015
2014
2013
1.85
1.85
2.21
2.17
2.21
Dividends paid and proposed
per share are a direct measure of
the return per share received by a
shareholder. The Group will maximise
returns to shareholders where our
expectations for the future permit
an appropriate distribution.
Dividend cover shows the extent to
which profits exceed dividends paid.
The Board continues to consider
dividend cover of around two to be
an appropriate and sustainable level.
10
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Our Brands
Portmeirion is recognised worldwide
for producing unique designs
as epitomised by its best-selling
and timeless Botanic Garden range.
The award-winning Sophie Conran
for Portmeirion range together with
the new Westerly and Choices
collections showcase the diverse,
high quality products within the
brand which deliver both beautiful
designs and practicality
for modern-day living.
www.portmeirion.co.uk
Pictured: licensed range, Sara Miller
London Portmeirion
Annual Report and Accounts 2017 • Portmeirion Group PLC
11
Our Brands continued
Renowned for its rich heritage and
timeless designs, Spode’s product
portfolio appeals across the
generations and includes celebrated
patterns such as Blue Italian, Blue
Room and Christmas Tree. These
classics have stood the test of time
with Spode being widely regarded as
one of the UK’s great ceramic brands.
New designs such as Maui and
Delamere Rural keep Spode at the
forefront of contemporary yet
timeless Great British design.
www.spode.co.uk
Pictured: Spode Blue Italian
12
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Wax Lyrical is the UK’s largest home
fragrance company and its products
are British made. An extensive range
of candles, reed diffusers and room
mists are manufactured and
distributed from its base in the Lake
District. As well as Wax Lyrical and
Colony branded products,
Wax Lyrical supplies private-label
ranges to supermarkets and other
retailers. Licensed ranges include
Fired Earth, RHS, Collier Campbell
and Yvonne Ellen.
www.wax-lyrical.com
Pictured: Wax Lyrical Scent with love
Annual Report and Accounts 2017 • Portmeirion Group PLC
13
Our Brands continued
Founded in 1751, Royal Worcester
has a rich and diverse design
heritage. The brand offers a wide
spectrum of quality products
including fashionable fine bone
china mugs and sophisticated,
competitively priced tableware sets.
Quirky new characters have
enhanced the popularity of the
brand’s Wrendale Designs licensed
collection of mugs and giftware.
www.royalworcester.co.uk
Pictured: Royal Worcester Wrendale Designs
14
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT With its unrivalled reputation for
quality products, Pimpernel, the
premier brand for placemats,
coasters, trays and accessories,
continues to build on its holistic
solution for the tabletop with
the introduction of new and
exclusive designs.
www.pimpernelinternational.co.uk
Pictured: Pimpernel Botanic Garden
Annual Report and Accounts 2017 • Portmeirion Group PLC
15
Risk Management
Managing risk in order
to deliver our strategy
Risks to our strategy
The Group’s principal risks and uncertainties
are listed in the table opposite.
Risk management structure
The Portmeirion Group is exposed to a
number of risks in the markets it operates
across. The Group Board considers the
risks to the business at every Board
meeting. It formally reviews and
documents the principal risks to
the business at least annually.
1. Identify risk
The Group Board has overall responsibility
for monitoring the Group’s systems of
internal control, for identification of risks
and for taking appropriate action to prevent,
mitigate or manage those risks.
2. Assess risk
A detailed schedule of risks is considered
at each Board meeting under the following
categories: macro-economic and political,
continuity and disruption, trading and
product, operational and supplier, accounting
and internal controls, legal and regulatory
and external investment and performance.
These risks are graded against a criteria of
likelihood and potential impact in order to
identify the key risks impacting the Group.
3. Mitigate risk
The Board seeks to ensure that the Group’s
activities do not expose it to significant risk.
The Group’s aim is to diversify the Group
sufficiently to ensure we are not exposed
to risk of concentration in product, market
or channel.
4. Update risk register
The risk register is updated at each
Board meeting. The Group Board meets
formally at least five times each year.
5. Review and evaluate risks
The Board and senior managers are
all responsible for reviewing and evaluating
risk. The Executive Directors meet at
least monthly to review ongoing trading
performance, discuss budgets and forecasts
and new risks associated with ongoing trading.
5. Review
and evaluate
risks
1. Identify
risk
Board of
Directors
2. Assess
risk
Remuneration
Committee
Audit
Committee
Subsidiary company
boards and senior
leadership team
Divisional and
functional teams
4. Update
risk register
3. Mitigate
risk
Nomination
Committee
16
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Principal Risks and Uncertainties
Risk
Mitigation
Economic environment
Whilst there is renewed optimism regarding
the general world economy and hope for an
economic recovery, retail conditions remain
challenging with uncertainty around Brexit.
Further adverse conditions in the retail sector
would have a detrimental impact on trading.
The Group monitors and maintains close relationships with
its key customers and suppliers to be able to identify signs
of financial difficulties early in order to prevent or limit any
potential losses. Customer orders and sales trends in major
markets are constantly reviewed to enable early action to
be taken in the event of sales declining.
The general economic factors affecting the Group during
the period are discussed further in the Chairman and Chief
Executive’s Review on pages 4 to 6 and the Financial Review
on pages 18 to 19.
Change
D
Increase
The risk is managed by ensuring that high quality and
innovative products are brought to market, maintaining strong
relationships with key customers and ensuring the Group is
aware of local market conditions, trends and industry-specific
issues and initiatives. This enables the Group to identify and
address any specific matters within the overall business strategy.
D
Increase
Existing staff are provided with relevant training and career
progression to improve motivation. The Group has a clearly
defined recruitment policy which ensures that new employees
meet the required standard and experience for each position.
A
No change
Management also seeks to ensure that key personnel are
appropriately remunerated and ensure that good performance
is recognised.
For the manufacturing process conducted in the UK, the Group
ensures that key raw materials are available from more than one
source to ensure continuity and competitive pricing of supplies.
For the sourcing process, suppliers are carefully selected and
the Group seeks to maintain a sufficient breadth in its supplier
base such that the risk remains manageable. The Group also
ensures that all intellectual property rights are retained and
easily transferable should an alternative supplier be required.
A
No change
Details of the Group’s approach to management of these
risks and the systems in place to mitigate them are covered
in the financial risk management objectives in note 32
on pages 82 to 84.
A
No change
Competitors
The Group faces strong competition in most of the
major markets in which it operates. This presents
a risk of losing market share, revenue and profit.
People
Skilled senior managers and personnel are
essential in order to achieve the strategic
objectives of the Group. Failure to recruit
and retain key staff would present significant
operational difficulties for the Group.
Suppliers
The Group’s purchasing activities could expose it
to overreliance on certain key suppliers or markets
and, as a result, inflationary pricing pressure.
Production is split between our UK factories and
outsourced supply, which allows the Group to
mitigate some of the risk presented by suppliers.
Financial risk
Financial risk is wide-ranging and covers capital
management, credit risk, currency risk and liquidity
risk. The risks presented in these areas include
the failure to achieve business goals, potential
financial losses caused by default, reduction
in profitability due to currency fluctuations,
insufficient funds to complete daily business
functions and consequent threat to the going
concern basis of the organisation.
Annual Report and Accounts 2017 • Portmeirion Group PLC
17
Financial Review
Strong revenue and
operating margin growth
Summary
• Revenue growth of 10.6% to
£84.8 million, with like-for-like
growth of 5.6%.
• Profit before tax of £8.8 million, an
increase of £1.0 million over 2016.
• Operating profit margins increased
to 10.7% (2016: 10.4%) representing
strong operating cost control.
• Group returned to a net cash
positive position of £1.6 million, a
£3.9 million improvement over 2016.
• Pension scheme deficit reduced from
£7.1 million to £1.7 million due to
cash injection, asset performance
and changes to market forward
assumptions.
Mike Raybould
Group Finance Director
Revenue
Revenue totalled £84.8 million for the year.
This represented an increase of 10.6% over
the previous year (2016: £76.7 million).
If we exclude the full year impact of the
acquisition of Wax Lyrical, then like-for-like
growth was 5.6%.
Sales in our US market benefited from a
better exchange rate on consolidation in
2017. This accounted for a 1.7% benefit
to total Group sales.
Our revenue grew in both our core markets
– the UK and US – as well as through strong
demand in our export markets for key
patterns such as historic Portmeirion
Botanic Garden. New product launches,
including those in our licensed ranges of
Royal Worcester Wrendale Designs and
Sara Miller London Portmeirion contributed
to sales growth in our two largest markets
in the UK and US.
Profit
Profit before taxation was £8.8 million,
an increase of £1.0 million on 2016.
Operating profit margins increased to
10.7% (2016: 10.4%) representing strong
control over our operating costs together
with improved customer mix and sales
from new product launches.
Earnings per share increased from 59.60p
to 65.07p per share.
Interest and financing costs
Finance costs increased by £0.1 million
over the prior year representing a higher
interest expense on the defined benefit
pension scheme deficit, together with
the full year impact of interest on the
borrowing taken out in 2016 to finance
the acquisition of the Wax Lyrical business.
Both these costs are expected to reduce
in the next twelve months.
Taxation
The charge for taxation was £1.9 million
(2016: £1.6 million), an effective rate of
taxation of 22.0% (2016: 20.3%). The
increase in the effective tax rate relates to
the one-time adjustment in deferred tax
assets in our US business that is impacted
by the recently announced reduction in US
federal tax rates.
Dividends
The Board proposes a final dividend of
27.26p per share (2016: 25.25p) giving
a total dividend for the year of 34.66p,
an increase of 7.5% on 2016 (32.25p).
This final dividend is expected to be paid on
30 May 2018 to shareholders on the register
on 27 April 2018 with an ex-dividend date of
26 April 2018. Our dividend cover has been
maintained at 1.85 times and the Board
considers this to be a prudent level of cover.
The Group remains committed to a
progressive dividend policy.
18
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Goodwill and intangibles are a major
element of our balance sheet and represent
the value of acquired brands such as Spode,
Royal Worcester and Wax Lyrical. Net book
value of intangibles has reduced in the year
by £0.5 million being the amortisation charge.
No new intangible assets have been added
during 2017 other than small computer
software expenditure.
Treasury and risk management
The impact of transactional currency flows
on the Group’s profit is limited due to natural
matching across different regions. Where
there is an anticipated material exposure
to the Group, then our policy is to use
appropriate hedging instruments to
mitigate that risk.
Mike Raybould
Group Finance Director
14 March 2018
Revenue (£’000)
£84,769
+10.6%
2017
2016
2015
84,769
76,677
68,669
Dividends paid and proposed per share (p)
34.66p
+7.5%
2017
2016
2015
34.66
32.25
30.00
Pre-tax profit (£’000)
£8,822
+13.0%
2017
2016
2015
8,822
7,806
8,649
Cash generation and net debt
At 31 December 2017 net cash was
£1.6 million, a £3.9 million improvement on
December 2016 (net debt of £2.3 million).
This was after capital investment of
£1.0 million, pension deficit contributions
of £1.2 million together with dividend
payments of £3.4 million and tax of
£2.2 million. As previously reported, the
Company acquired the Wax Lyrical business
in 2016 for a net cash outflow of £16.7 million.
Following this acquisition we are pleased to
have already returned to a position of net
cash which is ahead of our forecasts.
We expect Portmeirion Group to remain a
business that is cash generative.
Bank facilities
The Group has agreed debt facilities
with Lloyds Bank, totalling £19 million at
the balance sheet date. This consists of a
£10 million revolving credit facility repayable
in full in May 2019, a £2 million overdraft
facility on an annual renewal cycle and
a £10 million loan repayable equally over
five years from May 2016, of which £7 million
was outstanding at the year end.
Due to the seasonality of our sales, we
experience a large working capital swing
during the year. Our committed funding
addresses this and we believe is conservative.
Assets and liabilities
Working capital remains an area of focus
for us. Inventory increased in the year from
£16.3 million to £18.1 million. This was driven
by production of new home fragrance
ranges for our Portmeirion Group brands
and stock build for extensions to some of
our licensed ranges. In both cases this
stock is required to satisfy 2018 orders.
During the year we have paid £1.2 million
into our defined benefit pension scheme,
which was closed in 1999. Many companies
carry defined benefit pension scheme deficits
and our deficit is relatively modest. The
accounting deficit reduced from £7.1 million
at the end of 2016 to £1.7 million in 2017.
The reduction represents the cash injection,
asset performance over the period and
changes to market forward assumptions.
We continue to keep this under review.
Annual Report and Accounts 2017 • Portmeirion Group PLC
19
Going Concern and Outlook
Going concern
The business activities of the Group, its
current operations and factors likely to
affect its future development, performance
and position are set out in the Chairman and
Chief Executive’s Review on pages 4 to 6 and
in the Financial Review on pages 18 to 19.
In addition, note 32 to the accounts includes
an analysis of the Group’s financial risk
management objectives, details of its
financial instruments and hedging activities
and its exposures to credit and liquidity risk.
The Group has a formalised process of
monthly budgeting, reporting and review,
and information is provided to the Board of
Directors in order to allow sufficient review to
be performed to enable the Board to ensure
the adequacy of resources available for the
Group to achieve its business objectives.
At the year end the Group had net cash
of £1.6 million and, as disclosed in note 23,
had unutilised bank facilities with available
funding of £12 million. Operating cash
generation was strong during the year
at £6.7 million (2016: £6.9 million).
The Group sells into over 60 countries
worldwide and has a spread of customers
within its major UK and US markets with
adequate credit insurance cover in export
markets where required. The Group
manufactures approximately 49% of its
products and sources the remainder from
a range of third-party suppliers.
After making enquiries and reviewing
budgets and forecasts for the Group, the
Directors have a reasonable expectation that
the Company and the Group have adequate
resources to continue in operational existence
for the foreseeable future. Accordingly,
they continue to adopt the going concern
basis in preparing the Annual Report
and Accounts.
Outlook
Trading in the first two months of the
current year is nearly 20% ahead of the
comparative period in 2017. However,
given the Group’s second half weighting,
the sales in these first two months of the
year are low in comparison to the balance
of the year.
Our strategy and core values remain
unchanged; we believe in profitable
sales growth, introducing new products,
investing in our brands, enhancing our
operational capabilities and supporting this
with complementary strategic acquisitions.
We remain confident in our ability to create
shareholder value in the short, medium
and long term.
Approved by the Board of Directors and
signed on behalf of the Board.
Dick Steele
Non-executive Chairman
Lawrence Bryan
Chief Executive
14 March 2018
20
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Sustainability
We are committed to sustainability progress in
all aspects of our business – for the environment,
our people, customers, suppliers and the
communities we operate in. This is evidenced
and underpinned by our vision and values.
R O F I T A B L E S A LES
T O M E R S
U
S
E
O W P
G
C
R
N
G
A
T
E
A
OPERATIONAL EXC
QUALITY
ELLE
G
E
M
O
U
W
R
O
O
P
E
RK
INNOVATIO N
EXCELLENT PRODUC T D E S I G N
PLE
O
V I R
E N
C
N
C
E
T
N
E
M
N
M
O
Y
T
I
N
U
M
Environmental
Production and operations:
The Group is dedicated to being
environmentally responsible through
our commitment to eliminate waste
and wasteful practices.
Policies are designed and implemented to reduce damage
that might be caused by the Group’s activities. Initiatives to
reduce the Group’s impact on the environment include the
recycling of manufacturing waste, reducing carbon emissions
and utilisation of recyclable packaging materials.
Efficient use of resources is important to the Group. Products
are designed and production processes formulated to target
high manufacturing yields which in turn optimises the utilisation
of resources. The Group’s products are designed to achieve a
long “Product Life Cycle” so that they need only be replaced
after a lengthy period of time. Other measures include the
safe disposal of manufactured waste, energy recycling and
reduction of energy consumption.
Waste management
The Group will continue to recycle its main waste streams, scrap
product, plaster of Paris moulds and cardboard, as appropriate.
Approximately half of the energy used at Wax Lyrical’s production
site in Cumbria during 2017 was provided by wind turbine,
which on average can supply 1,283,902 kWh of “green”
electricity per year and saves up to 559 tonnes of carbon
dioxide in emissions per year.
Greenhouse gas (GHG) emissions
Portmeirion UK’s commitment to reducing its carbon emissions
is evidenced by having been subject to a Climate Change
Agreement since 2000. During 2017, the Company continued
to beat the challenging targets on energy efficiency set as
part of its ongoing membership of this agreement.
Social
Our people:
Growing our business generates opportunities
for our employees and creates value for our
shareholders. We focus on creating an
environment where people want to work and are
able to give their best. Working together with
drive and enthusiasm creates a dynamic
workplace that is exciting to work in and gives us
the best chance of success in achieving our goals.
Our people are our greatest asset. The Group’s performance
and its success within our marketplace are directly related to
the effectiveness of our people, who deliver the high quality
products and exceptional service that we are renowned for.
Developing talent and supporting diversity across our business
help to ensure that we have the best teams motivated to
deliver our goals.
The Group aims to attract, retain and motivate the highest
calibre of employees. Portmeirion UK’s apprentice recruitment
day in July 2017 was a resounding success resulting in 10 new
apprentices being recruited to the Group. As a result, Portmeirion
UK has 12 apprentices and 8 trainees in the Home Grown Talent
programme which is promoted by presenting at local schools and
colleges on career days. Wax Lyrical has 2 apprentices who
will complete their programme in 2018. Portmeirion UK has
been accredited for its Investment in Young People, further
demonstrating that we recognise the value young people can
bring to building a dynamic and productive workforce.
The Group has established people-centred policies which
are communicated and updated via our internal physical and
electronic notice boards, employee briefings and newsletters
to build the “one team” ethos which is embedded in our
Group values.
Employee representatives meet in forums to discuss business
related issues. We measure employee engagement by opinion
surveys. In the 2017 surveys, 94% of Portmeirion UK’s employees
and 87% of Wax Lyrical’s employees said that they were happy
to be working for the Group.
We are delighted to report that Portmeirion UK has been
shortlisted in the Employer category of the 2017 Performance
Through People (PTP) Achievement Awards.
Long service awards and celebratory lunch at Wax Lyrical’s
head office in December 2017.
Annual Report and Accounts 2017 • Portmeirion Group PLC
21
Sustainability continued
Social continued
Recognition
Our reward strategy aims to provide a package that offers
competitive pay and distinctive benefits. Employees are offered
membership of our Group personal pension plans which provide
employer contributions for all members. Throughout the Group
we operate employee recognition schemes including discretionary
incentive schemes, length of service and good attendance awards,
Christmas gifts, VIP “family and friends” Christmas shopping
evenings and retirement afternoon teas.
Employee performance is measured against formal objectives set
annually with line management and on which regular feedback
is given. These objectives are aligned to Group strategy.
Having both been Employee of the Month, Melanie Raftery
and Nathen Jones were joint winners of Portmeirion UK’s
employee-voted “Employee of the Year 2017” award for their
commitment to the Group and dedication in their areas of retail
and production. Following feedback from its employee survey,
Wax Lyrical has launched an Employee of the Month and Team
of the Quarter programme for 2018.
Training
The Group provides a number of training and development
opportunities across all areas of the business to ensure that
our employees have all of the necessary skills to competently
perform their roles. These opportunities include National
Vocational Qualifications, professional development, first aid
training and other specific job related training courses.
Management development is addressed through accredited
qualifications in leadership and management. We were
particularly pleased to congratulate eleven management
development delegates who achieved their level 3, 4 or 5
Diploma in Management qualifications in Summer 2017.
Health and safety
The Group promotes a positive health and safety culture
throughout the business to ensure that all of our people consider
health, safety and welfare issues while at work and make an
effective contribution towards maintaining and improving health
and safety standards. By using this approach the Group aims to
reduce accidents and provide a healthy workplace and working
environment. Representatives from across the business are
involved in health and safety committee meetings.
All new employees receive in-house health and safety training
with further training undertaken as the employee’s role or
need requires. 229 employees in Portmeirion UK and 159 in
Wax Lyrical received in-house health and safety training in 2017.
In October 2017, Portmeirion UK’s efforts were recognised at
The British Ceramics Confederation Health and Safety Awards
for achievements in worker involvement.
Investors in People
Both of the Group’s UK trading subsidiaries are officially
recognised as Investors in People (IiP), Portmeirion UK at silver
level and Wax Lyrical at bronze level. This prestigious
accreditation is recognised across the world as a mark of
excellence and demonstrates our commitment to employee
engagement, health and wellbeing and skills enhancement.
Diversity
We recognise and value all forms of diversity in our employees
and endeavour to promote diversity in our workplace to
enhance the success of our business.
Gender split
The Group will meet the requirement to publish gender pay
statistics during 2018.
Within our manufacturing and distribution centres we aim to
train all of our employees to be multi-skilled so they can perform
in a variety of roles to aid flexibility. We use training needs analysis
to highlight any skills gaps within our ceramic manufacturing
processes and to drive succession planning.
We recognise the benefits of coaching and mentoring and
are particularly proud of our number of internal skills trainers.
Our Stoke-on-Trent production and warehouse functions have
23 such trainers.
Wellbeing
Investment in our people stretches beyond their careers to their
wellbeing generally. Portmeirion UK is accredited for the Workplace
Wellbeing Charter. Its health and wellbeing calendar provides
free advice on matters such as: healthy eating and exercise,
smoking cessation, cancer awareness, further education, alcohol
and drug awareness, mental health support and pension planning.
We are pleased to report that, in December 2017, Wax Lyrical
started work on adopting its own wellbeing calendar for the
first time.
Product and design:
We design, create and supply high
quality products whilst minimising
environmental impact.
Our responsibilities
We are fully aware of our quality and safety responsibilities to our
customers and to consumers who use our products. We also take
environmental responsibilities seriously and, where possible, work
with customers to reduce potential environmental impact.
Portmeirion UK’s Employees of the Year 2017.
22
Annual Report and Accounts 2017 • Portmeirion Group PLC
STRATEGIC REPORT Portmeirion UK’s health and safety team receiving its British
Ceramics Confederation awards.
Community and relationships
Community and society:
The communities where our sites are
based are important to us and every
employee has the opportunity to make a
difference within our local communities
through our charitable programmes.
We are proud to play an active part in our local communities.
Most of our financial contributions to charities come from
the efforts and personal involvement of our employees, with
support from the Board. Product donations are also made
to local charities.
Portmeirion UK supported the Douglas Macmillan Hospice as
its employee-chosen Charity of the Year for 2017. Fundraising
included an Easter-themed cake sale, a quiz night and a
show-stopping “Night at the Movies” of dinner, dancing and
entertainment provided by our talented staff. A contribution
of £29,000 was made to the Hospice during 2017. 250
volunteering hours were delivered by the Group supporting
at least two employees per month with a paid day off to
volunteer for the Hospice. Volunteers helped with activities
such as gardening, coin counting, retail support and mobile
lithography craft sessions for inpatients.
In 2017, St Mary’s Hospice and North West Air Ambulance
were Wax Lyrical’s chosen charities. A total of nearly £2,000
was raised and split equally between the two charities through
the dedicated support of Wax Lyrical’s employees and their
efforts including raffles and sample sales.
Both Portmeirion UK and Wax Lyrical have supported other
fundraising initiatives throughout 2017, delivering well received
support to other charities and fostering employee team work
and community spirit including colourful Christmas jumper days
and The Great Wax Lyrical Bake Sale. Wax Lyrical’s commitment to
its local community is further evidenced by its staff presentations
at local schools, providing practical support on their
science curriculum.
Ethics and human rights
The Group aims to conduct its business with honesty, integrity
and openness, respecting human rights and the interests of its
employees, customers and third parties. The Group advocates
high ethical standards in carrying out its business activities and
has policies for dealing with gifts, hospitality, bribery, corruption,
modern slavery, whistle-blowing, conflicts of interest and inside
information. The Group does not make political donations and
charitable donations are made only where legal and ethical
according to local law and practices.
Relations with customers
The Group is committed to putting our customers at the heart
of everything we do by providing safe, value for money, high
quality products and to developing and maintaining positive
relationships. All employees are expected to behave respectfully
and honestly in all their dealings with customers and the general
public. The Group encourages feedback from its customers
through trade account managers and engagement with individual
customers through customer service teams and social media
such as Facebook and Twitter.
Relations with suppliers, partners and contractors
The Group expects its suppliers to adhere to business principles
consistent with the Group’s own. Suppliers are expected to adopt
and implement acceptable health and safety, environmental,
product quality, labour, human rights, social and legal standards
in line with the Group’s Supplier Code of Conduct. The selection
of new suppliers will continue to be subject to them meeting
high international standards of compliance. Conformance to
these standards is assessed by on-site audits at the supplier’s
premises. All product suppliers are requested to complete
pre-prepared compliance declarations.
The Group will continue to test all products for compliance
with international standards in relation to quality and
technical performance.
The Group aims to use contractors that are, as a minimum,
appropriately qualified and ideally experienced in the ceramics
and home fragrance industry. New contractors undergo health
and safety inductions. Risk assessments are carried out on all
major assignments and contractors are required to provide
method statements for major works.
The Group will either agree terms of payment with suppliers
and contractors at the start of business or ensure that the
supplier or contractor is aware of the Group’s payment terms.
Payment will be made in accordance with contractual or other
legal obligations.
Portmeirion UK’s volunteers at the 2017 Douglas Macmillan
Hospice volunteer launch event.
Annual Report and Accounts 2017 • Portmeirion Group PLC
23
Board of Directors
Chairman’s introduction
“We believe that good corporate governance is a building block
of a successful and sustainable business. Although compliance with
the UK Corporate Governance Code 2016 is not mandatory for AIM
companies, such as us, the Company continues to operate a framework
of policies and procedures designed to comply with a number of the
Code’s provisions as far as is reasonably practicable and appropriate
for a company of our size and complexity.”
Dick Steele
Non-executive Chairman
R
A
N
Remuneration Committee
Audit Committee
Nomination Committee
Lawrence Bryan
Chief Executive
Skills and experience
Lawrence Bryan oversees all the Group’s
business and is responsible for formulating
the Group’s objectives and strategy. In
addition, the Group’s design function
reports into him as well as all operations in
the United States, where he is President of
Portmeirion Group USA, Inc. Lawrence has
extensive experience in the glass, ceramics
and gift industry. He was previously the
Vice President, Sales of Waterford
Wedgwood USA, President of Waterford
Wedgwood USA Retail and President
of International China Company. He is
a Fellow of the Royal Society of Arts.
Other appointments
None.
24
Annual Report and Accounts 2017 • Portmeirion Group PLC
Dick Steele
Non-executive Chairman
R A N
Skills and experience
Dick Steele is responsible for leading
the Board and ensuring that it operates
in an effective manner whilst promoting
communication with shareholders. He is
a Fellow of the Institute of Chartered
Accountants in England and Wales and
also a member of the Institute of Taxation.
Other appointments
Dick is a Non-executive Director of
the Quoted Companies Alliance and
Non-executive Chairman of two private
equity backed businesses: ASL and
Country Baskets.
N
Phil Atherton
Group Sales and Marketing Director
Skills and experience
Phil Atherton is responsible for global sales
and marketing excluding the US. Before
joining the Group, Phil was the Sales and
Marketing Director of the Home Textiles
division of the John Cotton Group Limited.
He also spent twelve years in the drinks
industry working in a number of commercial
roles with Remy & Associates (UK) Limited,
The Gaymer Group Limited and Allied
Domecq PLC where he gained extensive
experience of working with premium brands.
Other appointments
None.
CORPORATE GOVERNANCE Lady Judge CBE
Non-executive Director
R A N
Janis Kong OBE
R
A
N
Andrew Andrea
R
A
N
Non-executive Director
Non-executive Director
Skills and experience
Lady Barbara Judge was previously
an international corporate lawyer with
significant experience as a senior executive
and non-executive director and chairman
in the private and public sectors. She will
retire from the Board at the conclusion
of the Annual General Meeting on
17 May 2018.
Other appointments
Lady Judge is Non-executive Chairman
of CIFAS and LoopUp Group plc. Formerly
she was Chairman of the UK Pension
Protection Fund and the UK Atomic
Energy Authority, Deputy Chairman of
the UK Financial Reporting Council and
a Commissioner of the United States
Securities and Exchange Commission.
Skills and experience
Janis Kong has extensive experience
in retail, consumer products and
risk management.
Other appointments
Janis is Chairman of Bristol Airport Limited,
Non-executive Director of Copenhagen
Airports A/S, Tui AG and Roadis (PSP).
Formerly, she held positions as Non-executive
Director of the Royal Bank of Scotland
Group PLC, Network Rail Limited and Visit
Britain, Executive Chairman of Heathrow
Airport Limited, Chairman of Heathrow
Express Limited and a member of the
BAA plc Board.
Skills and experience
Andrew Andrea was appointed on
20 June 2017 and is a qualified Chartered
Accountant. He has a wealth of experience
gained in financial and commercial roles
across diverse businesses including
brewing, hospitality and retailing.
Other appointments
Andrew is currently the Chief Financial
and Corporate Development Officer for
Marston’s PLC, a leading independent
brewing and pub retailing business. Prior to
joining Marston’s he worked in various roles
with Guinness Brewing Worldwide, Bass
Brewers Limited and Dollond & Aitchison.
Mick Knapper
Operations Director
Mike Raybould
Group Finance Director
Moira MacDonald
Company Secretary
Skills and experience
Mick Knapper was appointed to the Board
on 1 March 2017 and is responsible for
Portmeirion UK’s sourcing, production,
information systems, human resources
and logistics functions. Mick has held
several roles in IT and logistics since
joining Portmeirion in 1998. He has been
responsible for the Group’s IT and logistics
in the UK since 2009 and a member of the
board of the Company’s main operating
subsidiary, Portmeirion Group UK Limited,
since 2011.
Other appointments
None.
Skills and experience
Mike Raybould was appointed on
26 May 2017 and is responsible for all
aspects of financial control and legal matters.
He sits on all subsidiary boards. The Wax Lyrical
home fragrance business reports into him.
Mike is a qualified Chartered Accountant.
He was previously the Chief Financial Officer
of the Europe, Middle East and Africa (EMEA)
Floorcare Division of Techtronic Industries
Company Limited, a public company listed on
The Stock Exchange of Hong Kong Limited.
Skills and experience
Moira MacDonald was appointed on
1 March 2017 and is a Fellow of The
Institute of Chartered Secretaries and
Administrators. Moira held the position
of Deputy Group Secretary since joining
the Group in 2007, prior to which she
was Assistant Company Secretary at Legal
& General Group plc and at BPB plc.
Other appointments
None.
Other appointments
None.
Annual Report and Accounts 2017 • Portmeirion Group PLC
25
Corporate Governance Statement
As a company listed on the Alternative
Investment Market (AIM) the Company is
not required to adhere to the UK Corporate
Governance Code 2016 (the “Code”). The
Company has regard to the Code as best
practice guidance; however, it has not
sought to comply with the full Code.
The Board
The Company is controlled by the Board
of Directors. The Board comprises four
Executive and four Non-executive Directors.
The Board has decided to adopt voluntarily
the practice that all continuing Directors
stand for re-election on an annual basis in
line with recommendations of the Code.
All Directors undergo a performance
evaluation before being proposed for
election/re-election to ensure that their
performance is and continues to be
effective, that where appropriate they
maintain their independence and that they
are demonstrating continued commitment
to the role.
approval of major capital expenditure
projects, approval of the annual and interim
results, annual budgets, dividend policy
and Board structure. It monitors the exposure
to key business risks and reviews the
strategic direction of all trading subsidiaries,
their annual budgets, their performance in
relation to those budgets and their capital
expenditure. The Board delegates day-to-
day responsibility for managing the business
to the Executive Directors and the senior
management team.
The Board considers, after careful review,
that the Non-executive Directors bring
an independent judgement to bear
notwithstanding their length of service.
The Board has considered the need for
progressive refreshing of the Board in
formulating this view. All Non-executive
Directors have contracts which expire
on the completion of one year’s notice.
These are available for inspection at the
Company’s registered office and at the
Annual General Meeting. The Company’s
Articles of Association require that all
Directors retire no later than at the third
Annual General Meeting of the Company
after the general meeting at which he/she
was appointed or last reappointed.
Dick Steele, the Non-executive Chairman,
is responsible for the running of the Board
and Lawrence Bryan, the Chief Executive,
has executive responsibility for running the
Group’s business and implementing Group
strategy. The Board has not appointed a
Senior Non-executive Director. The Board
believes that, given its size, there is
sufficient opportunity for shareholders
to raise any concerns they may have with
the Non-executive Chairman, the Chief
Executive, the Group Finance Director, the
other three Non-executive Directors or the
Company Secretary. The Board meets at
least five times each year and has a formal
schedule of matters reserved to it. It is
responsible for overall Group strategy,
All Directors receive regular and timely
information on the Group’s operational and
financial performance. Relevant information
is circulated to the Directors in advance
of meetings. In addition, minutes of the
meetings of the Directors of the main
UK subsidiary are circulated to the Group
Board of Directors. All Directors have direct
access to the advice and services of the
Company Secretary and are able to take
independent professional advice in the
furtherance of their duties, if necessary,
at the Company’s expense.
The following table shows the attendance of the Directors at meetings of the Board and its principal Committees during 2017:
Total meetings held(1)
Meetings attended
R.J. Steele (Non-executive Chairman)
L. Bryan (Chief Executive)
A.A. Andrea (Non-executive) (appointed 20 June 2017)
P.E. Atherton (Group Sales and Marketing Director)
Lady Judge (Non-executive)
M.J. Knapper (Operations Director) (appointed 1 March 2017)
J. Kong (Non-executive)
M.T. Raybould (Group Finance Director) (appointed 26 May 2017)
B.W.J. Phillips (Group Finance Director) (resigned 5 May 2017)
Notes:
Board
Audit
Committee
Remuneration
Committee
Nomination
Committee
5
5
5
2
5
5
4
4
2
2
3
3
3(2)
2
3(2)
3
3(2)
3
2(2)
1(2)
2
2
2(2)
—
n/a
2
n/a
1
n/a
n/a
4
4
4
—
n/a
4
n/a
4
n/a
n/a
(1)
During the year additional Board and Remuneration Committee meetings were held and attended by a duly authorised committee of members of the Board,
principally to discuss share option matters.
(2) Meetings which the Director attended, in whole or in part, by invitation.
26
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE During the year the Board carried out an
evaluation of its own performance, taking
into account guidance included in the
Financial Reporting Council’s Guidance on
Board Effectiveness. The Board concluded
that it had performed effectively. During
the year appraisals were carried out with
the Directors. The Group Finance Director,
the Group Sales and Marketing Director
and the Operations Director were appraised
by the Chief Executive, who, in turn, was
appraised by the Chairman.
The Company Secretary supports the
Chairman in addressing the training
and development needs of Directors.
The Board has three Committees which
assist in the discharge of its responsibilities
– the Audit, Remuneration and Nomination
Committees. The terms of reference for each
Committee are available on the Company’s
website at www.portmeiriongroup.com.
These terms of reference are reviewed
annually together with Committee
composition and performance.
The Board considers it appropriate
that Dick Steele, with his experience
and expertise in financial control and risk
management, chairs the Audit Committee.
The Remuneration Committee believes
that the presence of the Chief Executive
is important when determining the
remuneration of the other Executive
Directors. The Chief Executive does not
participate in discussions relating to his
personal remuneration.
Board of Directors
Audit Committee
Remuneration Committee
Nomination Committee
The Audit Committee considers any
matter relating to the financial affairs
of the Group and to the Group’s
external audit that it determines to be
desirable. In particular, the Committee
oversees the monitoring of the
adequacy of the Group’s internal
controls, accounting policies and
financial reporting and provides a
forum through which the Group’s
external auditors report to the
Non-executive Directors.
During 2017, the Committee considered
the following significant issues, with
management and the external auditors,
in relation to the financial statements:
internal controls, defined benefit pension
scheme, goodwill and intangible assets,
revenue and income recognition, stock
valuation and inventory provisions.
The Remuneration Committee
is responsible for making
recommendations to the Board in
relation to all aspects of remuneration
for Executive Directors.
In framing its policy, the Remuneration
Committee takes into account any
factors which it deems necessary,
including industry-standard executive
remuneration, differentials between
Executive Director and employee
remuneration and differentials
between Executive Directors.
When designing schemes of
performance related remuneration the
Remuneration Committee considers
the provisions in Schedule A to the
Code. The remuneration of the
Non-executive Directors is determined
by the Executive Directors.
The Nomination Committee
oversees the process and makes
recommendations to the Board on all
new Board appointments. Where new
Board appointments are considered,
the search for candidates is conducted,
and appointments are made, on merit,
against objective criteria and with due
regard for the benefits of diversity on
the Board, including gender.
The Committee also considers the
re-election of Directors retiring by
rotation and succession planning.
Dick Steele (Chairman)
Andrew Andrea
Lady Barbara Judge
Janis Kong
Dick Steele (Chairman)
Andrew Andrea
Lady Barbara Judge
Janis Kong
Dick Steele (Chairman)
Andrew Andrea
Lady Barbara Judge
Janis Kong
Lawrence Bryan
Annual Report and Accounts 2017 • Portmeirion Group PLC
27
Corporate Governance Statement continued
Risk management and
internal control
The Board acknowledges that it is
responsible for the Group’s overall
approach to risk management and internal
control and for reviewing the effective
application of risk management and
internal control systems.
An ongoing process for identifying,
evaluating and managing or mitigating the
principal risks faced by the Group has been
in place throughout the financial year and
has remained in place up to the approval
date of the report and accounts. That
process is regularly reviewed by the Board
and accords with the principles in The
Financial Reporting Council’s Guidance
on Risk Management, Internal Control and
Related Financial and Business Reporting,
published in September 2014.
The Board intends to keep its risk control
procedures under constant review, particularly
with regard to the need to embed internal
control and risk management procedures
further into the operations of the business,
both in the UK and overseas, and to deal
with areas of improvement which come to
management’s and the Board’s attention.
As might be expected in a group of
this size, a key control procedure is the
day-to-day supervision of the business by
the Executive Directors, supported by the
senior managers with responsibility for key
operations. The Board has considered the
impact of the values and culture of the
Group and ensures that, through staff
communication and training, the Board’s
expectations and attitude to risk and
internal control are embedded in
the business.
The Executive Directors are involved in the
budget setting process, constantly monitor
key performance indicators and review
management accounts on a monthly basis,
noting and investigating major variances.
All significant capital expenditure decisions
are approved by the Board as a whole.
The Group’s principal risks, together with the
relevant control and monitoring procedures,
are subject to regular review to enable the
Board to assess the effectiveness of the
system of internal control. The adequacy
of internal controls with regard to the risks
identified are reviewed at every Board
meeting. The Board has also specifically
reviewed the effectiveness of the Group’s
internal financial controls. These regular
reviews allow the Board to re-evaluate the
risks and adjust controls effectively in response
to changes in attitude to risk, in our business
or in the external environment. During the
course of its reviews the Board has not
identified nor been advised of any failings
or weaknesses which it has determined
to be significant.
The Board has considered the need for
an internal audit function, but has decided
that, because of the size of the Group and
the systems and controls in place, it is not
appropriate at present. The Board will
review this on a regular basis.
The Group’s system of internal control is
designed to identify fraud or material error
and manage, rather than eliminate, the risk
of failure to achieve business objectives,
and can only provide reasonable and not
absolute assurance against material
misstatement or loss.
The Audit Committee reviews
arrangements by which employees
of the Group may, in confidence, raise
concerns about possible improprieties
in matters of financial reporting or other
matters, so seeking to ensure that
appropriate arrangements are in place
for the proportionate and independent
investigation of such concerns and for
appropriate follow-up action.
Auditors
Annually, the Audit Committee reviews
the relationship the Company has with
the external auditors including the scope
of the audit work, the audit process, fees
and audit independence. The last review,
in November 2017, concluded that
the Committee was satisfied with the
effectiveness of the external audit. Mazars
LLP have acted as the Company’s auditors
since 2009. The external auditors are required
to rotate the audit partner responsible for
the Company and subsidiary audits every
five years and a new lead audit partner
was appointed in 2014. Mazars LLP are
recommended for reappointment as
auditors at the AGM on 17 May 2018.
Whilst the Code recommends that FTSE
350 companies should tender their external
audit contract at least every ten years,
this does not apply to the Company,
which is AIM listed.
Non-audit services
The Audit Committee is responsible
for keeping under review the nature and
extent of non-audit services provided by
the external auditors in order to ensure
that objectivity and independence are
maintained. For non-audit work, the policy
is that the Group does not use the external
auditors unless they have the necessary
skills and experience to make them the
most suitable supplier. There are appropriate
safeguards in place to eliminate or reduce
to an acceptable level any threat to the
objectivity and independence of the
external auditors in the provision of
non-audit services. Fees paid to the
auditors for non-audit services are
disclosed in note 8 on page 65.
The external auditors have in place
processes to ensure their independence
is maintained including safeguards
to ensure that where they do provide
non-audit services their independence is
not threatened. They have written to the
Audit Committee confirming that, in their
opinion, they are independent.
28
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE Conflicts of interest
Financial reporting
The Board seeks to present a fair, balanced
and understandable assessment of the
Group’s position and prospects. Details
are given in the Strategic Report on
pages 1 to 23.
Approval
This report was approved by the Board
and signed on its behalf by:
Dick Steele
Non-executive Chairman
14 March 2018
In line with the requirements of the
Companies Act 2006, the Directors have
put in place a policy and process for notifying
and recording the nature and extent of their
interests, together with those of connected
persons, in organisations and companies
outside the Group. Each Director must
formally notify the Company if there is the
potential for these interests to conflict with
their duties as a Director of the Company.
All such notifications are regularly reviewed
by the Board.
Relations with shareholders
The Group encourages two-way
communication with both its institutional
and private investors and responds quickly
to all queries received. The Chairman
talks regularly with the Group’s major
shareholders and ensures that their views
are communicated fully to the Board. The
Chairman wrote to significant institutional
shareholders in February 2018 offering a
meeting to discuss corporate governance
matters. The Non-executive Directors are
offered the opportunity to attend meetings
with major shareholders. All shareholders
receive notice of the Annual General
Meeting (AGM) at which the Chairmen
of all Committees will be available
for questions.
The Board recognises the AGM as an
important opportunity to meet private
shareholders. At its AGM, which is chaired
by the Chairman, the Company complies
with the provisions of the Code relating to
the notice period required, the disclosure
of proxy votes, the separation of resolutions
and the attendance of Committee Chairmen.
The Directors are available to listen to the
views of shareholders informally immediately
following the AGM.
Annual Report and Accounts 2017 • Portmeirion Group PLC
29
Directors’ Remuneration Report
There have been no structural changes
to the Remuneration Policy during 2017.
Performance of our Executive Directors
is assessed against a range of financial
and operational measures ensuring value
is delivered to shareholders. Annual incentive
payments are based on a demanding profit
before tax and exceptional items target. The
annual incentive paid to Executive Directors
for the year ended 31 December 2017 is 30%
of basic annual salary. Details of the Directors’
shareholdings are given on page 39.
We are committed to maintaining an open
and transparent dialogue with shareholders.
The objective of this report is to communicate
clearly how much our Executive Directors
are earning and how this is strongly linked
to performance. Each year, we review how
shareholders voted on the Directors’
Remuneration Report, together with
any feedback received.
I welcome any comments from shareholders
regarding Directors’ remuneration.
Dick Steele
Chairman of the Remuneration Committee
14 March 2018
This report is on the activities of the
Remuneration Committee for the year
ended 31 December 2017 and sets out
the Remuneration Policy and remuneration
details for the Executive and Non-executive
Directors of the Company. As a company
listed on the Alternative Investment Market
(AIM), the Company is not required to
comply with Schedule 8 of the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 as
amended in August 2013 (the “Regulations”),
nor is it required to comply with the principles
relating to directors’ remuneration in the UK
Corporate Governance Code 2016 (the
“Code”). This report has not been audited.
This report, excluding the Remuneration
Policy section, will be subject to an advisory
shareholder vote at the Annual General
Meeting (AGM) on 17 May 2018 at which
approval of the financial statements will
be sought.
Dear shareholder,
On behalf of the Board, I am pleased to
present the Directors’ Remuneration Report
for the year ended 31 December 2017.
The aim of our report is to provide
shareholders with the information to
understand our Remuneration Policy
and its linkage to the Group’s financial
performance. The Remuneration Committee
seeks to achieve a fair outcome in reward
that is linked to the Group’s immediate and
long-term results and strategy delivery.
Through the commitment and determination
of our employees and senior management
team, Portmeirion Group continues to deliver
sustainable returns and growth for our
shareholders as shown by our results on
the inside front cover.
30
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE Remuneration Committee
The members of the Remuneration
Committee during 2017 are set out on
pages 24 and 25. The terms of reference of
the Remuneration Committee are available
at www.portmeiriongroup.com.
During 2017, the Committee held
two scheduled meetings. In addition,
the Committee held meetings at other
times throughout the year to deal with
share option awards, exercises and other
related matters.
Dick Steele is Chairman of the
Remuneration Committee and has been
throughout 2017. The Board considers
it appropriate that Dick Steele, with
his experience in this area, chairs this
Committee. Andrew Andrea joined the
Committee on 20 June 2017 following his
appointment to the Board. There have
been no other changes in the composition
of the Remuneration Committee during
the year. None of the Committee have any
personal financial interest (other than as
shareholders), conflicts of interest arising
from cross-directorships or day to day
involvement in running the business.
No Director plays a part in any discussion
about his or her own remuneration.
The Committee meets at least twice a year
to undertake the following actions:
• review the market competitiveness
of the Remuneration Policy and the
remuneration of the Executive Directors;
Pinsent Masons LLP provided advice
on the administration of the Company’s
share schemes in 2017. In determining the
Directors’ remuneration for the year, the
Committee consulted Lawrence Bryan,
Chief Executive, about its proposals.
Remuneration Policy
Executive remuneration packages are
prudently designed to attract, motivate
and retain Directors of high calibre and
to reward them for enhancing value
to shareholders. The performance
measurement of the Executive Directors
and the determination of their annual
remuneration package is undertaken
by the Remuneration Committee. The
remuneration of the Non-executive Directors
is determined by the Executive Directors.
There are five main elements of the
remuneration package for Executive
Directors and senior management:
• basic salary and benefits;
• agree the incentive policy and payments
• annual incentive payments;
• share option incentives;
• long-term incentives; and
• pension arrangements.
for the Executive Directors;
• agree the individual share option
and long-term share awards for the
forthcoming financial period;
• review the performance measures,
targets and achievement thereof in
relation to share scheme awards;
• approve the Directors’ Remuneration
Report; and
• administer the Group’s share schemes.
The Company’s policy is that a substantial
proportion of the remuneration of the
Executive Directors should be performance
related in order to encourage and reward
improving business performance and
shareholder returns. In determining the
remuneration arrangements for Executive
Directors the Committee is sensitive to pay
and employment conditions elsewhere in
the Group, especially when determining
base salary increases.
The Committee operates the various
incentive plans according to their respective
rules and in accordance with HMRC rules
where relevant. To ensure the efficient
administration of the plans the Committee
has certain operational powers. These
include the determination of the participants
in the plans on an annual basis; the timing
of grants of awards and/or payments; the
quantum of an award and/or payment; the
extent of vesting based on the assessment
of performance; determination of leaver
status and appropriate treatment under
the plans; and annual performance
measures and targets.
The Company recognises that Executive
Directors may be invited to become
non-executive directors of other companies
and that this can help broaden the skills and
experience of a Director. Executive Directors
are entitled to accept appointments outside
the Group providing that the Chairman
grants his permission.
The Committee has reviewed the policy for
the year ahead and has concluded that the
key features of the Remuneration Policy
remain appropriate.
Annual Report and Accounts 2017 • Portmeirion Group PLC
31
Directors’ Remuneration Report continued
Remuneration Policy continued
Key aspects of the Remuneration Policy for Executive Directors
The following table provides a summary of the key elements of the remuneration package for Executive Directors:
Purpose and link to strategy
Operation
Maximum opportunity
Performance conditions
Base salary
To provide competitive fixed
remuneration that will attract and
retain key employees and reflect
their experience and position
in the Group.
Reviewed annually taking into
account industry-standard
executive remuneration and
pay levels elsewhere within
the Group.
None.
Salaries for the year ended
31 December 2017 are set out on
page 35. Changes in the scope or
responsibilities of a Director’s role may
require an adjustment to salary levels
above the normal level of increase.
Benefits
To provide market levels of
benefits on a cost-effective basis.
Private health cover for the
executive and their family, life
insurance cover of four times
salary, critical illness cover
and a company car. Other
benefits may be offered from
time to time broadly in line
with market practice.
Private healthcare benefits are provided
through third party providers and therefore
the cost to the Company and the value
to the Director may vary from year to year.
None.
It is intended the maximum value of
benefits offered will remain broadly in
line with market practice.
Pension
Providing post-retirement benefits.
The Group operates defined
contribution pension schemes.
Dependent on the value of the fund
at retirement.
None.
Annual incentive
Recognises achievement of
annual objectives which support
the short to medium-term
strategy of the Group.
Deferred Incentive Plan
Incentivising and retaining
Executive Directors whilst
aligning their interests with those
of shareholders through delivery
and retention of shares.
The performance targets
are set by the Remuneration
Committee at the start of the
year with input, as appropriate,
from the Chief Executive.
Maximum incentive potential is 100%
of salary.
Based on achievement
of a demanding profit
before tax and
exceptional items target.
Discretionary award over
shares with a market value
corresponding to a
percentage of the gross
annual incentive payment
earned by the Executive
Director in respect of the
previous financial year.
Maximum award is 20% of the
prior year’s gross annual incentive
payment. Shareholder approval is being
sought at the AGM on 17 May 2018 to
increase the maximum award to 50%
of the prior year’s gross annual
incentive payment.
Options under the plan
can only be granted to
the extent performance
targets relating to the
annual incentive
arrangements are met.
Executive Share Option Plans
Setting value creation through
share price growth as a major
objective for Executive Directors
and senior managers. Alignment
of option holder interests with
those of shareholders through
delivery of shares.
Subject to earnings per
share (EPS) performance
measurement to reflect
operational performance as
EPS is a significant factor in
determining the market’s
view of the Group’s value.
The Portmeirion 2012 Approved Share
Option Plan has a limit of £30,000 for
any “approved” options in accordance
with HMRC limits.
Growth in earnings per
share targets as detailed
on page 34.
32
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE Remuneration Policy continued
Key aspects of the Remuneration Policy for Non-executive Directors (including the Chairman)
The following table provides a summary of the key elements of the remuneration package for Non-executive Directors:
Purpose and link to strategy
Operation
Maximum opportunity
Performance conditions
Base fee
To provide competitive fixed fees
in order to procure and retain the
appropriate skills required and
expected time commitment.
Pension
Providing post retirement
benefits if the Non-executive
Director does not opt out of the
auto-enrolment process.
Non-executive Director fees
are reviewed on a periodic
basis and are subject to the
Articles of Association. The
Board will exercise judgement
in determining the extent to
which Non-executive Director
fees are altered in line with
market practice and rates.
Fees for the year ended
31 December 2017 are set out
on page 35.
None.
Increases above those awarded for
the rest of the Group may be made to
reflect the periodic nature of any review.
Changes in the scope and
responsibilities of a Director’s role,
or the time commitment required,
may require an adjustment to the
level of fees.
The Group operates defined
contribution schemes.
Dependent on the value of the fund
at retirement.
None.
Current service contracts and terms of engagement
It is the Company’s policy that Executive Directors should have contracts with an indefinite term providing for a maximum of one year’s notice.
The details of the Executive Directors’ contracts are summarised in the table below:
P.E. Atherton
L. Bryan
M.J. Knapper (appointed 1 March 2017)
M.T. Raybould (appointed 26 May 2017)
Date of
contract
Notice
period
22.11.2012
12 months
08.11.2002
12 months
01.03.2017
12 months
19.04.2017
12 months
In the event of early termination, the Executive Directors’ contracts provide for compensation of an amount equal to the gross salary and
benefits that the executive would have received during the balance of the notice period, plus any incentive once declared, to which he
would have become entitled had contractual notice been given.
All Non-executive Directors have service contracts with an indefinite term providing for a maximum of one year’s notice, without liability
for compensation. Their remuneration is determined by the Board taking into account their duties and the level of fees paid to Non-
executive Directors of similar companies.
The Directors proposed for election and re-election at the next Annual General Meeting on 17 May 2018 are set out in the Directors and
their interests section of the Report of the Directors on pages 38 and 39.
Consideration of shareholders’ views
The Committee considers shareholder feedback following the AGM and any other meetings with shareholders as part of the Company’s
annual review of remuneration policy.
Annual Report and Accounts 2017 • Portmeirion Group PLC
33
Directors’ Remuneration Report continued
Application of Remuneration Policy for the year ended 31 December 2017
Basic salary and benefits
Executive Directors’ base salaries
are determined by the Committee
at the beginning of each year or when
responsibilities change. In deciding the
appropriate levels, the Committee takes
into account factors which it considers
necessary including industry-standard
executive remuneration and comparable
pay levels within the Group.
Each Executive Director is provided with
healthcare and pension benefits, critical
illness cover, life insurance and a car.
Annual incentive payments
Each Executive Director’s remuneration
package includes an annual incentive
payment. If the profit before tax and
exceptional items exceeds an annual target,
then an incentive will be paid. The incentive
is a percentage of the Executive Director’s
basic annual salary which is linked to the
amount by which profit before tax and
exceptional items exceeds the target. The
maximum incentive payable is 100% of basic
annual salary. Demanding budgets and
targets are established by the Board and
reviewed at the end of each year to
determine the degree of successful
achievement.
For the year ended 31 December 2017,
the profit target was met and the
Executive Directors achieved an incentive
payment of 30% of basic annual salary.
Share options
The Company’s policy is to grant options
to Executive Directors at the discretion of
the Remuneration Committee taking into
account individual performance. It is the
Company’s policy to phase the granting
of share options rather than to award them
in a single large block to any individual.
The Company has two Executive Share
Option Plans: The Portmeirion 2012
Approved Share Option Plan (the “2012
Approved Plan”) and The Portmeirion 2012
Unapproved Share Option Plan (the “2012
Unapproved Plan”). These are discretionary
schemes, enabling the grant of options over
ordinary shares in the Company to selected
employees of the Portmeirion Group, with
flexibility for the grant of tax-favoured options.
For both schemes, earnings per share has
been selected as a measure of performance.
Options granted in 2013, 2014 and 2017
can normally only be exercised if the
increase in the average of the Group’s
basic adjusted (for changes in accounting
standards and exceptional items) earnings
per share for each of the three years
beginning with the financial year in which
the option was granted is at least 13%
higher than that for the year before the
option was granted.
Options granted in 2015 can normally only
be exercised if the increase in the average
of the Group’s basic adjusted (for changes
in accounting standards and exceptional
items) earnings per share for each of the
three years beginning with the financial
year in which the option was granted is
at least 10% higher than that for the year
before the option was granted.
There were no options granted during 2016.
Basic earnings per share is considered to be
an appropriate figure because it is a significant
factor used by the market in determining the
value of the Company and by the Company in
determining the level of dividend to be paid.
These targets align management interests
closely with those of shareholders.
Long-term incentive plan
The Portmeirion Group 2010 Deferred
Incentive Share Option Plan (the “2010
Deferred Incentive Plan”) was established to
incentivise and retain Executive Directors and
encourage them to acquire and retain shares
in the Company. The 2010 Deferred Incentive
Plan operates in conjunction with the Group’s
existing annual incentive arrangements.
The 2010 Deferred Incentive Plan permits
the grant of an option to a participant in
any year over shares with a market value
not exceeding 20% of the gross incentive
earned by the relevant employee in respect
of the previous financial year. Options are
exercisable normally only after the third
anniversary of the date of grant. On exercise,
provided that the participant is still employed
by the Group (or has left due to limited
good leaver provisions as specified in the
rules of the 2010 Deferred Incentive Plan)
the participant will be entitled to receive
a “grossed-up” payment (i.e. a payment
which after discharge of necessary taxes
(including National Insurance contributions)
leaves a net amount) sufficient to pay the
taxes (including National Insurance
contributions) due in respect of the exercise
of the option (subject to a cap on the maximum
tax and National Insurance rates covered).
The Remuneration Committee believes this
payment is appropriate so as to ensure that
the shares are acquired without any need
to sell the shares to generate cash to cover
tax liabilities. Options may be satisfied by
an issue of shares (including out of treasury).
As options under the 2010 Deferred Incentive
Plan can only be granted to the extent
performance targets relating to the annual
incentive payment arrangements are met,
the exercise of options granted under the
Plan are not subject to the satisfaction of
performance targets.
Following a review of the 2010 Deferred
Incentive Plan, amendments are being
proposed and shareholder approval sought,
at the AGM on 17 May 2018, which include
best practice provisions of malus and clawback
as well as an increase in the award limit to a
maximum of a market value not exceeding
50% of the gross incentive earned by the
relevant employee in respect of the
previous financial year.
Pensions
Phil Atherton, Mick Knapper, Brett Phillips,
Mike Raybould and Dick Steele are members
of the Portmeirion Group UK Limited Group
Personal Pension Plan, a money purchase
pension scheme. Lawrence Bryan receives
pension contributions for a money purchase
pension operated by the Group in the
United States. Annual performance related
incentives are not subject to contributions
by the Group to the money purchase
pension arrangements maintained for the
Directors. Details of contributions paid by
the Group for the benefit of the Directors
are shown in the Directors’ emoluments
table that follows.
On 31 October 2002 the Portmeirion
Potteries Pension Plan, a contracted-in
money purchase occupational pension
plan, closed. Brett Phillips was a member
of the plan at that time and holds
preserved benefits.
On 5 April 1999, the Group’s defined benefit
UK pension scheme was frozen, i.e. closed
to new entrants and to future accrual. Brett
Phillips was a member of the scheme at that
time and holds preserved benefits. He
became an active pensioner on 31 March 2014
and has received pension payments from
that date. From 1 January 2017 until his
resignation on 5 May 2017, Brett Phillips
received a gross pension of £6,000.
34
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE Application of Remuneration Policy for the year ended 31 December 2017 continued
Non-executive Directors
The Non-executive Directors do not participate in the Company’s annual incentive, share option or long-term incentive schemes.
Aggregate Directors’ remuneration
The total amounts for Directors’ remuneration were as follows:
Emoluments
Long-term incentive plan (LTIP)
Gains made on exercise of share options
Money purchase pension contributions
Directors’ emoluments
Salary and
fees
£’000
Taxable
benefits(1)
£’000
Incentive
£’000
Gains made
on exercise of
share options
£’000
LTIP(2)
£’000
Pension
contributions
£’000
191
476
120
208
139
17
32
32
92
1,307
17
16
5
6
9
—
1
—
—
54
57
143
36
—
60
—
—
—
—
296
6
14
—
8
—
—
—
—
—
28
175
261
23
85
—
—
—
—
—
544
24
25
14
—
15
—
—
—
6
84
Executive
P.E. Atherton
L. Bryan(3)
M.J. Knapper(4)
B.W.J. Phillips(5)
M.T. Raybould(6)
Non-executive
A.A. Andrea(7)
Lady Judge
J. Kong
R.J. Steele
Notes:
2017
£’000
1,657
28
544
84
2016
£’000
1,057
39
—
59
2,313
1,155
Total
2017
£’000
470
935
198
307
223
17
33
32
98
Total
2016
£’000
226
497
n/a
277
n/a
n/a
32
31
92
2,313
1,155
(1)
(2)
(3)
(4)
(5)
(6)
The taxable benefits shown above for P.E. Atherton, M.J. Knapper, B.W.J. Phillips and M.T. Raybould arise from the provision of a company car, critical illness
cover and private medical insurance. The taxable benefits for L. Bryan, who is resident in the US, arise from the provision of a company car and life assurance.
A further £29,000 (2016: £26,000) in non-taxable benefits arise from the provision of disability, medical and dental insurance for L. Bryan. Non-executive taxable
benefits relate to travel expenses.
On 18 May 2017, L. Bryan, P.E. Atherton and B.W.J. Phillips exercised options granted in 2014 under the 2010 Deferred Incentive Plan. The mid-market closing
price of the Company’s shares on 18 May 2017 was 832.5p. The amounts in the table above include the value of the shares on exercise by reference to the
mid-market closing price of the Company’s shares on the day before exercise (832.5p) and the amount paid in accordance with the rules of the Plan such that
after discharge of necessary taxes a net amount was left sufficient to pay the taxes due in respect of the exercise of the options. Further details on the exercises
are shown under the long-term incentive schemes section of this report on page 37.
L. Bryan is remunerated in US dollars and his remuneration is translated into sterling at the average exchange rate for the year. In 2017, this was $1.2885/£
(2016: $1.3548/£).
M.J. Knapper was appointed to the Board on 1 March 2017. M.J. Knapper was an employee of Portmeirion Group UK Limited for all of 2017. Amounts disclosed
above reflect salary, taxable benefits and pension contributions for all of 2017.
B.W.J. Phillips resigned from the Board on 5 May 2017. Amounts disclosed above reflect salary, taxable benefits and pension contributions to 5 May 2017.
Included within the amount for salary and fees is £112,000 in respect of a payment for loss of office.
M.T. Raybould was appointed to the Board on 26 May 2017. M.T. Raybould was an employee of Portmeirion Group UK Limited from 19 April 2017. Amounts
disclosed above reflect salary, taxable benefits and pension contributions from 19 April 2017.
(7) A.A. Andrea was appointed to the Board on 20 June 2017. Amounts disclosed above reflect fees, taxable benefits and pension contributions from 20 June 2017.
Annual Report and Accounts 2017 • Portmeirion Group PLC
35
Directors’ Remuneration Report continued
Application of Remuneration Policy for the year ended 31 December 2017 continued
Directors’ share options and long-term incentives
Aggregate emoluments disclosed on page 35 do not include any amounts for the value of options to acquire ordinary shares in the
Company granted to or held by the Directors.
Executive Share Option Plans
The Company has two share option plans, the 2012 Approved Plan and the 2012 Unapproved Plan as described on page 34. Details of
options held under these schemes by Directors who served during the year are as follows:
Number of options
Granted
Exercised
Lapsed
At
31.12.2017
Exercise
price
(p)
Dates on
which exercisable
Earliest
Latest
At
01.01.2017
30,000
30,000
33,000
—
—
—
—
25,000
45,000
45,000
49,500
—
—
—
—
40,000
10,000
11,000
—
—
—
20,000
30,000
30,000
33,000
—
—
—
—
30,000
(30,000)
(30,000)
—
—
(45,000)
(45,000)
—
—
(10,000)
—
—
(30,000)
(30,000)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(33,000)
—
—
33,000
25,000
—
—
49,500
40,000
—
11,000
20,000
—
—
—
610.0 03.05.2016 01.05.2023
740.0 01.05.2017 29.04.2024
935.0 28.04.2018 26.04.2025
960.0 12.08.2020 10.08.2027
610.0 03.05.2016 01.05.2023
740.0 01.05.2017 29.04.2024
935.0 28.04.2018 26.04.2025
960.0 12.08.2020 10.08.2027
740.0 01.05.2017 29.04.2024
935.0 28.04.2018 26.04.2025
960.0 12.08.2020 10.08.2027
610.0 03.05.2016 01.05.2023
740.0 01.05.2017 29.04.2024
935.0 28.04.2018 26.04.2025
—
30,000
960.0 12.08.2020 10.08.2027
Director
P.E. Atherton
P.E. Atherton
P.E. Atherton
P.E. Atherton
L. Bryan
L. Bryan
L. Bryan
L. Bryan
M.J. Knapper
M.J. Knapper
M.J. Knapper
B.W.J. Phillips
B.W.J. Phillips
B.W.J. Phillips
M.T. Raybould
Notes:
(1) The performance criteria attaching to share options are detailed on page 34.
(2)
The Company’s share price reached a high of 997.50p and a low of 832.50p during 2017. The average share price during 2017 was 931.30p. The share price
on 31 December 2017 was 925.00p.
(3) There have been no changes to the Directors’ interests in the shares or options over shares of the Company between 31 December 2017 and 14 March 2018.
Details of the options exercised under the 2012 Approved Plan and the 2012 Unapproved Plan during the year are as follows:
Director
P.E. Atherton
P.E. Atherton
L. Bryan
L. Bryan
M.J. Knapper
B.W.J. Phillips
B.W.J. Phillips
Date of
exercise
08.08.17
08.08.17
08.08.17
08.08.17
Number of
options
exercised
30,000
30,000
45,000
45,000
08.08.17
10,000
23.05.17
23.05.17
30,000
30,000
Total
exercise
price
(p)
Market price
on exercise
per share
(p)
Gains on
exercise
£’000
Total gains
on exercise
2017
£’000
Total gains
on exercise
2016
£’000
610.0
740.0
610.0
740.0
740.0
610.0
740.0
965.0
965.0
965.0
965.0
965.0
815.0
815.0
107
68
160
101
23
62
23
175
261
23
85
—
—
—
—
36
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE Application of Remuneration Policy for the year ended 31 December 2017 continued
Long-term incentive schemes
Details of options held under the 2010 Deferred Incentive Plan by Directors who served during the year are as follows:
Director
P.E. Atherton
P.E. Atherton
P.E. Atherton
L. Bryan
L. Bryan
L. Bryan
B.W.J. Phillips
B.W.J. Phillips
B.W.J. Phillips
Notes:
At
01.01.2017
Number of options
Granted
Exercised
Lapsed
At
31.12.2017
Dates on
which exercisable
Earliest
Latest
392
1,102
1,365
833
2,034
2,860
509
1,321
1,605
—
—
—
—
—
—
—
—
—
(392)
—
—
(833)
—
—
(509)
—
—
—
—
—
—
—
—
—
(1,321)
(1,605)
— 16.04.2017 14.07.2017
1,102 22.04.2018 20.07.2018
1,365 12.05.2019 10.08.2019
— 16.04.2017 14.07.2017
2,034 22.04.2018 20.07.2018
2,860 12.05.2019 10.08.2019
— 16.04.2017 14.07.2017
— 22.04.2018 20.07.2018
— 12.05.2019 10.08.2019
(1)
The exercise price payable by the option holder to acquire shares upon the exercise of a 2010 Deferred Incentive Plan option is £1 in respect of all of the shares
under option for that particular award.
Details of the options exercised under the 2010 Deferred Incentive Plan during the year are as follows:
Director
P.E. Atherton
L. Bryan
B.W.J. Phillips
Date of
exercise
18.05.2017
18.05.2017
18.05.2017
Number of
options
exercised
392
833
509
Total
exercise
price
(p)
100.00
100.00
100.00
Market price
on exercise
per share
(p)
Gains on
exercise
£’000
Total gains
on exercise
2017
£’000
Total gains
on exercise
2016
£’000
832.5
832.5
832.5
3
7
4
3
7
4
—
25
14
Consultations with shareholders and statement of voting at general meeting
At the Annual General Meeting of the Company held on 25 May 2017, a resolution to approve the Directors’ Remuneration Report
for the year ended 31 December 2016 was passed with 6,277,150 proxy votes lodged, of which 99.93% were in favour, 0.01% gave
discretion and 0.06% voted against.
In February 2018, the Chairman wrote to major shareholders in the company offering a meeting to discuss corporate governance
matters and the proposed amendments to the 2010 Deferred Incentive Plan as referred to on page 34. The Chairman is in contact
with all institutional and other significant shareholders.
Approval
This report was approved by the Board and signed on its behalf by:
Dick Steele
Chairman of the Remuneration Committee
14 March 2018
Annual Report and Accounts 2017 • Portmeirion Group PLC
37
Report of the Directors
The Directors have pleasure in presenting
their annual report on the affairs of
the Group, together with the audited
financial statements of the Company and
its subsidiary undertakings for the year
ended 31 December 2017. The Corporate
Governance Statement set out on pages 26
to 29 forms part of this report.
The Company is a public limited company,
registered in England and Wales and listed
on the Alternative Investment Market (AIM)
of the London Stock Exchange. The Company
has been permanently domiciled in the UK
since incorporation and is the ultimate
parent company of the Portmeirion Group.
As permitted by Paragraph 1A of Schedule 7
to the Large and Medium-sized Companies
and Groups (Accounts and Reports)
Regulations 2008 certain matters which are
required to be disclosed in the Report of
the Directors have been omitted as they
are included in the Strategic Report on
pages 1 to 23. These matters relate to a full
review of the performance of the Group for
the year, current trading and future outlook.
Information about the use of financial
instruments by the Company and its
subsidiaries is given in note 32 on pages 82
to 84. This note also includes information
on financial risk management objectives
and policies, including the policy for
hedging and an assessment of the
Group’s exposure to financial risk.
Dividends
On 2 October 2017 an interim dividend
of 7.40p (2016: 7.00p) per share was paid
on the ordinary share capital. The Directors
recommend that a final dividend of 27.26p
per share be paid (2016: 25.25p), making
a total dividend for the year of 34.66p
(2016: 32.25p) per share. The final dividend
will be paid, subject to shareholders’ approval,
on 30 May 2018 to shareholders on the
register at the close of business on
27 April 2018.
Research and development
The Group continues to research methods
of tackling the environmental issues facing
it as a ceramics and home fragrance
manufacturer whilst improving manufacturing
efficiency. The development of innovative
new products and designs is a key part
of the Group’s strategy.
Directors and their interests
The Directors of the Company are
listed on pages 24 and 25 together with
biographical and Committee membership
details. Mick Knapper joined the Board
on 1 March 2017, Mike Raybould on
26 May 2017 and Andrew Andrea on
20 June 2017; all other Directors have
served throughout the year.
In accordance with our commitment to
good corporate governance practice that
is relevant to our business, the Board has
voluntarily adopted the policy that in normal
circumstances all continuing Directors stand
for re-election on an annual basis in line with
the recommendations of the UK Corporate
Governance Code 2016. Phil Atherton,
Lawrence Bryan, Lady Barbara Judge,
Janis Kong, Mick Knapper and Dick Steele
will therefore retire at the Annual General
Meeting to be held on 17 May 2018 and, all
apart from Lady Barbara Judge, are offering
themselves for re-election. In addition,
Andrew Andrea and Mike Raybould are
being proposed for election, as they joined
the Board since the last Annual General
Meeting. The Board has formally reviewed
the performance of each continuing Director
and concluded that they remain effective
and are committed to their roles at
Portmeirion Group PLC.
Further details on the composition of the
Board and appointment of Directors are
given in the Corporate Governance
Statement on pages 26 to 29.
With regard to the appointment and
replacement of Directors, the Company is
governed by its Articles of Association, the
Companies Act 2006 and related legislation.
The Articles themselves may be amended
by special resolution of the shareholders.
The powers of Directors are described in
the Corporate Governance Statement on
pages 26 to 29.
38
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE The Directors who held office at 31 December 2017 had the following beneficial interests in the share capital of the Company:
A.A. Andrea (appointed 20 June 2017)
P.E. Atherton
L. Bryan
Lady Judge
M.J. Knapper (appointed 1 March 2017)
J. Kong
M.T. Raybould (appointed 26 May 2017)
R.J. Steele
Directors’ share interests include the
interests of their spouses, civil partners and
infant children or stepchildren as required
by section 822 of the Companies Act 2006.
There were no changes in the beneficial
interests of the Directors in the Company’s
shares between 31 December 2017 and
14 March 2018.
Details of Directors’ share options are
provided in the Directors’ Remuneration
Report on pages 36 and 37.
Details of transactions with Directors and
other related parties are to be found in
note 30 on page 77.
Directors’ indemnities
The Company has qualifying third-party
indemnity provisions for the benefit of its
Directors which remain in force at the date
of this report.
Capital structure
Details of the share capital in issue,
together with details of the movements in
the Company’s issued share capital during
the year, are shown in note 25 on page 75.
The Company has one class of ordinary
shares which carry no right to fixed income.
Each share carries the right to one vote at
general meetings of the Company.
At
31 December 2017
5p ordinary
shares
Beneficial
At
31 December 2016
5p ordinary
shares
Beneficial
—
10,549
143,667
5,000
1,337
5,000
—
n/a
—
142,834
5,000
n/a
5,000
n/a
27,000
27,000
There are no specific restrictions on the size
of a holding nor on the transfer of shares,
which are both governed by the general
provisions of the Articles of Association and
prevailing legislation. The Directors are not
aware of any agreements between holders
of the Company’s shares that may result in
restrictions on the transfer of securities or
on voting rights.
Details of employee share schemes are
set out in notes 25 and 33 on page 75
and pages 85 to 86. Shares held by the
Portmeirion Employees’ Share Trust abstain
from voting.
No person has any special rights of control
over the Company’s share capital and all
issued shares are fully paid.
Substantial shareholdings
On 31 December 2017 the Company had been notified, in accordance with chapter 5 of the Disclosure Guidance and Transparency Rules,
of the following beneficial interests in 3% or more of its issued share capital excluding treasury shares:
Trustees of Caroline Fulbright Settlement(3)
Investec Wealth & Investment Limited(3)
Ymddiriedolaeth Clough Williams-Ellis Foundation(3)
Canaccord Genuity Group Inc
Shahrzad Farhadi
Kamrouz Farhadi
Notes:
(1) The percentages are of the total shares in issue, excluding treasury shares (10,852,361).
(2) All holdings are direct holdings unless otherwise indicated.
(3) Shareholding held indirectly through a nominee.
Percentage of
voting rights
and issued
share capital(1)
Number of
ordinary
shares
16.52% 1,792,272
12.90% 1,399,867
6.12%
5.97%
5.83%
5.19%
664,612
647,918
632,333
562,917
During the period between 31 December 2017 and 14 March 2018, the Company did not receive any notifications under chapter 5 of
the Disclosure Guidance and Transparency Rules.
Annual Report and Accounts 2017 • Portmeirion Group PLC
39
Report of the Directors continued
Annual General Meeting
The Annual General Meeting will be held
at the registered office of the Company
at London Road, Stoke-on-Trent, on
17 May 2018 at 12:00 noon (the “2018 AGM”).
All ordinary and special resolutions to be
proposed at that meeting are detailed in
the Notice of Annual General Meeting.
As special business at the 2018 AGM, the
following resolutions will be proposed
together with the resolution described
below regarding market purchases
of the Company’s shares:
• Authority to allot shares - under section
551 of the Companies Act 2006, the
directors of a company may only allot
shares or grant any rights to subscribe
for or to convert any security into shares
in the company if authorised to do so
by shareholders. At the Annual General
Meeting of the Company held on
25 May 2017, as in previous years,
the Directors were given authority to
allot shares and grant such rights.
This authority is due to expire at the
conclusion of the 2018 AGM, and the
Directors propose to renew it. Share
capital management guidelines published
by the Investment Association confirm
that the Association’s members will
regard as routine an authority to allot up
to two-thirds of a company’s existing
issued share capital (excluding treasury
shares), provided that any amount in
excess of one-third of the existing issued
shares can be applied only to fully
pre-emptive rights issues. In light of
these guidelines, which the Board
consider represent best practice, this
authority (if approved by shareholders) will
allow the Directors to allot new shares or
to grant rights to subscribe for, or to
convert any security into, shares in the
Company up to an aggregate nominal
value of £361,744, approximately equal
to two-thirds of the issued share
capital excluding treasury shares as
at 14 March 2018. Of this amount,
£180,872 (representing approximately
one-third of the Company’s issued
ordinary share capital excluding treasury
shares as at 14 March 2018) can only
be allotted pursuant to fully pre-emptive
rights issues. The authority will last until
the conclusion of the Company’s next
Annual General Meeting in 2019 or, if
earlier, until 30 June 2019. The Directors
have no current intention of exercising
this authority except in relation to the
allotment of shares under share option
schemes. However, the Directors
consider it appropriate to maintain the
flexibility that this authority will provide
to be in a position to respond to market
developments and to enable allotments
to take place to finance business
opportunities should they arise.
• Disapplication of pre-emption rights –
if equity securities are to be allotted for
cash, section 561(1) of the Companies
Act 2006 requires that those equity
securities are offered first to existing
shareholders in proportion to the
number held by them at the time of the
offer and otherwise in compliance with
the technical requirements of that Act.
Those pre-emption provisions also apply
to the sale of treasury shares by the
Company. However, it may be in the
interests of the Company for the Directors
to allot shares and/or sell treasury shares
other than to shareholders in proportion
to their existing holdings or otherwise
than strictly in compliance with those
requirements. This resolution would
allow the Directors, pursuant to section
570 and section 573 of the Companies
Act 2006, to allot shares and to sell
treasury shares for cash without first
offering them to shareholders in
accordance with that Act. The authority
is limited to the issue of equity securities
and/or sale of treasury shares for cash
up to a maximum nominal amount of
£54,261, which is approximately equal
to 10% of the present issued share
capital excluding treasury shares as at
14 March 2018, and allotments of equity
securities and/or sale of treasury shares
in connection with a rights issue or other
in proportion offer to shareholders.
• Amendments to The Portmeirion Group
2010 Deferred Incentive Share Option
Plan – shareholder approval is being
sought to make certain amendments
to the Plan to increase the limit on the
value of options that may be granted
to an employee in respect of a financial
year, from 20% of the gross value of the
prior year’s annual incentive payment, to
50% and to add in malus, clawback and
holding period provisions as set out in
the Notice of the 2018 AGM.
Acquisition of the Company’s
own shares
The Company did not purchase any of its
own shares during the year. The Company
holds 237,743 treasury shares, purchased
at an average cost of 187p per share.
At the end of the year, the Directors had
authority, under a shareholders’ resolution
of 25 May 2017, to purchase through
the market 1,076,555 of the Company’s
ordinary shares. This authority expires
on 30 June 2018.
The Directors believe that it is in the
interests of the Company and its members
to continue to have the flexibility to purchase
its own shares and resolution 15 of the 2018
AGM seeks authority from members to allow
the Company to make market purchases,
subject to the restrictions set out in the
Notice of the 2018 AGM, and in particular
to the maximum number of ordinary shares
that may be purchased being 1,085,236,
approximately equal to 10% of the present
issued share capital of the Company excluding
treasury shares as at 14 March 2018. The
Directors intend to renew this authority
annually but only to exercise the authority
where, after considering market conditions
prevailing at the time, the investment needs
of the Company, its opportunities for expansion
and its overall financial position, they believe
the effect of such exercise would be to
increase the earnings per share and be in
the best interests of shareholders generally.
40
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE The Portmeirion Employees’ Share Trust
(the “Trust”) facilitates the acquisition and
holding of shares in the Company by and
for the benefit of the employees of the
Group. The shares are held in the Trust to
provide for awards under employee share
option schemes. During 2017, 157,671
were transferred from the Trust to senior
employees of the Group on the exercise
of share options. The Trust purchased
3,540 shares during 2017. The Trust holds
a total of 152,917 shares representing
approximately 1.41% of the issued share
capital of the Company excluding treasury
shares as at 14 March 2018.
Employees
The Group has an equal opportunities
policy and is committed to ensuring that
all employees are treated fairly, regardless
of age, gender, race, marital status or
disability. It is the Group’s policy to give
disabled people full and fair consideration
for all job vacancies for which they offer
themselves as suitable candidates, having
regard to their particular aptitudes and
abilities, including the consideration of
any reasonable adjustments to the job or
workplace. Training and career development
opportunities are available to all employees
and, if necessary, all efforts are made to
retrain any member of staff who develops a
disability during employment with the Group.
The Group recognises the importance of
good communications with its employees
and considers that the most effective form
of communication regarding its activities,
performance and plans is by way of informal
daily discussions between management
and other employees. During 2017, to
complement these discussions, the Group
has continued communicating information
from Board level to all employees on a
regular basis via a programme of team
briefings and by use of the Company’s
intranet and notice boards.
Share option and profit related incentive
schemes are operated to encourage the
involvement of more senior employees in
the Group’s performance. The Group’s UK
operating subsidiaries are both Investors in
People and Portmeirion UK has received
the Investment in Young People award. The
Directors are committed to the continuing
development of the Group’s employees
through the principles of Investors in People.
Details of staff numbers and costs are set
out in note 7 on pages 64 and 65.
Political contributions
There were no political contributions during
the year.
Auditors
Each of the persons who are Directors at
the date of approval of this Annual Report
confirms that:
1. so far as the Director is aware, there is no
relevant audit information of which the
Company’s auditors are unaware; and
2. the Director has taken all the steps that
he/she ought to have taken as a Director
in order to make himself/herself aware
of any relevant audit information and to
establish that the Company’s auditors are
aware of that information.
This confirmation is given and should
be interpreted in accordance with
the provisions of section 418 of the
Companies Act 2006.
Mazars LLP have expressed their willingness
to continue in office as auditors and a resolution
to reappoint them will be proposed at the
forthcoming Annual General Meeting.
Approved by the Board of Directors
and signed on behalf of the Board.
Moira MacDonald
Company Secretary
14 March 2018
Annual Report and Accounts 2017 • Portmeirion Group PLC
41
Statement of Directors’ Responsibilities
The Directors are responsible for preparing
the Strategic Report, the Report of the
Directors and the financial statements
in accordance with applicable law
and regulations.
• state whether IFRS as adopted by the
European Union have been followed
subject to any material departures
disclosed and explained in the
financial statements;
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the Directors
have prepared the Group and Company
financial statements in accordance with
International Financial Reporting Standards
(IFRS) as adopted by the European Union.
International Accounting Standard 1
requires that IFRS financial statements
present fairly for each financial year the
Group and Company financial position,
financial performance and cash flows.
This requires the fair representation of
the effects of transactions, other events
and conditions in accordance with the
definitions and recognition criteria for
assets, liabilities, income and expenses
set out in the International Accounting
Standards Board’s “Framework for the
preparation and presentation of financial
statements”. In virtually all circumstances,
a fair presentation will be achieved by
compliance with all applicable IFRS.
Directors are also required to:
• properly select and apply
accounting policies;
• make judgements and accounting
estimates that are reasonable
and prudent;
• present information, including
accounting policies, in a manner that
provides relevant, reliable, comparable
and understandable information; and
• provide additional disclosures
when compliance with the specific
requirements in IFRS are insufficient to
enable users to understand the impact
of particular transactions, other events
and conditions on the entity’s financial
position and financial performance.
The Directors have elected to prepare
the Company financial statements in
accordance with International Financial
Reporting Standards (IFRS) as adopted
by the European Union. The Company
financial statements are required by law
to give a true and fair view of the state
of affairs of the Company. In preparing
these financial statements, the Directors
are required to:
• select suitable accounting policies
and then apply them consistently;
• make judgements and estimates that
are reasonable and prudent;
• state whether IFRS as adopted by the
European Union have been followed
subject to any material departures
disclosed and explained in the financial
statements; and
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping
proper accounting records that disclose
with reasonable accuracy at any time the
financial position of the Group and the
Company and enable them to ensure that
the Group and the Company financial
statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the Group
and the Company and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Group’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
42
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE Independent Auditor’s Report
to the members of Portmeirion Group PLC
Opinion
We have audited the financial statements of Portmeirion Group PLC (the “parent Company”) and its subsidiaries (the “Group”) for the
year ended 31 December 2017 which comprise the consolidated income statement, the consolidated statement of comprehensive income,
the consolidated and Company balance sheets, the consolidated and Company statements of changes in equity, the consolidated and
Company statements of cash flows and the notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards the parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
In our opinion:
• the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 December 2017
and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements
in the UK, including the FRC’s Ethical Standard as applied to SME listed entities and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Use of the audit report
This report is made solely to the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the company and the company’s members as a body for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the Group’s or the parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Annual Report and Accounts 2017 • Portmeirion Group PLC
43
Independent Auditor’s Report continued
to the members of Portmeirion Group PLC
Key audit matters continued
Key Audit Matter
How we responded to this risk
Revenue recognition
For Portmeirion Group PLC we see the risk of misstatement
or fraud in revenue recognition as being principally in relation
to cut-off. We see the cut-off risk being specifically applicable
to three scenarios within the Group.
Revenue recognition for export sales.
There is a risk that export sales close to the year end could
be accounted for incorrectly. There is a risk that revenue
is recognised prior to the transfer of the risks and rewards
of the stock involved.
Provisions for goods sold on sale or return.
There is a risk that the provision required for sales which
could potentially be returned is materially misstated.
Our audit work included but not limited to:
• reviewing the key elements underpinning the trigger points
to recognise revenue;
• focusing on export sales made in December and ensuring the
cut-off between sales and stock movements is reflective of the year
end position;
• reviewing management estimates for returns provisions. Our
review included a comparison to historical rate of returns, any
correspondence with clients and actual returns post year end
to the date of audit sign off; and
• reviewing management estimates for rebate provisions. We agreed
a sample of these to post year end payments and credit notes
where possible. Our work also included a review on historical
accuracy of provisions and any correspondence with clients.
Provision for rebates.
There is a risk that the provision in place for rebates
is underestimated.
Inventory provision
Appropriate provisioning in respect of inventory is a key issue
for the business.
There is a risk that the inventory provision is materially misstated
and that stock is not being held at the lower of cost and net
realisable value.
Our audit work included but not limited to:
• reviewing in detail the assessments made by management
including the application of consistency of approach with the
prior year, and any significant trends or events occurring in the
year that could have an impact on the level of provision required;
• reviewing slow-moving stock lines as well as any aged / old
pattern items to validate the adequacy of the provision made
against these; and
• sample testing a number of stock items to sales invoices post
year end to validate that stock is held at the lower of cost and
net realisable value.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit and in evaluating the effect of misstatements on the
financial statements and our audit. Materiality is used so we can plan and perform our audit to obtain reasonable, rather than absolute
assurance about whether the financial statements are free from material misstatement. The level of materiality we set is based on our
assessment of the magnitude of misstatements that individually or in aggregate, could reasonably be expected to have influence on the
economic decisions the users of the financial statements may take based on the information included in the financial statements. Based
on our professional judgement the level of overall materiality we set for the financial statements is outlined below:
Overall Group materiality:
£661,000
Benchmark applied:
This has been calculated with reference to the group’s profit before tax, of which it
represents approximately 7.5%.
Basis for chosen benchmark:
Profit before tax has been identified as the principal benchmark within the financial
statements as it is considered to be the focus of the shareholders.
7.5% has been chosen to reflect the level of understanding of the stakeholders of the Group
in relation to the inherent uncertainties around accounting estimates and judgements.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was
that performance materiality was £496,000 which is approximately 75% of overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £20,000 as well
as any misstatements below that amount that, in our opinion, warranted reporting for qualitative reasons.
For each component in the scope of the Group audit, we allocated a materiality that is less than our overall Group materiality.
The range of materiality allocated across components was between £4,000 and £385,000.
44
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE An overview of the scope of our audit
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance
that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether
accounting policies are appropriate to the Group’s and parent Company’s circumstances and have been consistently applied and adequately
disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies
with the audited financial statements and to identify any information that is apparently incorrect, based on, or materially inconsistent
with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatement
or inconsistencies we consider the implications for our report.
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level. Based on this assessment, we focused our Group audit scope primarily
on the largest trading subsidiaries being Portmeirion Group UK Limited, Portmeirion Group USA, Inc. and Wax Lyrical Limited.
The locations subject to full audit procedures represent the principal business units and account for 94% of the Group’s net assets,
99% of the Group’s revenue and 96% of the Group’s adjusted profit before tax.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject
to audit or audit of specified account balances.
Other information
The Directors are responsible for the other information. The other information comprises the information included in the Annual Report
and Accounts, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the other information.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the Strategic Report and the Report of the Directors have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and the parent Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the Strategic Report or the Report of the Directors.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you
if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specific by law are not made; or
• we have not received all the information and explanations we require for our audit.
Annual Report and Accounts 2017 • Portmeirion Group PLC
45
Independent Auditor’s Report continued
to the members of Portmeirion Group PLC
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities set out on page 42, the Directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Stephen Eames
(Senior Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
14 March 2018
46
Annual Report and Accounts 2017 • Portmeirion Group PLC
CORPORATE GOVERNANCE FINANCIAL STATEMENTS
Consolidated Income Statement
for the year ended 31 December 2017
Revenue
Operating costs
Operating profit
Interest income
Finance costs
Share of profit of associated undertakings
Profit before tax
Tax
Profit for the year attributable to equity holders
Earnings per share
Diluted earnings per share
Dividends paid and proposed per share
All the above figures relate to continuing operations.
Notes
4,5
6
9
10
11
13
13
12
2017
£’000
84,769
(75,687)
2016
£’000
76,677
(68,713)
9,082
7,964
17
(487)
210
8,822
(1,944)
6,878
65.07p
64.79p
34.66p
31
(387)
198
7,806
(1,581)
6,225
59.60p
59.10p
32.25p
Annual Report and Accounts 2017 • Portmeirion Group PLC
47
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2017
Profit for the year
Items that will not be reclassified subsequently to profit or loss:
Remeasurement of net defined benefit pension scheme liability
Deferred tax relating to items that will not be reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Deferred tax relating to items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year
Total comprehensive income for the year attributable to equity holders
Notes
31
24
24
2017
£’000
6,878
4,428
(753)
(767)
(57)
2,851
9,729
2016
£’000
6,225
(5,357)
815
1,293
193
(3,056)
3,169
48
Annual Report and Accounts 2017 • Portmeirion Group PLC
FINANCIAL STATEMENTS Consolidated Balance Sheet
31 December 2017
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Interests in associates
Deferred tax asset
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Total current liabilities
Non-current liabilities
Pension scheme deficit
Deferred tax liability
Borrowings
Total non-current liabilities
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Investment in own shares
Share-based payment reserve
Translation reserve
Retained earnings
Total equity
Notes
2017
£’000
2016
£’000
14
15
16
17
24
19
20
21
22
27
31
24
27
25
26
7,229
6,058
7,229
6,566
10,149
10,617
2,525
340
2,313
1,475
26,301
28,200
18,074
12,431
8,487
38,992
65,293
(10,556)
(475)
(1,981)
16,267
12,485
6,540
35,292
63,492
(8,738)
(1,005)
(1,961)
(13,012)
(11,704)
(1,672)
(882)
(4,955)
(7,509)
(7,130)
(961)
(6,909)
(15,000)
(20,521)
(26,704)
44,772
36,788
554
7,193
(1,876)
550
2,076
36,275
44,772
550
6,624
(2,936)
496
2,900
29,154
36,788
These financial statements were approved by the Board of Directors and authorised for issue on 14 March 2018.
They were signed on its behalf by:
L. Bryan
Director
M. Raybould
Director
Annual Report and Accounts 2017 • Portmeirion Group PLC
49
Company Balance Sheet
31 December 2017
Non-current assets
Investment in subsidiaries
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Current income tax liabilities
Total current liabilities
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Other reserves
Investment in own shares
Share-based payment reserve
Retained earnings
Total equity
Notes
2017
£’000
2016
£’000
18
20
25
26
12,366
12,366
12,366
12,366
3,986
—
3,986
2,244
—
2,244
16,352
14,610
—
—
—
—
—
—
16,352
14,610
554
7,193
197
(1,876)
550
9,734
550
6,624
197
(2,936)
496
9,679
16,352
14,610
The Company reported a profit for the financial year ended 31 December 2017 of £3,483,000 (2016: £4,390,000).
The financial statements of Portmeirion Group PLC, company registration number 124842, were approved by the Board of Directors and
authorised for issue on 14 March 2018.
They were signed on its behalf by:
L. Bryan
Director
M. Raybould
Director
50
Annual Report and Accounts 2017 • Portmeirion Group PLC
FINANCIAL STATEMENTS
Consolidated Statement of Changes in Equity
for the year ended 31 December 2017
At 1 January 2016
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Dividends paid
Increase in share-based payment reserve
Transfer on exercise or lapse of options
Shares issued under employee
share schemes
Deferred tax on share-based payment
At 1 January 2017
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Dividends paid
Increase in share-based payment reserve
Transfer on exercise or lapse of options
Shares issued under employee
share schemes
Purchase of own shares
Deferred tax on share-based payment
Share
premium
account
£’000
Investment
in own shares
£’000
Share-
based
payment
reserve
£’000
Translation
reserve
£’000
Retained
earnings
£’000
Total
£’000
6,612
(3,137)
370
1,414
30,713
36,522
—
—
—
—
—
—
12
—
—
—
—
—
—
—
201
—
—
—
—
—
144
(18)
—
—
—
6,225
6,225
1,486
1,486
—
—
—
—
—
(4,542)
(3,056)
1,683
(3,217)
3,169
(3,217)
—
18
(6)
(37)
144
—
207
(37)
Share
capital
£’000
550
—
—
—
—
—
—
—
—
550
6,624
(2,936)
496
2,900
29,154
36,788
—
—
—
—
—
—
4
—
—
—
—
—
—
—
—
569
—
—
—
—
—
—
—
—
1,094
(34)
—
—
—
—
—
66
(12)
—
—
—
—
(824)
6,878
3,675
(824)
10,553
—
—
—
—
—
—
(3,433)
—
12
(7)
—
(4)
6,878
2,851
9,729
(3,433)
66
—
1,660
(34)
(4)
At 31 December 2017
554
7,193
(1,876)
550
2,076
36,275
44,772
Annual Report and Accounts 2017 • Portmeirion Group PLC
51
Company Statement of Changes in Equity
for the year ended 31 December 2017
At 1 January 2016
Profit for the year
Total comprehensive income for the year
Dividends paid
Increase in share-based payment reserve
Transfer on exercise or lapse of options
Shares issued under employee
share schemes
At 1 January 2017
Profit for the year
Total comprehensive income for the year
Dividends paid
Increase in share-based payment reserve
Transfer on exercise or lapse of options
Shares issued under employee
share schemes
Purchase of own shares
Share
capital
£’000
550
—
—
—
—
—
—
Share
premium
account
£’000
6,612
—
—
—
—
—
12
Other
reserves
£’000
Investment
in own shares
£’000
Share-
based
payment
reserve
£’000
197
(3,137)
370
—
—
—
—
—
—
—
—
—
—
—
201
550
6,624
197
(2,936)
—
—
—
—
—
4
—
—
—
—
—
—
569
—
—
—
—
—
—
—
—
—
—
—
—
—
1,094
(34)
Retained
earnings
£’000
8,494
4,390
4,390
(3,217)
—
18
(6)
9,679
3,483
3,483
(3,433)
—
12
(7)
—
Total
£’000
13,086
4,390
4,390
(3,217)
144
—
207
14,610
3,483
3,483
(3,433)
66
—
1,660
(34)
—
—
—
144
(18)
—
496
—
—
—
66
(12)
—
—
At 31 December 2017
554
7,193
197
(1,876)
550
9,734
16,352
52
Annual Report and Accounts 2017 • Portmeirion Group PLC
FINANCIAL STATEMENTS Consolidated Statement of Cash Flows
for the year ended 31 December 2017
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Charge for share-based payments
Exchange (loss)/gain
Profit on sale of tangible fixed assets
Operating cash flows before movements in working capital
Increase in inventories
Increase in receivables
Increase in payables
Cash generated from operations
Contributions to defined benefit pension scheme
Interest paid
Income taxes paid
Net cash from operating activities
Investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiary
Net cash outflow from investing activities
Financing activities
Equity dividends paid
Shares issued under employee share schemes
Purchase of own shares
New bank loans raised
Repayments of borrowings
Net cash (outflow)/inflow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Notes
16
15
33
31
16
15
12
27
27
2017
£’000
9,082
2016
£’000
7,964
1,329
1,328
588
66
(168)
(17)
10,880
(2,243)
(193)
1,992
10,436
(1,200)
(247)
(2,246)
6,743
17
47
(938)
(80)
—
454
144
205
(2)
10,093
(342)
(709)
1,096
10,138
(1,400)
(233)
(1,620)
6,885
31
34
(744)
(20)
(16,669)
(954)
(17,368)
(3,433)
1,660
(34)
3,000
(5,000)
(3,807)
1,982
6,540
(35)
8,487
(3,217)
207
—
16,844
(8,000)
5,834
(4,649)
11,130
59
6,540
Annual Report and Accounts 2017 • Portmeirion Group PLC
53
Company Statement of Cash Flows
for the year ended 31 December 2017
Operating profit
Adjustments for:
Charge for share-based payments
Operating cash flows before movements in working capital
Increase in receivables
Cash generated from operations
Income taxes paid
Net cash from operating activities
Financing activities
Equity dividends paid
Shares issued under employee share schemes
Purchase of own shares
Net cash outflow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Notes
33
12
2017
£’000
3,483
66
3,549
(1,742)
1,807
—
1,807
(3,433)
1,660
(34)
(1,807)
—
—
—
2016
£’000
4,390
144
4,534
(1,523)
3,011
(13)
2,998
(3,217)
207
—
(3,010)
(12)
12
—
54
Annual Report and Accounts 2017 • Portmeirion Group PLC
FINANCIAL STATEMENTS Notes to the Financial Statements
1. Basis of preparation
Portmeirion Group PLC is a company incorporated in England and Wales. The address of the registered office is given on page 88. The
nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 1 to 23. These accounts have
been prepared in accordance with accounting standards adopted for use in the European Union (International Financial Reporting
Standards (IFRS)) and the Companies Act 2006 applicable to companies reporting under IFRS.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present an income statement.
The going concern basis has been considered in the Strategic Report on page 20.
These financial statements are presented in pounds sterling. Foreign operations are included in accordance with the policies set out in
note 2.6.
In the current year, the Group has applied a number of amendments to IFRS issued by the International Accounting Standards Board
(IASB) that are mandatorily effective for an accounting period that begins on 1 January 2017. Their adoption has not had any material
impact on the disclosures or on the amounts reported in these financial statements.
The following new and revised standards and interpretations have also been adopted in the current year. Their adoption has not had any
significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and
arrangements:
IAS 7 (amendment) ‘Statement of Cash Flows’ – Disclosure initiative
EU effective date periods
beginning on or after
1 January 2017
IAS 12 (amendment) ‘Income Taxes’ – Recognition of deferred tax assets for unrealised losses
1 January 2017
Annual Improvements to IFRS (2014–2016) – Amendments to IFRS 12
1 January 2017
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS that have been
issued but are not yet effective and (in some cases) had not yet been adopted by the EU:
IFRS 9 ‘Financial Instruments’
IFRS 15 ‘Revenue from Contracts with Customers’ (and the related Clarifications)
IFRS 16 ‘Leases’
IFRS 17 ‘Insurance Contracts’
EU effective date periods
beginning on or after
1 January 2018
1 January 2018
1 January 2019
Not yet endorsed by the EU
IFRS 2 (amendment) ‘Share-based Payment’ – Classification and measurement of share-based
payment transactions
IFRS 4 (amendment) ‘Insurance Contracts’ – Applying IFRS 9 ‘Financial Instruments’ with IFRS 4
‘Insurance Contracts’
IAS 40 (amendment) ‘Investment Property’ – Transfers of investment property
Annual Improvements to IFRS (2014–2016) – Amendments to IFRS 1 ‘First-time Adoption of International
Financial Reporting Standards’ and IFRS 28 ‘Investments in Associates and Joint Ventures’
IFRIC 22 ‘Foreign Currency Transactions and Advanced Consideration’
IFRIC 23 ‘Uncertainty over Income Tax Treatments’
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2018
1 January 2019
The Directors do not expect that the adoption of the standards listed above will have a material impact on the financial statements
of the Group in future periods other than the adoption of IFRS 16.
IFRS 16 distinguishes leases on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases
(off balance sheet) and finance leases (on balance sheet) are removed for lessee accounting, and is replaced by a model where a
right-of-use asset and a corresponding liability have to be recognised for all leases except for short-term leases and leases of low value assets.
Annual Report and Accounts 2017 • Portmeirion Group PLC
55
1. Basis of preparation continued
The right-of-use asset is initially measured at cost and subsequently measured at cost less accumulated depreciation and impairment
losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease
payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the
impact of lease modifications, amongst others. Furthermore, the classification of cash flows will also be affected because operating lease
payments under IAS 17 are presented as operating cash flows; whereas under the IFRS 16 model, the lease payments will be split into a
principal and an interest portion which will be presented as financing and operating cash flows respectively.
Furthermore, extensive disclosures are required by IFRS 16.
As at 31 December 2017, the Group has non-cancellable operating lease commitments of £8,714,000 (2016: £5,594,000). IAS 17 does not
require the recognition of any right-of-use asset or liability for future payments for these leases; instead, certain information is disclosed as
operating lease commitments in note 28. A preliminary assessment indicates that these arrangements will meet the definition of a lease
under IFRS 16, and hence the Group will recognise a right-of-use asset and a corresponding liability in respect of all these leases unless they
qualify for low value or short-term leases upon the application of IFRS 16. The new requirement to recognise a right-of-use asset and a
related lease liability is expected to have a significant impact on the amounts recognised in the Group’s consolidated financial statements
and the potential impact is currently being assessed. It is not practicable to provide a reasonable estimate of the financial effect until this
review is complete.
2. Significant accounting policies
The accounting policies which follow set out those policies which were applied in preparing the financial statements for the year ended
31 December 2017.
The financial statements have been prepared on the historical cost basis, with the exception of derivative financial instruments which are
stated at their fair value.
2.1 Basis of consolidation
The consolidated financial statements incorporate the financial statements of Portmeirion Group PLC and its subsidiaries. The Group’s
share of the results and retained earnings of associated undertakings is included.
Subsidiary undertakings are consolidated on the basis of the acquisition method of accounting where the Group has overall control
of that entity. Intra-group transactions and balances are eliminated fully on consolidation and the consolidated accounts reflect external
transactions only. Subsidiaries’ accounting policies are amended where necessary to ensure consistency with the policies adopted by
the Group.
All accounts for subsidiaries and associated undertakings have been prepared for the year ended 31 December 2017 except for the
accounts of Portmeirion Canada Inc. which have a year end of 30 June 2017. The Group accounts include interim financial information
to 31 December 2017 for Portmeirion Canada Inc.
2.2 Investments
Fixed asset investments for the Company in subsidiaries and associates are shown at cost less provision for impairment.
2.3 Investment in associated undertakings (“associates”)
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture.
Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint
control over those policies.
The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting.
Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted by post-acquisition
changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments.
Where a Group company transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the
Group’s interest in the relevant associate.
2.4 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and
services provided in the normal course of business, net of discounts, VAT and other sales related taxes. Revenue is reduced for
estimated customer returns, rebates and other similar allowances.
Sales of goods are recognised when goods are delivered and title has passed.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the
rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
56
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 2. Significant accounting policies continued
2.4 Revenue recognition continued
Royalty revenue is recognised on an accruals basis in accordance with the substance of the relevant agreement.
Royalties determined on a time basis are recognised on a straight-line basis over the period of the agreement.
2.5 Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
Rentals payable or receivable under operating leases are charged or credited to income on a straight-line basis over the term of the
relevant lease.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate
benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the term of the lease.
2.6 Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which
it operates (its functional currency). The results and financial position of each Group company are expressed in pounds sterling, which is
the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary
assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items
that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit
or loss for the year.
In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts (see note 2.17 for details of the
Group’s accounting policies in respect of such derivative financial instruments).
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange
rates for the period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity.
2.7 Operating profit
Operating profit is stated before interest income, finance costs and share of profit of associated undertakings.
2.8 Group pension schemes
Payments to defined contribution retirement schemes are charged as an expense in the period to which they relate to.
For defined benefit schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial
valuations being carried out at least triennially and updated at each balance sheet date. Actuarial gains and losses are recognised
in full in the period in which they occur. They are recognised outside profit or loss and presented in other comprehensive income.
Past service costs are recognised immediately to the extent that the benefits are already vested, and otherwise are amortised on a
straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognised in the
balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as
reduced by the fair value of scheme assets.
2.9 Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted
by the balance sheet date.
Annual Report and Accounts 2017 • Portmeirion Group PLC
57
2. Significant accounting policies continued
2.9 Taxation continued
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill
or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except
where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised
based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or
credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case
the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
2.10 Property, plant and equipment
Freehold and leasehold land is not depreciated. Property, plant and equipment are held at cost less accumulated depreciation and any
recognised impairment losses.
Depreciation is recognised so as to write off the cost of assets (other than land) less their residual values over their useful lives, using the
straight-line or the reducing balance method, on the following bases:
Freehold and leasehold buildings
Leasehold improvements
Plant and vehicles
–
–
–
2% per annum
6% to 30% per annum
5% to 33% per annum
2.11 Intangible assets
Purchases of intellectual property and customer lists are included at cost and written off in equal annual instalments over their estimated
useful economic life of between ten and twenty years. Provision is made for any impairment.
Computer software is held at cost less accumulated amortisation less any recognised impairment losses. Amortisation is charged so as
to write off the cost of assets less their residual value over their useful lives, using the straight-line method. The estimated useful life of
computer software is between three and ten years.
2.12 Impairment of tangible assets, intangible assets and goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is
any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of
the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an
impairment loss is recognised as income immediately.
58
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 2. Significant accounting policies continued
2.12 Impairment of tangible assets, intangible assets and goodwill continued
Goodwill is not amortised but is reviewed for impairment at least annually. Cash-generating units to which goodwill has been allocated
are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable
amount of the cash-generating unit is less than the carrying value of the unit, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each
asset of the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
2.13 Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each
business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or the proportionate
share of the acquiree’s identifiable net assets. Acquisition related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and
any resulting gain or loss is recognised in profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent
consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 ‘Financial Instruments:
Recognition and Measurement’ is measured at fair value with changes in fair value recognised either in profit or loss or as a change to
other comprehensive income. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the
appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for
within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for
non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value
of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly
identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be
recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are
expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on
disposal. Goodwill disposed in these circumstances is remeasured based on the relative values of the disposed operation and the
portion of the cash-generating unit retained.
2.14 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour
costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated
using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion
and costs to be incurred in marketing, selling and distribution.
2.15 Research and development
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the Group’s development activities is recognised only if all of the following
conditions are assessed and can be demonstrated:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits;
Annual Report and Accounts 2017 • Portmeirion Group PLC
59
2. Significant accounting policies continued
2.15 Research and development continued
• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible
asset; and
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the
intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised,
development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately. Amortisation is recognised on a
straight-line basis over their estimated useful lives.
2.16 Equity
Ordinary shares are classified as equity. The excess of the nominal value of ordinary shares received upon the issue of a new share is
classified as share premium.
Investment in own shares has been classified as a deduction from equity. These shares are valued at the weighted average cost of
purchase and comprise treasury shares and shares held by an employee benefit trust. The employee benefit trust is controlled by the
Company and Group and as such is consolidated into the reported figures.
The share-based payment reserve represents the cumulative charge on outstanding share options. Once the options have been
exercised or lapsed, this reserve is transferred into retained earnings.
The translation reserve represents the aggregate of the cumulative exchange differences arising from the retranslation of the balance
sheets of non-sterling denominated subsidiary undertakings.
Retained earnings are the cumulative profits recognised by the Group and the Company.
The Company other reserve is a merger reserve arising on the purchase of subsidiary undertakings.
2.17 Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Derivative financial instruments
The Group’s activities expose it to the financial risks of changes in foreign currency exchange rates. The Group uses foreign exchange
forward contracts to hedge this exposure. The Group does not use derivative financial instruments for speculative purposes.
Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the income
statement as they arise.
Receivables
Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are
categorised as loans and receivables. These are measured at amortised cost using the effective interest method, less any impairment.
Discounting is omitted where the effect of discounting is immaterial.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated
future cash flows of the investment have been affected.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade
receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered
uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited
against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits and other short-term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
60
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 2. Significant accounting policies continued
2.17 Financial instruments continued
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An
equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity
instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.
Further details on the Group’s financial instruments can be found in note 32.
2.18 Share-based payments
Equity-settled share option schemes and long-term incentive plans are measured at the fair value of the equity instruments at the grant
date. The fair value excludes the effect of non-market-based vesting conditions. Details regarding the determination of the fair value of
equity-settled share-based transactions are set out in note 33.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each balance sheet date, the Group
revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market-based vesting
conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense
reflects the revised estimate, with a corresponding adjustment to equity reserves.
3. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual
results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision
affects both current and future years.
Critical judgements in applying the Group’s accounting policies
The following are the critical judgements that the Directors have made in the process of applying the Group’s accounting policies and
that have the most significant effect on the amounts recognised in the financial statements.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable for goods or services. A number of the Group’s
customers purchase goods on a sale or return basis, where at the year end the value of potential returns is unknown. Management have
included an estimated provision for goods sold on a sale or return basis as a reduction to revenue.
Provision is made for goods sold on a sale on return basis. In making this judgement, management have considered the detailed criteria
for the recognition of revenue from the sale of goods set out in IAS 18 ’Revenue’, and made a best estimate of the anticipated returns
from customers.
Impairment of inventory
Inventories are stated at the lower of cost and net realisable value. At the year end, the future sale value of some slow-moving and
obsolete inventory is uncertain, and a provision has been included where management feel this value falls below cost. The level of
provision is determined by management estimates based on historical and forecast sales and potential net realisable value.
Defined benefit pension scheme
The valuation of the Group’s defined benefit pension scheme assets and liabilities under IAS 19 ‘Employee Benefits’ is disclosed in note 31.
IAS 19 required a net asset or liability to be recognised in the Group balance sheet based upon relevant actuarial assumptions at each balance
sheet date. The significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected inflation
assumptions and life expectancy. Management receives independent advice from an actuary in the preparation of these assumptions.
Annual Report and Accounts 2017 • Portmeirion Group PLC
61
3. Critical accounting judgements and key sources of estimation uncertainty continued
Critical judgements in applying the Group’s accounting policies continued
Intangible assets and goodwill
The Group holds a number of intangible assets and goodwill that have been acquired in business combinations. These assets are held at
fair value less amortisation and any impairment. At each balance sheet date management review the appropriate value of these assets
to ensure there are no indicators of impairment that would require a write-down in fair value. Management also review future discounted
cash flow forecasts to ensure the fair value is still appropriate.
4. Revenue
An analysis of the Group’s revenue is as follows:
Continuing operations
Sale of goods
Royalties
5. Segmental analysis
2017
£’000
84,500
269
84,769
2016
£’000
76,467
210
76,677
IFRS 8 requires operating segments to be identified on the basis of internal reports about the components of the Group that are
regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. Based upon the nature
and extent of these internal reports, the Directors are of the opinion that there are three reportable segments under IFRS 8, namely the
Portmeirion UK and USA ceramic operations and home fragrance. The Directors are of the opinion that only one class of business is
being undertaken, that of the manufacture and sale of ceramics, home fragrances and associated homeware.
Revenue by origin
Portmeirion UK – ceramic
Portmeirion USA – ceramic
Home fragrance
2017
Inter-
segment
sales
£’000
(2,491)
—
—
Total
sales
£’000
48,637
24,700
13,923
Sales to
third
parties
£’000
46,146
24,700
13,923
Total
sales
£’000
46,146
23,818
10,548
2016
Inter-
segment
sales
£’000
(3,835)
—
—
Sales to
third
parties
£’000
42,311
23,818
10,548
87,260
(2,491)
84,769
80,512
(3,835)
76,677
Included in revenues arising from the United Kingdom are revenues of £6,604,000 (2016: £9,724,000) which arose from sales to the
Group’s largest customer in South Korea.
Inter-segment sales are charged at prevailing market prices.
The following table provides an analysis of the Group’s revenue by geographical market, irrespective of the origin of the products:
Revenue
United Kingdom
United States
South Korea
Rest of the World
2017
£’000
28,836
25,156
6,604
24,173
84,769
2016
£’000
27,084
24,216
9,724
15,653
76,677
The accounting policies of the reportable segments are the same as the Group’s accounting policies as described in note 2. Segment profit represents
the profit earned by each segment without allocation of the share of profits of associates, interest income, finance costs and income tax expense.
This is the measure reported to the Group’s Chief Executive for the purpose of resource allocation and assessment of segment performance.
For the purposes of monitoring segment performance and allocating resources between segments the Group’s Chief Executive monitors
the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the
exception of interests in associates. Assets used jointly by reportable segments are allocated on the basis of the revenues earned by
individual reportable segments.
62
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 2017
£’000
6,419
1,196
1,467
9,082
210
17
(487)
8,822
(1,944)
6,878
2016
£’000
5,307
1,202
1,455
7,964
198
31
(387)
7,806
(1,581)
6,225
5. Segmental analysis continued
Operating profit by origin
Portmeirion UK – ceramic
Portmeirion USA – ceramic
Home fragrance
Operating profit
Unallocated items:
Share of profit of associated undertakings
Interest income
Finance costs
Profit before tax
Tax
Profit after tax
Other information
Capital additions
Depreciation and
amortisation
Balance sheet:
Assets
Non-current segment assets
Other segment assets
Total segment assets
Interests in associates
Other assets
Consolidated total assets
Liabilities
Segment liabilities
Other liabilities
Consolidated total liabilities
2017
2016
Portmeirion
UK ceramic
£’000
Portmeirion
USA ceramic
£’000
Home
fragrance
£’000
Consolidated
£’000
Portmeirion
UK ceramic
£’000
Portmeirion
USA ceramic
£’000
Home
fragrance
£’000
Consolidated
£’000
741
1,014
9,298
21,849
31,147
69
183
208
1,018
411
720
1,917
1,092
160
179
193
764
511
1,782
502
8,412
8,914
13,976
8,280
23,776
38,541
22,256
62,317
10,885
19,332
30,217
668
8,168
8,836
14,333
7,356
25,886
34,856
21,689
60,742
2,525
451
65,293
2,313
437
63,492
15,155
1,910
3,443
20,508
21,675
1,694
3,315
26,684
13
20,521
20
26,704
All non-current segment assets relate to the UK business other than £474,000 (2016: £643,000) which relate to the USA business segment.
Reconciliation of earnings before interest, tax, depreciation and amortisation (EBITDA)
Operating profit
Add back:
Depreciation
Amortisation
Earnings before interest, tax, depreciation and amortisation
2017
£’000
9,082
1,329
588
10,999
2016
£’000
7,964
1,328
454
9,746
Annual Report and Accounts 2017 • Portmeirion Group PLC
63
6. Operating costs
Cost of inventories recognised as an expense
Movement on inventory impairment provision
Other external charges
Staff costs (note 7)
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment of trade receivables
Cost of research and development
Net foreign exchange losses/(gains)
7. Staff numbers and costs
The average number of persons employed during the year, including Directors:
Operatives
Salaried employees
2017
£’000
37,655
(116)
13,214
22,676
1,329
588
67
194
80
2016
£’000
31,581
723
12,920
21,491
1,328
454
49
265
(98)
75,687
68,713
2017
Number
2016
Number
463
320
783
483
289
772
The Company had no employees in the current or preceding years. All employee costs are paid for by Group companies.
Staff costs
Wages and salaries
Social security costs
Other pension costs
Non-monetary benefits
Directors’ emoluments:
Salary and fees, taxable benefits and incentive
Gains made on exercise of share options
Long-term incentive plan
Pension contributions
Number of Directors who were members of a defined contribution pension scheme during the year
Number of Directors who exercised options over shares in the ultimate parent company
64
Annual Report and Accounts 2017 • Portmeirion Group PLC
2017
£’000
2016
£’000
19,123
18,182
1,703
1,304
546
1,526
1,228
555
22,676
21,491
2017
£’000
2016
£’000
1,657
544
28
84
1,057
—
39
59
2,313
1,155
2017
Number
2016
Number
5
4
4
2
Notes to the Financial Statements continuedFINANCIAL STATEMENTS
7. Staff numbers and costs continued
Remuneration of the highest paid Director:
Salary and fees, taxable benefits and incentive
Gains made on exercise of share options
Long-term incentive plan
Pension contributions
The highest paid Director exercised options in the year over shares in the Company.
8. Auditors’ remuneration
Fees payable to the Group’s auditors for the audit of the Group’s annual accounts
Other audit related services – interim review
The audit of the Company’s subsidiaries
Total audit related fees
Fees payable to the Group’s auditors and their associates for other services to the Group
Other taxation advisory services
Other services
Total non-audit fees
Fees payable to the Group’s auditors and their associates in respect of associated pension schemes
Audit of the Portmeirion Potteries Limited Retirement Benefits Scheme
2017
£’000
635
261
14
25
935
2017
£’000
53
6
13
72
14
1
15
5
5
2016
£’000
450
—
25
22
497
2016
£’000
51
8
13
72
2
5
7
5
5
The audit fee for the Company was £1,600 (2016: £1,600).
Fees payable to Mazars LLP and their associates for non-audit services to the Company are not required to be disclosed because the
consolidated financial statements are required to disclose such fees on a consolidated basis.
9. Interest income
Bank deposits
Interest income relates to amounts received on financial assets and classified as cash and cash equivalents.
10. Finance costs
Interest paid
Realised losses on financial derivatives
Unrealised losses on financial derivatives
Net interest expense on pension scheme deficit (note 31)
Interest paid relates to amounts paid on financial liabilities held at amortised cost.
2017
£’000
17
2017
£’000
313
4
—
170
487
2016
£’000
31
2016
£’000
281
8
10
88
387
Annual Report and Accounts 2017 • Portmeirion Group PLC
65
11. Taxation on profit on ordinary activities
Current taxation
United Kingdom corporation tax at 19.25% (2016: 20%)
Overseas taxation
Deferred taxation
Origination and reversal of temporary differences
Pension scheme
2017
£’000
2016
£’000
1,222
480
1,702
67
175
242
1,149
483
1,632
(209)
158
(51)
1,944
1,581
United Kingdom corporation tax is calculated at 19.25% (2016: 20%) of the estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The actual tax charge for the current and the previous year differs from the standard rate for the reasons set out in the following reconciliation:
Profit on ordinary activities before taxation
Tax on profit on ordinary activities at standard rate of 19.25% (2016: 20%)
Factors affecting charge for the year:
Expenses not deductible for tax purposes and other adjustments
Foreign tax charged at higher rates than UK standard rate
Differences relating to associates’ tax charge
Total tax on profit on ordinary activities
2017
£’000
8,822
1,698
47
239
(40)
2016
£’000
7,806
1,561
(209)
269
(40)
1,944
1,581
Future tax charges will be impacted by the continuing reduction in UK corporation tax rate and the reduction in the US federal tax rate.
12. Dividends paid
Final dividend of 25.25p per share paid in respect of the year ended 31 December 2016
(2016: final dividend of 23.90p per share paid in respect of the year ended 31 December 2015)
Interim dividend of 7.40p per share paid in respect of the year ended 31 December 2017
(2016: interim dividend of 7.00p per share paid in respect of the year ended 31 December 2016)
Unclaimed dividends written back
Total dividends paid in the year
2017
£’000
2016
£’000
2,641
2,491
792
—
732
(6)
3,433
3,217
The Directors recommend that a final dividend for 2017 of 27.26p (2016: 25.25p) per ordinary share be paid, making a total for the year
of 34.66p (2016: 32.25p) per share. The final dividend will be paid, subject to shareholders’ approval, on 30 May 2018, to shareholders
on the register at the close of business on 27 April 2018. This dividend has not been included as a liability in these financial statements.
66
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS
13. Earnings per share
The calculation of basic and diluted earnings per share is based on the following data:
Basic earnings per share
Effect of dilutive securities:
employee share options
Diluted earnings per share
14. Goodwill
Cost
At 1 January 2016
Recognised on acquisition of a subsidiary
At 31 December 2016
—
At 31 December 2017
2017
Weighted
average
number
of shares
Earnings
£’000
Earnings
per share
(p)
Earnings
£’000
2016
Weighted
average
number
of shares
Earnings
per share
(p)
6,878 10,570,942
65.07
6,225 10,445,140
59.60
—
45,459
—
—
87,517
—
6,878 10,616,401
64.79
6,225 10,532,657
59.10
Total
£’000
—
7,229
7,229
—
7,229
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating units, or group of units that are
expected to benefit from that business combination. Before recognition of impairment losses, the carrying amount of goodwill had all
been allocated to the Wax Lyrical business.
The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired. Goodwill has been
tested for impairment during the year.
The recoverable amounts of the cash-generating units are determined from value in use calculations. The key assumptions for the value
in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct cost during
the year. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money
and the risks specific to the cash-generating unit. Future growth rates and expected changes to selling prices and direct costs are
estimated based upon historic and anticipated trading performance. There have been no significant changes in these assumptions
during the financial year.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management and projects these
cash flows for the following five years based on an estimated growth rate of 1.5%. These budgets are based on current trading performance
and do not envisage any changes to the current business model. This rate does not exceed the average long-term growth rate for the
relevant markets.
The rate used to discount the forecast cash flows from Wax Lyrical is 5%.
Annual Report and Accounts 2017 • Portmeirion Group PLC
67
15. Intangible assets
Cost
At 1 January 2016
Additions
Recognised on acquisition of a subsidiary
Disposals
At 1 January 2017
Additions
Disposals
At 31 December 2017
Amortisation
At 1 January 2016
Charge for the year
On disposals
At 1 January 2017
Charge for the year
On disposals
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Development
costs
£’000
Computer
software
£’000
Intellectual
property and
customer lists
£’000
Total
£’000
3,041
20
5,968
—
289
2,693
—
5,968
—
59
—
—
—
59
—
—
59
59
—
—
59
—
—
59
—
—
20
—
—
309
80
(7)
382
134
80
—
214
58
(7)
8,661
9,029
—
—
80
(7)
8,661
9,102
1,816
2,009
374
—
454
—
2,190
2,463
530
—
588
(7)
265
2,720
3,044
117
95
5,941
6,471
6,058
6,566
Included within intellectual property and customer lists are the rights to certain intellectual property and the trade names of Spode and
Royal Worcester (purchased in April 2009) and the intellectual property and customer lists recognised at fair value on the acquisition of
Wax Lyrical (purchased in May 2016).
At the year end the Spode and Royal Worcester intellectual property had a carrying value of £751,000 (2016: £814,000). The remaining
amortisation period is twelve years.
At the year end the Wax Lyrical intellectual property had a carrying value of £3,465,000 (2016: £3,725,000) and the customer lists had
a carrying value of £1,725,000 (2016: £1,932,000). The remaining amortisation periods are thirteen years four months and eight years
four months respectively.
At 31 December 2017, the Group had entered into contractual commitments for the acquisition of intangible assets amounting to
£100,000 (2016: £nil).
68
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 16. Property, plant and equipment
Cost
At 1 January 2016
Additions
Acquisition of subsidiary
Disposals
Exchange rate adjustments
At 1 January 2017
Additions
Disposals
Exchange rate adjustments
At 31 December 2017
Depreciation
At 1 January 2016
Charge for the year
On disposals
Exchange rate adjustments
At 1 January 2017
Charge for the year
On disposals
Exchange rate adjustments
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Land and buildings
Freehold
£’000
Leasehold
£’000
Leasehold
improvements
£’000
Plant and
vehicles
£’000
Total
£’000
3,855
3,874
1,358
13,768
22,855
—
—
—
—
—
—
—
—
4
117
—
116
740
1,365
(335)
214
744
1,482
(335)
330
3,855
3,874
1,595
15,752
25,076
—
—
—
—
—
—
1
—
(62)
937
(616)
(119)
938
(616)
(181)
3,855
3,874
1,534
15,954
25,217
1,891
70
—
—
123
51
—
—
939
10,263
13,216
99
—
70
1,108
1,328
(303)
148
(303)
218
1,961
174
1,108
11,216
14,459
70
—
—
51
—
—
109
—
(45)
1,099
1,329
(586)
(89)
(586)
(134)
2,031
225
1,172
11,640
15,068
1,824
1,894
3,649
3,700
362
487
4,314
4,536
10,149
10,617
At 31 December 2017, the Group had entered into contractual commitments for the acquisition of property, plant and equipment amounting
to £15,000 (2016: £101,000).
Annual Report and Accounts 2017 • Portmeirion Group PLC
69
17. Interests in associates
Group
Associated undertakings
Furlong Mills Limited
2,080 ordinary shares of £1 each, representing 33.33% of the issued share capital
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity attributable to owners of the Company
Share of net assets
Discount on acquisition
Carrying value of the Group’s interest in the associate
Revenue
Profit from continuing operations
Portmeirion Canada Inc.
100 common shares representing 50% of the issued share capital
Current assets
Non-current assets
Current liabilities
Equity attributable to owners of the Company
Share of net assets
Adjustment for intercompany profit held in inventories
Carrying value of the Group’s interest in the associate
Revenue
Profit from continuing operations
2017
£’000
2016
£’000
3,926
2,886
(1,692)
(151)
4,969
1,656
(13)
1,643
8,904
543
2,386
14
(324)
2,076
1,038
(156)
882
2,769
61
3,574
2,852
(1,885)
(109)
4,432
1,477
(13)
1,464
8,237
390
2,284
5
(225)
2,064
1,032
(183)
849
2,959
137
Aggregate carrying value of associated undertakings
2,525
2,313
A list of the investments in subsidiaries and associates, including the name, country of incorporation and proportion of ownership
interest, is given in note 18.
Portmeirion Canada Inc. has been accounted for as an associate as it is independently managed from Canada, and with a 50% share
of ownership the Directors consider that the Group asserts significant influence but not joint control.
18. Investment in subsidiaries
Company investment in subsidiary undertakings:
30,100 ordinary shares of £1 each in Portmeirion Group UK Limited representing 100% of the
issued share capital at cost
Capital contributions made to subsidiary undertakings:
Portmeirion Group UK Limited
Portmeirion Enterprises Limited
Portmeirion Distribution Limited
70
Annual Report and Accounts 2017 • Portmeirion Group PLC
2017
£’000
2016
£’000
1,455
1,455
10,146
10,146
705
60
705
60
12,366
12,366
Notes to the Financial Statements continuedFINANCIAL STATEMENTS
18. Investment in subsidiaries continued
No interest is charged on these capital contributions.
At 31 December 2017 the Company had the following subsidiary and associated undertakings:
Country of operation
and incorporation
Legal/registered address
Nature of business
Subsidiary undertakings
Portmeirion Group UK Limited
England and Wales
London Road, Stoke-on-Trent ST4 7QQ Ceramic manufacturer, marketing
and distribution of homeware
Portmeirion Enterprises Limited(1)
England and Wales
London Road, Stoke-on-Trent ST4 7QQ Intermediate holding company
Portmeirion Distribution Limited(1)
England and Wales
London Road, Stoke-on-Trent ST4 7QQ Property company
Portmeirion Services Limited(1)
England and Wales
London Road, Stoke-on-Trent ST4 7QQ Dormant
Portmeirion Group USA, Inc.(2)
USA
Portmeirion Group Designs, LLC(3)
USA
105 Progress Lane, Waterbury,
Connecticut, USA 06705
105 Progress Lane, Waterbury,
Connecticut, USA 06705
Portmeirion Group Hong Kong
Limited(1)
Hong Kong
42/F Central Plaza, 18 Harbour Road,
Wan Chai, Hong Kong
Marketing and distribution
of homeware
Online marketing and distribution
of homeware
Intermediate holding company
Portmeirion (Shenzhen) Trading
Company Limited(4)
China
Lighthouse Holdings Limited(1)
England and Wales
Wax Lyrical Limited(5)
England and Wales
Room A807, Block A, Lianhe Plaza,
Futian District, Shenzhen,
People’s Republic of China
Lindal-in-Furness, Ulverston, Cumbria
LA12 0LD
Marketing and distribution
of homeware
Intermediate holding company
Lindal-in-Furness, Ulverston, Cumbria
LA12 0LD
Manufacture, marketing and
distribution of home fragrances
Colony Deutschland GmbH(6)
Germany
Pilotystr 4, 80538 München, Germany
Marketing and distribution of
home fragrances
Colony Gift Corporation Limited(6)
England and Wales
Lindal-in-Furness, Ulverston, Cumbria
LA12 0LD
Dormant
Associated undertakings
Portmeirion Canada Inc.
Canada
Furlong Mills Limited
England and Wales
20 Voyager Court South, Rexdale,
Etobicoke, Toronto, Ontario, Canada
Marketing and distribution
of homeware
Furlong Lane, Burslem,
Stoke-on-Trent ST6 3LE
Suppliers of clay and glaze
The companies are incorporated in England and Wales and registered in England and Wales except where stated. The share capital of
all subsidiary undertakings consists solely of ordinary shares. The Company holds 100% of the share capital of all subsidiaries, 50% of
the ordinary share capital of Portmeirion Canada Inc. and 33.33% of the ordinary share capital of Furlong Mills Limited. Furlong Mills
Limited supplies Portmeirion Group UK Limited with all of its clay and most of its glaze raw materials.
Notes:
(1) Wholly owned by Portmeirion Group UK Limited.
(2) Wholly owned by Portmeirion Enterprises Limited.
(3) Wholly owned by Portmeirion Group USA, Inc.
(4) Wholly owned by Portmeirion Group Hong Kong Limited.
(5) Wholly owned by Lighthouse Holdings Limited.
(6) Wholly owned by Wax Lyrical Limited.
Annual Report and Accounts 2017 • Portmeirion Group PLC
71
19. Inventories
Group
Raw materials and other consumables
Work in progress
Finished goods
20. Trade and other receivables
Group
Amounts receivable for the sale of goods
Allowance for doubtful debts
Trade receivables
Amounts owed by associated undertakings
Other receivables
Prepayments and accrued income
2017
£’000
2,622
538
14,914
18,074
2016
£’000
3,039
564
12,664
16,267
2017
£’000
2016
£’000
11,348
11,435
(361)
(310)
10,987
11,125
152
287
1,005
12,431
251
97
1,012
12,485
Generally no interest is charged on receivables; however, there is provision in the Group’s terms and conditions for interest to be charged
on late payments. The allowance for doubtful debts has been determined by reference to past default experience and a review of
specific customers’ debts at the year end.
Included in the Group’s trade receivable balance are receivables with a carrying amount of £2,406,000 (2016: £2,447,000) which are past
due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the
amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these
receivables is 53 days (2016: 48 days).
Ageing of past due but not impaired receivables
31–60 days
61–90 days
91+ days
Total
Movement in the allowance for doubtful debts
Balance at the beginning of the year
Recognised on acquisition of a subsidiary
Impairment losses recognised
Amounts written off as uncollectable
Balance at the end of the year
72
Annual Report and Accounts 2017 • Portmeirion Group PLC
2017
£’000
1,817
475
114
2,406
2017
£’000
310
—
67
(16)
361
2016
£’000
2,264
124
59
2,447
2016
£’000
210
99
49
(48)
310
Notes to the Financial Statements continuedFINANCIAL STATEMENTS
20. Trade and other receivables continued
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from
the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being
large and unrelated. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for
doubtful debts.
Ageing of individually impaired trade receivables
120+ days
2017
£’000
123
2016
£’000
109
Included in the allowance for doubtful debts are individually impaired trade receivables with a balance of £nil (2016: £nil), owed by
companies which have been placed into liquidation. The impairment recognised represents the difference between the carrying amount
of these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any collateral over
these balances.
Company
Amounts owed by subsidiary undertakings
2017
£’000
3,986
2016
£’000
2,244
The Directors consider that the carrying amount of trade and other receivables for the Group and the Company approximates to their
fair value.
21. Cash and cash equivalents
Group
Cash and cash equivalents
2017
£’000
8,487
2016
£’000
6,540
Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or
less. The carrying amount of these assets approximates to their fair value.
22. Trade and other payables
Group
Trade payables and accruals
Amounts owed to associated undertakings
Other taxation and social security
Other payables
2017
£’000
9,401
14
643
498
2016
£’000
7,317
—
808
613
10,556
8,738
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 36 days (2016: 35 days). For most suppliers no interest is charged on the trade payables from the
date of invoice to the end of the following month. Thereafter, interest may be charged on the outstanding balances at various interest
rates. The Group’s policy is to pay all payables within the credit timeframe.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
Annual Report and Accounts 2017 • Portmeirion Group PLC
73
23. Borrowings
The Group has three facilities:
a) A £2,000,000 overdraft facility available until 31 May 2018. Interest is payable at 1.9% on the net pooled fund balance, plus bank
base rate on net sterling borrowings.
b) A £10,000,000 loan facility repayable in equal instalments over a five-year term until 4 May 2021. Interest is payable at an average
1.38% above three-month LIBOR. At the year end the outstanding balance was £7,000,000 which net of deferred facility fee costs
of £64,000 left the balance sheet value of £6,936,000 (note 27).
c) A £10,000,000 revolving credit facility available until 4 May 2019. Interest is payable at 2.0% above three-month LIBOR.
These facilities are secured by an unlimited debenture from the Group and the Company and a first charge over the Group’s property.
The overdraft and revolving credit facilities were not being utilised at 31 December 2017.
24. Deferred tax
Group
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and
prior reporting years:
At 1 January 2016
Credit/(charge) to income
Charge to equity
Credit to other comprehensive income
Acquisition of subsidiary
At 1 January 2017
Credit/(charge) to income
Charge to equity
Charge to other comprehensive income
At 31 December 2017
Accelerated
tax
depreciation
£’000
(492)
59
—
—
—
(433)
131
—
—
(302)
Retirement
benefit
obligations
£’000
Share-
based
payment
£’000
555
(158)
—
815
—
1,212
(175)
—
(753)
284
109
8
(37)
—
—
80
(65)
(4)
—
11
Capital
gain
rolled over
£’000
(249)
14
—
—
—
(235)
—
—
—
(235)
Other
temporary
differences
£’000
Temporary
difference
acquired
intangibles
£’000
Total
£’000
566
51
(37)
1,008
—
113
—
—
(1,074)
(1,074)
(961)
79
—
—
(882)
514
(242)
(4)
(810)
(542)
643
15
—
193
—
851
(212)
—
(57)
582
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the
deferred tax balances (after offset) for financial reporting purposes:
Deferred tax liability
Deferred tax asset
2017
£’000
(882)
340
(542)
2016
£’000
(961)
1,475
514
At the balance sheet date, the Group had no unused tax trading or capital losses (2016: £nil) available for offset against future profits.
Temporary differences arising in connection with interests in associates and joint ventures are insignificant.
74
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS
25. Share capital
Allotted, called up and fully paid share capital:
ordinary shares of 5p each
2017
Number
’000
£’000
2016
Number
’000
£’000
11,090
554
11,005
550
The market price of the Company’s shares at 31 December 2017 was 925.0p per share. During the year the price ranged between
832.5p and 997.5p per share.
The Company has one class of ordinary shares which carry no right to fixed income.
During the year the Company issued 85,071 new ordinary shares of 5p each for a total of £573,000 in order to satisfy the exercise of
share options.
Options granted to Directors and employees (note 33) to acquire ordinary shares of 5p in the Company and still outstanding at
31 December 2017 were as follows:
2010 Deferred Incentive Plan
2010 Deferred Incentive Plan
2012 Unapproved Plan
2012 Unapproved Plan
2012 Approved Plan
2012 Unapproved Plan
2012 Approved Plan
2010 Unapproved Plan
Number
of shares
3,136
4,225
8,121
9,258
4,365
Exercise
price per
share
(p)
Dates on which
exercisable
Earliest
Latest
— 22.04.2018 20.07.2018
— 12.05.2019 10.08.2019
610.0 03.05.2016 01.05.2023
740.0 01.05.2017 29.04.2024
935.0 28.04.2018 26.04.2025
127,635
935.0 28.04.2018 26.04.2025
60,252
960.0 12.08.2020 10.08.2027
132,748
960.0 12.08.2020 10.08.2027
Options held by the Directors are shown in the Directors’ Remuneration Report on pages 36 to 37.
26. Own shares
Treasury shares
At 1 January
Shares purchased
Shares issued under employee share schemes
At 31 December
ESOP shares
At 1 January
Shares purchased
Shares issued under employee share schemes
At 31 December
Total at 31 December
2017
£’000
448
—
(3)
445
2,488
34
(1,091)
1,431
1,876
2016
£’000
453
—
(5)
448
2,684
—
(196)
2,488
2,936
The Group currently holds 237,743 (2016: 239,477) ordinary shares of 5p each in treasury.
The ESOP share reserve represents the cost of shares in Portmeirion Group PLC purchased in the market and held by The Portmeirion
Employees’ Share Trust to satisfy options under the Group’s share option schemes (note 33). The number of ordinary shares held by
The Portmeirion Employees’ Share Trust at 31 December 2017 was 152,917 (2016: 307,048).
Annual Report and Accounts 2017 • Portmeirion Group PLC
75
1 January
2017
Financing (1)
cash flows
Other (2)
changes
31 December
2017
1,961
6,909
8,870
—
(2,000)
(2,000)
20
46
66
1,981
4,955
6,936
27. Notes to the statements of cash flows
Group
Current borrowings
Non-current borrowings
Total liabilities from financing activities
Notes:
(1) The cash flows make up the net amount of repayments of borrowings in the cash flow statement.
(2) Other changes are the amortisation of upfront facility fees.
28. Commitments
Operating lease arrangements
Operating lease payments represent rentals payable by the Group for:
• Portmeirion UK’s retail outlets and motor vehicles;
• Portmeirion USA’s warehouse, New York showrooms and New Jersey office; and
• Wax Lyrical’s main operating site, warehouse, retail outlet and motor vehicles.
Leases are negotiated on an individual basis.
The Group as lessee
Lease payments under operating leases recognised as an expense in the year
2017
£’000
1,866
2016
£’000
1,602
2016
£’000
1,480
2,467
1,647
5,594
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
2017
£’000
1,671
5,005
2,038
8,714
The Company did not have any operating lease arrangements.
29. Contingent liabilities
The Group and the Company have given a guarantee of up to $900,000 to the landlord of the premises of Portmeirion Group USA, Inc.
located in Connecticut, USA. The Group and the Company have also provided a guarantee to the Trustees of the UK defined benefit pension
scheme which guarantees all present and future obligations and liabilities up to a maximum amount equal to the entire aggregate liability.
76
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS
30. Related party transactions
Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its associates and the Company and its subsidiaries and associates are
disclosed below.
Group
The transactions during the year with associated undertakings were:
Portmeirion Canada Inc.
Furlong Mills Limited
The outstanding balances at 31 December 2017 with associated undertakings were:
Portmeirion Canada Inc.
Furlong Mills Limited
Purchases
2017
£’000
Purchases
2016
£’000
—
768
Debtor
2017
£’000
152
—
—
812
Debtor
2016
£’000
136
115
Sales
2017
£’000
1,541
—
Creditor
2017
£’000
—
14
Sales
2016
£’000
1,509
—
Creditor
2016
£’000
—
—
Sales to Portmeirion Canada Inc. are made at prices agreed between Portmeirion Group UK Limited and Portmeirion Canada Inc.
The sales figure includes management fees for Group services.
Purchases from Furlong Mills Limited are made at prices agreed between Portmeirion Group UK Limited and Furlong Mills Limited.
Portmeirion Group UK Limited receives a rebate related to its level of purchases from Furlong Mills Limited. The purchases figure
includes a credit for management fees.
Several of the Directors made purchases of goods from the Group during the year on the same terms as those available to all
employees. Total purchases did not exceed £1,000 for any Director in the year or in the prior year.
No Director of the Company had a financial interest in any material contract, other than those for service, to which the Company
was a party during the financial year.
The key management personnel of the Group are considered to be the Directors, the remuneration of whom is set out in note 7
on pages 64 and 65.
Company
During 2017 net transactions totalling £1,742,000 were debited (2016: £1,523,000 debited) to the intercompany account with the
Company’s subsidiary, Portmeirion Group UK Limited. These transactions represented payments and receipts made on behalf of the
Company by Portmeirion Group UK Limited, an intergroup dividend and the charge for share-based payments.
During the year The Portmeirion Employees’ Share Trust repaid part of an intercompany loan to the Company for £1,057,000 (2016: £196,000).
The purpose of the loan is for acquiring shares to satisfy Group share option exercises (note 33). The total outstanding loan is now £1,431,000
(2016: £2,488,000). The ESOP share reserve is disclosed in note 26 on page 75.
The outstanding balances with subsidiary undertakings at 31 December 2017 and 31 December 2016 are shown in note 20 on page 73.
No balances were owed to or from the Company by or to associated undertakings.
Annual Report and Accounts 2017 • Portmeirion Group PLC
77
31. Pensions
The Group operates group personal pension plans in the UK and a discretionary money purchase scheme in the USA.
The total cost charged to income of £1,304,000 (2016: £1,228,000) represents contributions payable to these schemes by the Group at
rates specified in the rules of the schemes.
The UK defined benefit scheme was frozen, i.e. closed to new entrants and for future accrual of benefits, at 5 April 1999. Following the
decision for the scheme to be frozen, formal notice was given to employees in January 1999. A defined contribution pension scheme
commenced on 6 April 1999 for all eligible UK employees. This scheme was closed on 31 October 2002 and was replaced by a group
stakeholder pension plan. Membership in this scheme was transferred to a group personal pension plan during 2013.
Investment risk
The present value of the defined benefit liability is calculated using a discount rate determined by reference to high quality corporate
bond yields; if the return on plan assets is below this rate, it will increase the scheme deficit.
Interest risk
A decrease in the bond interest rate will increase the scheme liability.
Longevity risk
The present value of the defined benefit scheme liability is calculated by reference to the best estimate of the mortality of the scheme participants
both during and after their employment. An increase in the life expectancy of the scheme participants will increase the scheme’s liability.
Salary risk
The present value of the defined benefit scheme liability is calculated by reference to the salary of scheme participants at the point the
scheme was closed. As such, only inflationary increases in the salary of scheme participants will increase the scheme’s liability.
Valuation and assumptions
For the defined benefit scheme, the most recent triennial valuation was at 5 April 2014. The main actuarial assumptions used in the valuation were:
• RPI of 3.60% per annum and CPI of 2.80% per annum;
• pre-retirement valuation rate of interest of 5.00% per annum;
• post-retirement valuation rate of interest of 3.70% per annum; and
• mortality experience based upon PCA00 tables with projections based on year of birth with a long-term rate of improvement of
1.75% per annum.
At the date of the last valuation on 5 April 2014 the market value of the scheme assets was £26,336,000 and the scheme had a
deficiency of £7,295,000.
The actuarial valuation of the scheme was updated at 31 December 2017 in accordance with IAS 19 by qualified actuaries.
78
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 31. Pensions continued
Valuation and assumptions continued
The major assumptions used by the actuaries were:
Rate of increase of pensions in payment:
Post 06.04.88 GMP
Pre 06.04.97 excess over GMP
Post 06.04.97 pension
Rate of revaluation of pensions in deferment
Rate used to discount scheme liabilities
Inflation assumption:
RPI
CPI
Life expectancy at 65 for a member:
Currently aged 65 – male
Currently aged 45 – male
Currently aged 65 – female
Currently aged 45 – female
2017
2016
3.00%
5.00%
3.00%
2.05%
2.50%
3.15%
2.05%
21.9
23.0
23.7
25.0
3.00%
5.00%
3.50%
2.50%
2.60%
3.60%
2.50%
22.2
23.9
24.2
26.1
Sensitivity analysis
Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected inflation increases
and life expectancy. The sensitivity analysis below has been determined based on reasonably possible changes of the respective
assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
If the discount rate is 0.25% higher, the defined benefit obligation would reduce by £1,341,000 (2016: £1,817,000).
If inflation and related assumptions increased by 0.25%, the defined benefit obligation would increase by £240,000 (2016: £783,000).
If life expectancy increased by one year for both men and women, the defined benefit obligation would increase by £1,452,000
(2016: £1,729,000).
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely
that the changes in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
In presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected
unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation
liability recognised in the balance sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
Annual Report and Accounts 2017 • Portmeirion Group PLC
79
31. Pensions continued
Analysis of scheme assets and liabilities
The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit scheme is as follows:
Scheme assets
Equities
Bonds
Gilts
Diversified growth funds
Insured pensions
Cash
Total fair value of assets
Present value of defined benefit obligations
Deficit in the scheme
Analysis of the amount charged to operating profit
Current service cost
Past service cost
Analysis of the amount included in the income statement
Interest on pension scheme assets
Interest on pension scheme liabilities
Amount charged to other finance costs
Amounts recognised in the consolidated statement of comprehensive income
Return on plan assets (excluding amounts included in net interest expense)
Actuarial gains and losses arising from changes in financial assumptions
Actuarial gains and losses arising from changes in demographic assumptions
Actuarial gains and losses arising from experience adjustments
Remeasurement of the net defined benefit pension scheme liability
2017
Fair
value
£’000
5,361
8,096
9,683
5,248
5,631
106
2016
Fair
value
£’000
4,683
7,544
9,413
4,715
5,963
41
34,125
(35,797)
32,359
(39,489)
(1,672)
(7,130)
2017
£’000
—
—
—
2017
£’000
842
(1,012)
(170)
2017
£’000
860
114
2,144
1,310
4,428
2016
£’000
—
—
—
2016
£’000
1,049
(1,137)
(88)
2016
£’000
3,036
(7,438)
(955)
—
(5,357)
The cumulative amount of actuarial gains and losses recognised in the consolidated statement of comprehensive income since adoption
of IFRS is a loss of £5,630,000 (2016: £10,058,000).
80
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS
31. Pensions continued
Analysis of movements in scheme assets and liabilities
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Service cost
Interest cost
Remeasurements (financial assumptions)
Remeasurements (demographic assumptions)
Remeasurements (experience adjustments)
Benefits paid
At 31 December
Movements in the fair value of scheme assets were as follows:
At 1 January
Interest on assets
Remeasurement of assets
Contributions by the employer
Benefits paid
At 31 December
2017
£’000
2016
£’000
39,489
31,527
—
1,012
(114)
(2,144)
(1,310)
(1,136)
—
1,137
7,438
955
—
(1,568)
35,797
39,489
2017
£’000
2016
£’000
32,359
28,442
842
860
1,200
(1,136)
1,049
3,036
1,400
(1,568)
34,125
32,359
Pension contributions
The estimated amount of contributions expected to be paid to the scheme during the next financial year is £1,200,000 (2017: £1,200,000).
The Group is committed to paying into the scheme until August 2026, £1,200,000 per annum in line with the agreed schedule of contributions.
The average duration of the defined benefit obligation at the end of the reporting period is 19 years.
At 31 December 2017, contributions of £136,000 (2016: £126,000) due in respect of the current reporting period had not been paid
over to the UK schemes.
In the United States there was a provision for payments into the money purchase scheme of £133,000 (2016: £155,000) at
31 December 2017.
Annual Report and Accounts 2017 • Portmeirion Group PLC
81
32. Financial instruments
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity
instrument are disclosed in note 2.
Financial risk management objectives
Capital management
The Group and the Company manage their capital to ensure that all entities in the Group will be able to continue as a going concern
while maximising the return to stakeholders. The Group’s overall strategy remains unchanged from 2016.
The capital structure of the Group consists of cash and cash equivalents, borrowings and equity attributable to equity holders,
comprising capital, reserves and retained earnings.
The Group is not subject to any externally imposed capital requirements. The Group Board reviews the capital structure at each Board
meeting and considers the cost of capital and the risks associated with each class of capital.
Credit risk
The Group’s principal financial assets are cash, short-term deposits and trade receivables. The Group’s policy is to place funds on
short-term deposit with highly rated institutions. Accounts receivable are monitored closely and provisions are made for bad and
doubtful debts where appropriate. The creditworthiness of customers is assessed prior to opening new accounts and on a regular basis
for significant customers. The assessment of credit quality of trade receivables is outlined in note 20.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics that is not covered by credit insurance.
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group
and Company’s maximum exposure to credit risk.
Interest rate risk management and sensitivity analysis
The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates as
disclosed in note 23. The risk is managed by maintaining an appropriate mix between fixed and floating rate borrowings, and could
further be mitigated by the use of interest rate swap contracts and forward interest rate contracts if deemed appropriate. If interest
rates had been 1% higher and all the other variables were held constant, the Group’s profit for the year ended 31 December 2017
would decrease by £99,000 (2016: £98,000).
Foreign currency risk management
The Group has exposure to foreign currency risk arising from its net investments in and cash flows from overseas subsidiaries and associates.
Its policy in managing this risk is to maintain appropriate levels of net assets in the overseas companies and utilise foreign currency forward
contracts. The most significant risk of exposure to foreign currency arises from the US dollar sales made by Portmeirion UK to Portmeirion
USA. The Group’s net exposure to US dollar cash flows for the coming year is not expected to be significant. At the year end the Group
had in place an average rate option in US dollars to manage the risk arising from the retranslation of profit made in the United States.
The Group enters into derivative transactions only to manage exposure arising from its underlying businesses. No speculative derivative
contracts are entered into.
The Group undertakes certain trading transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations
arise. Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts when
considered appropriate. Open derivative positions at the year end are not material.
The carrying amounts of the Group’s material foreign currency denominated monetary assets and monetary liabilities at the reporting
date are as follows:
Liabilities
Assets
2017
£’000
135
3,217
2016
£’000
56
2,403
2017
£’000
657
5,950
2016
£’000
606
5,879
Euro
US dollar
82
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 32. Financial instruments continued
Financial risk management objectives continued
Foreign currency sensitivity analysis
The Group is mainly exposed to the currencies of euro and US dollar.
The following table details the Group’s sensitivity to a 10% increase and decrease in sterling against the relevant foreign currencies.
10% is the sensitivity rate which represents management’s assessment of the reasonably possible change in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end
for a 10% change in foreign currency rates. A negative number below indicates a decrease in profit where sterling strengthens 10%
against the relevant currency. For a 10% weakening of sterling against the relevant currency, there would be an equal and opposite
impact on profit.
Profit/(loss)
Euro
impact
2017
£’000
(48)
2016
£’000
(50)
US dollar
impact
2017
£’000
(13)
2016
£’000
(29)
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity
risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management
requirements. The Group manages liquidity risk by maintaining adequate reserves and banking facilities, monitoring forecast and
actual cash flows and matching the maturity profiles of financial assets and liabilities.
Liquidity and interest risk tables
The following tables detail the Group’s expected maturity for its assets and liabilities. The tables have been drawn up based on the
undiscounted contractual maturities of the financial assets and liabilities including interest that will be earned on those assets except
where the Group anticipates that the cash flow will occur in a different period.
At 31 December 2017
Financial assets
Other assets
Total assets
Shareholders’ funds
Financial liabilities
Borrowings
Other liabilities
Pension scheme deficit
Weighted
average
effective
interest rate
%
0.50
—
—
—
3.0
—
—
Less than
1 month
£’000
16,065
—
1–3
months
£’000
3,561
—
16,065
3,561
—
—
(8,623)
(1,210)
(500)
(785)
—
—
(274)
—
Over
3 months
£’000
—
—
—
—
(80)
(6,436)
(59)
—
Non-
financial
assets/
(liabilities)
£’000
—
45,667
Total
£’000
19,626
45,667
45,667
65,293
(44,772)
(44,772)
—
—
(882)
(1,672)
(9,913)
(6,936)
(2,000)
(1,672)
Total liabilities and shareholders’ funds
(9,908)
(1,484)
(6,575)
(47,326)
(65,293)
Cumulative gap
6,157
8,234
1,659
—
—
Annual Report and Accounts 2017 • Portmeirion Group PLC
83
32. Financial instruments continued
Liquidity and interest risk tables continued
At 31 December 2016
Financial assets
Other assets
Total assets
Shareholders’ funds
Financial liabilities
Borrowings
Other liabilities
Pension scheme deficit
Weighted
average
effective
interest rate
%
0.25
—
Less than
1 month
£’000
13,065
—
1–3
months
£’000
4,851
—
13,065
4,851
—
—
3.0
—
—
—
(7,105)
(500)
(583)
—
—
(649)
—
(455)
—
Over
3 months
£’000
—
—
—
—
(176)
(8,370)
(775)
—
Non-
financial
assets/
(liabilities)
£’000
—
45,576
Total
£’000
17,916
45,576
45,576
63,492
(36,788)
(36,788)
—
—
(961)
(7,130)
(7,930)
(8,870)
(2,774)
(7,130)
Total liabilities and shareholders’ funds
(8,188)
(1,104)
(9,321)
(44,879)
(63,492)
Cumulative gap
4,877
8,624
(697)
—
—
2016
£’000
6,540
11,376
17,916
2017
£’000
8,487
11,139
19,626
9,913
7,930
Categories of financial instruments
Financial assets:
Cash and cash equivalents
Loans and receivables
Financial liabilities:
Amortised cost
84
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS 33. Share-based payments
Equity-settled share option schemes
The Group operates two share option schemes (“share schemes”) and one long-term incentive plan (“LTIP”) for senior managers
and Directors.
The Group recognised total expenses of £66,000 and £144,000 related to share-based payment transactions in 2017 and 2016
respectively. The Company recharged these expenses to Portmeirion Group UK Limited.
a) The Portmeirion Group 2010 Deferred Incentive Share Option Plan (LTIP)
Options are granted to Executive Directors in a year over shares with a market value not exceeding 20% of the gross incentive earned
by the relevant Director in respect of the previous financial year. Options are exercisable at £1 per individual as the total exercise price.
The vesting period is three years. If the options remain unexercised after a period of three years and three months from the date of
grant the options expire.
Details of the share options outstanding during the year are as follows:
Outstanding at 1 January
Granted during the year
Lapsed during the year
Surrendered during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2017
2016
Number
of share
options
12,021
—
(2,926)
—
(1,734)
7,361
—
Total
exercise
price
£
9
—
2
—
3
4
—
Number
of share
options
9,494
5,830
—
—
(3,303)
12,021
—
Total
exercise
price
£
8
3
—
—
2
9
—
No options were granted during the year. The options outstanding at 31 December 2017 had a weighted average remaining contractual
life of 1.2 years (2016: 1.9 years). In 2016, options were granted on 11 May. The aggregate of the estimated fair value of those options is
£46,047.
The inputs into the Black–Scholes pricing model are as follows:
Weighted average share price at date of grant
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend rate
2017
2016
—
—
—
£11.800
£nil
14%
— 3.125 years
—
—
0.53%
2.54%
Expected volatility was determined by calculating the historical volatility over the previous 3.125 years. The expected life used in the
model assumes that the options will be exercised on average halfway through the period during which they can be exercised.
Annual Report and Accounts 2017 • Portmeirion Group PLC
85
33. Share-based payments continued
Equity-settled share option schemes continued
b) The Portmeirion 2012 Approved and Unapproved Share Option Plans (Share schemes)
Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the three trading days prior to
the date of the grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of
grant the options expire.
Details of the share options outstanding during the year are as follows:
Outstanding at 1 January
Granted during the year
Lapsed during the year
Surrendered during the year
Exercised during the year
Outstanding at 31 December
Exercisable at 31 December
2017
2016
Number
of share
options
425,121
193,000
(33,000)
—
(242,742)
342,379
17,379
Weighted
average
exercise
price
£
7.811
9.600
9.350
—
6.838
9.361
6.793
Weighted
average
exercise
price
£
Number
of share
options
459,000
7.685
—
—
—
(33,879)
425,121
113,121
—
—
—
6.100
7.811
6.100
The options outstanding at 31 December 2017 had a weighted average remaining contractual life of 8.5 years (2016: 7.4 years).
In 2017, options were granted on 11 August. The aggregate of the estimated fair value of those options is £139,042. There were no
options granted in 2016.
The range of exercise prices for the options outstanding at 31 December is from £6.100 to £9.600.
The inputs into the Black–Scholes pricing model are as follows:
Weighted average share price at date of grant
Weighted average exercise price
Expected volatility
Expected life
Risk-free rate
Expected dividend rate
2017
2016
£9.550
£9.600
17%
4 years
0.34%
3.38%
—
—
—
—
—
—
Expected volatility was determined by calculating the historical volatility over the previous four years. The expected life used in the
model is based upon management’s best estimate of life using historical experience as a benchmark.
86
Annual Report and Accounts 2017 • Portmeirion Group PLC
Notes to the Financial Statements continuedFINANCIAL STATEMENTS Five-year Summary
Consolidated income statement information
Years ended 31 December
Revenue
Profit before tax
Tax
Profit attributable to equity holders
Earnings per share
Diluted earnings per share
Dividends paid and proposed per share
Consolidated balance sheet information
At 31 December
Assets employed
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Financed by
Called up share capital
Share premium account and reserves
2017
£’000
84,769
8,822
(1,944)
6,878
65.07p
64.79p
34.66p
2016
£’000
2015
£’000
2014
£’000
2013
£’000
76,677
68,669
61,370
58,295
7,806
8,649
7,611
7,009
(1,581)
(1,752)
(1,538)
(1,400)
6,225
6,897
6,073
5,609
59.60p
66.02p
57.64p
53.26p
59.10p
65.48p
57.30p
52.84p
32.25p
30.00p
26.50p
24.00p
2017
£’000
2016
£’000
2015
£’000
2014
£’000
2013
£’000
26,301
38,992
(13,012)
(7,509)
44,772
554
44,218
44,772
28,200
35,292
(11,704)
(15,000)
13,281
33,142
(6,816)
(3,085)
13,031
32,221
(8,052)
(4,153)
12,704
28,807
(7,606)
(2,404)
36,788
36,522
33,047
31,501
550
550
549
548
36,238
35,972
32,498
30,953
36,788
36,522
33,047
31,501
Annual Report and Accounts 2017 • Portmeirion Group PLC
87
Company Information
Board of Directors
Non-executive Chairman
Dick Steele BCOM FCA CTA
Chief Executive
Lawrence Bryan BA
Group Finance Director
Mike Raybould BSc ACA
Group Sales and Marketing Director
Phil Atherton
Operations Director
Mick Knapper
Non-executive Director
Lady Barbara Thomas Judge CBE BA JD
Non-executive Director
Janis Kong OBE BSc
Non-executive Director
Andrew Andrea BA MA ACA
Company Secretary
Moira MacDonald FCIS
Registered office and number
London Road
Stoke-on-Trent
ST4 7QQ
Tel: +44 (0) 1782 744721
www.portmeiriongroup.com
Registered number: 124842
Auditors
Mazars LLP
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
Nominated adviser and broker
Panmure Gordon (UK) Limited
One New Change
London
EC4M 9AF
Joint broker
Cantor Fitzgerald Europe
One Churchill Place
Canary Wharf
London
E14 5RB
88
Annual Report and Accounts 2017 • Portmeirion Group PLC
Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Tel: 0871 664 0300* (UK)
+44 (0) 37 1664 0300 (outside UK)
Email: shareholderenquiries@linkgroup.com
www.linkassetservices.com/shareholders
* Calls cost 12p per minute plus network extras. Lines open
between 9:00 am and 5:30 pm GMT, Monday–Friday excluding
public holidays in England and Wales.
Solicitors
Pinsent Masons LLP
55 Colmore Row
Birmingham
B3 2FG
Knights
The Brampton
Newcastle-under-Lyme
Staffordshire
ST5 0QW
HGF Limited
4th Floor Merchant Exchange
17-19 Whitworth Street West
Manchester
M1 5WG
Freeths
Federation House
Station Road
Stoke-on-Trent
ST4 2SA
Financial PR advisers
Hudson Sandler
29 Cloth Fair
London
EC1A 7NN
Tel: +44 (0) 20 7796 4133
Email: hello@hudsonsandler.com
Financial Calendar
Annual General Meeting
Interim Report
Dividends
Interim announced
Paid
Final announced
Paid
May
August
August
October
March
May
FINANCIAL STATEMENTS
Retail Outlets
Bridgend shop
Unit 71, Bridgend Designer Outlet
The Derwen
Bridgend
South Wales
CF32 9SU
Tel: +44 (0) 1656 669038
Colne shop “Boundary Mill”
Boundary Mill Stores
Vivary Way
Colne
Lancashire
BB8 9NW
Tel: +44 (0) 1282 856200
Longton shop
Phoenix Works
Unit 1 & 2
500 King Street
Longton
Staffordshire
ST3 1EZ
Tel: +44 (0) 1782 326661
Rotherham shop “Boundary Mill”
Boundary Mill Stores
Catcliffe Retail Park
Poplar Way
Catcliffe
Rotherham
S60 5TR
Tel: +44 (0) 1709 832800
Shiremoor shop “Boundary Mill”
Boundary Mill Stores
Park Lane
Shiremoor
Newcastle-upon-Tyne
NE27 0BS
Tel: +44 (0) 1912 972420
Stoke shop
London Road
Stoke-on-Trent
Staffordshire
ST4 7QQ
Tel: +44 (0) 1782 411756
Street shop
1B Clarks Village
Farm Road
Street
Somerset
BA16 0BB
Tel: +44 (0) 1458 446703
Swindon shop
Swindon Designer Outlet
Kemble Drive
Swindon
Wiltshire
SN2 2DY
Tel: +44 (0) 1793 422910
Trentham shop
Unit 230, Trentham Shopping Village
Trentham
Stoke-on-Trent
Staffordshire
ST4 8AX
Tel: +44 (0) 1782 657828
Walsall shop “Boundary Mill”
Boundary Mill Stores
Junction 10 Retail Park
Bentley Mill Way
Walsall
West Midlands
WS2 0LE
Tel: +44 (0) 1922 618200
Wax Lyrical Lindal shop
Wax Lyrical
Lindal-in-Furness
Ulverston
Cumbria
LA12 0LD
Tel: +44 (0) 1229 461102
Wax Lyrical Lowry outlet
Wax Lyrical Outlet
Unit F2
Lowry Outlet Mall
Salford Quays
Manchester
M50 3AH
Tel: +44 (0) 161 876 4525
Details of opening times and directions to the outlets can be found on our websites at:
www.portmeiriongroupfactoryshops.co.uk and www.wax-lyrical.com/outlets.
Annual Report and Accounts 2017 • Portmeirion Group PLC
89
P
o
r
t
m
e
i
r
i
o
n
G
r
o
u
p
P
L
C
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
f
o
r
t
h
e
y
e
a
r
e
n
d
e
d
3
1
D
e
c
e
m
b
e
r
2
0
1
7
Portmeirion Group PLC
London Road
Stoke-on-Trent
ST4 7QQ
Tel: +44 (0) 1782 744721
www.portmeiriongroup.com