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OUR STRATEGY
FOR GROWTH
Focus | Scale | Accelerate
ANNUAL REPORT & ACCOUNTS 2019
A New
Direction
This year, we launched a new strategy for PZ Cussons.
This strategy provides us with a renewed clarity of purpose
and a solid platform for growth. Through focusing and scaling
up on selected activities that leverage what we do best, we
will transform our Company into a leaner, more agile business
and accelerate sustainable growth.
FOCUS
SCALE
ACCELERATE
see page 16
see page 18
see page 20
HIGHLIGHTSV Full review of strategy undertaken by the Board VNew growth focus defined: Focus, Scale, AccelerateVFocused investment behind core Personal Care and Beauty brands in existing and selected high-growth marketsVDisposal of non-core brands V Nigeria business and portfolio to be simplified and costs controlled; continued investment in core Personal Care brands and partnerships that have the potential for disproportionate growth as the economy recoversV FOR DETAILS SEE CHAIR’S STATEMENT ON PAGES 6 AND 7 AND A CONVERSATION WITH CEO ALEX KANELLIS ON PAGES 8 AND 9.1 The results for the year ended 31 May 2018 have been restated to reflect the application of IFRS 15 and prior year adjustments. Further details are set out in Note 1 to the Consolidated Financial Statements.STRATEGIC REPORTHighlights 01Our purpose, ambition and plan 02Our business at a glance 04Chair’s statement 06A conversation with CEO Alex Kanellis 08Market overview 10Our business model 12Our strategy for growth 14How we measure our progress 22Creating a dialogue with our stakeholders 26Our people 28Financial review 32Business review: Regional performance 36Supply chain 42Principal risks and uncertainties 44Non-financial information 50Good4Business 51GOVERNANCEAn experienced Board with strong leadership 60Q&A with the Chair 62Leadership and culture 64The role of the Board and its responsibilities 70Board composition, succession and evaluation 74Audit, risk and internal control, remuneration and relations with shareholders 76Audit & Risk Committee report 78Nomination Committee report 84Remuneration Committee report 88Report on Directors’ remuneration 91Report of the Directors 110FINANCIAL STATEMENTSIndependent Auditor’s Report to the Members of PZ Cussons Plc 118Consolidated Income Statement 128Consolidated Statement of Comprehensive Income 129Consolidated Balance Sheet 130Consolidated Statement of Changes in Equity 132Consolidated Cash Flow Statement 133Notes to the Consolidated Financial Statements 134Company Balance Sheet 188Company Statement of Changes in Equity 189Notes to the Company Financial Statements 190OTHER INFORMATIONFurther statutory and other information 199Shareholder information and contacts 200V FOR FURTHER DETAILS AND DEFINITIONS OF KPIs SEE PAGES 22 TO 25. V DETAILS ON PERFORMANCE SEE FINANCIAL REVIEW ON PAGES 32 TO 35.REVENUE £689.4m(2018: £739.8m1)DIVIDEND PER SHARE8.28p(2018: 8.28p)NET DEBT(£152.2)m(2018: (£165.4)m)REPORTED PROFIT BEFORE TAX (IFRS) £37.0m(2018: £59.2m1)ADJUSTED PROFIT BEFORE TAX£69.8m(2018: £80.1m)ADJUSTED OPERATING MARGIN11.1%(2018: 11.6%1)AVERAGE NET WORKING CAPITAL AS % OF REVENUE20.0%(2018: 19.3%1)ADJUSTED BASIC EPS 13.01p(2018: 13.39p)FINANCIAL HIGHLIGHTSKEY STRATEGIC HIGHLIGHTS01PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE our purpose
Enhancing everyday life,
creating moments of delight.
Our ambition
To grow our business while staying
true to our authentic family spirit.
Focusing on our consumers and local markets
better than anyone else, so we can respond quickly.
Because we want to leave a legacy for the
next generation that we can all be proud of.
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Our planBuilding on our competitive advantage, we will accelerate our growth by focusing on a few key categories, brands and geographies, further simplifying our business and scaling those ideas with the best potential in order to accelerate our growth. Our streamlined Group will focus on Beauty and Personal Care brands in our key existing geographies and high-potential new geographies where we have the strongest right to win over our competitors. In Nigeria, we will streamline our operations, control our costs, focus on a few core brands in Personal Care and Home Care, and continue to invest in our partnerships with Haier and Wilmar, as these initiatives have the potential for disproportionate growth as the economy recovers. 03PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE PZ Cussons is a dynamic consumer products group. We’ve created some of the world’s best-loved and most trusted brands. OUR BUSINESS AT A GLANCEWHERE WE OPERATEWe have a direct presence in selected geographies in over 25 countries through distributor partnerships:GLOBAL AND REGIONAL BRANDSOUR CORE BRANDSOur focus will be on ten core brands that will be optimised within our largest markets or across markets, and three core brands in our partnership businesses in Nigeria:EUROPE I3 THE AMERICASUK, US, Poland, GreeceV SEE PAGES 36 AND 37AFRICANigeria, Ghana, KenyaV SEE PAGES 40 AND 41ASIA PACIFICIndonesia, Australia, ThailandV SEE PAGES 38 AND 3904PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019SANCTUA!Q'" __ ..,,_ -SPA-.---.,, PARTNERSHIP BRANDSGOOD4BUSINESSSustainability principles are integrated within all aspects of our business:• Business governance and ethics• Environment• Sourcing• Community and charityV SEE PAGE 51OUR PEOPLEWe collectively make our mark in serving our consumers, customers and communities by living our CANDO! values and behaviours.OUR CATEGORIESWe operate in four categories:• Personal Care, including Beauty (Europe & the Americas, Asia Pacific and Africa)• Food & Nutrition (Europe & the Americas, Asia Pacific and Africa)• Home Care (Asia Pacific and Africa)• Electricals (Africa)05PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE CHAIR’S STATEMENT“I believe we have set solid foundations for a return to sustainable growth and long-term success.”OVERVIEWThe Group’s results for the year were mixed: a combination of solid performances in Europe & the Americas, with strong growth in the Beauty business unit and Asia Pacific, compared with very disappointing results in Africa. As we anticipated at the half year, the adjusted profit before tax of £69.8m reflects the negative impact of the extremely tough macroeconomic conditions in Nigeria, which has historically been a key profit driver.We cannot rely upon short-term economic conditions improving significantly in our key markets and are therefore taking action to reposition the Group to return to profitable growth.A NEW STRATEGIC DIRECTIONDuring the year, the Board undertook a comprehensive strategic review of the Group’s operations. As part of this process, we consulted our key shareholders to ensure we understood their aspirations for the Group. We also engaged a third-party strategy consultant to provide an independent external perspective of the Group’s opportunities for growth.Following the review, the Board approved a new strategy for the Group: Focus, Scale, Accelerate, the key features of which are as follows:1. Focused investment in core Personal Care and Beauty brands in geographies that can scale growth The Personal Care category, which includes Beauty, represents our strongest brands across the geographies that offer us the best opportunities for revenue and margin growth. By focusing on consumer needs, understanding which brands to drive, grow, transform or maintain, and accelerating our strategies for pursuing multiple and changing consumer channels, we can return the Group to sustainable, profitable growth.06PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019- 2. Simplification of Nigerian activities ready for the market recovery and continued investment in our partnerships with Haier and Wilmar Nigeria has a large, young and growing population and, given our operating footprint, represents enormous potential. However, the country has endured a prolonged period of shrinking consumer disposable income and we must ensure our organisation fits current economic realities whilst still being ready to take advantage of future recovery. Along with prioritising our resources and investment in fewer categories and brands that have the best opportunity to scale in Nigeria, we will streamline our operations and control our costs. This will ensure we become more agile to deal with the risks and opportunities in Nigeria. Our Electricals and Oils businesses, run in conjunction with our partners Haier and Wilmar respectively, have the potential to deliver disproportionate growth as the economy recovers. 3. Disposal of non-core brands We are reviewing the growth potential of some of our non-core brands. This will allow us to remain focused on the opportunities that will drive the biggest return in the future. A more streamlined business will enable us to concentrate on growing PZ Cussons’ core portfolio. This will ultimately result in a much greater proportion of Group earnings coming from Personal Care and Beauty. This category provides us with our sharpest competitive edge and offers the highest margin earnings potential.We have already invested in a more streamlined operating model over the past five years. Continuing to improve the efficiency of that model and investing in a more focused portfolio will enable us to accelerate our growth. DIVIDEND AND BALANCE SHEET The Board reaffirmed its commitment to maintaining the strength of the Group’s balance sheet. Low ongoing capital expenditure requirements mean that our net debt will remain below an internally set maximum threshold of two times EBITDA throughout the lifetime of the strategic plan.We have a long track record of dividend growth over many years. More recently, whilst the Group’s operating results have been under pressure, the dividend has been maintained but not increased. Reflecting good cash generation and confidence in our new strategy, the full year dividend is maintained in line with the prior year at 8.28p per share. CORPORATE GOVERNANCEGood corporate governance is an essential characteristic of a sustainable business. The Board is committed to maintaining the highest standards of governance, in line with our status as a listed company. As announced on 13 June, Brandon Leigh stepped down from the Board as Chief Financial Officer. I would like to thank Brandon for his more than 20 years of service to PZ Cussons and to the Board. The Nomination Committee has initiated a process to appoint an appropriate successor for the role. In the meantime, Alan Bergin, Commercial Finance Director on the Executive Leadership Team, is performing the role on an interim basis.Having joined the Board towards the end of the 2018 financial year, Dariusz Kucz and Tamara Minick-Scokalo have brought their considerable experience and fresh perspectives to our discussions. I am grateful to them and my fellow Directors for their insight and wise counsel during what has been a very busy year. The relatively compact scale of the Group’s operations, combined with its flat management structure, facilitates excellent communication between the non-executive members of the Board and the Executive Leadership Team. This sets the tone for a robust and open governance culture that is ingrained in the business. Our commitment to ‘doing the right thing’ also remains as strong as ever. During the year we continued to ensure our products and our supply chain met our Good4Business objectives, which underpin everything we do. OUR EMPLOYEESThe Board places great importance on ensuring the Group’s culture and values are embedded in the organisation. We therefore reward people based on how their behaviour demonstrates adherence to our values as well as their day-to-day performance. Developing the talent pool needed to achieve our goals is a high priority. Our mixed operating results combined with ongoing skill shortages in some of our markets mean that attracting and retaining the right depth of talent is a challenge. I believe that our new strategic direction will highlight the energy and vision in our business and prove attractive to potential applicants – as well as inspirational to our current employees. All members of the Board travelled extensively during the year, spending time in and talking to employees in our key markets in the UK, Australia, Nigeria, the US, and Indonesia. My fellow Directors and I never fail to be impressed by the energy and enthusiasm our employees bring to their roles – and I thank them sincerely for all their hard work during the year.LOOKING AHEADThroughout its history, PZ Cussons has embraced change and the opportunities it brings. Our new strategy – Focus, Scale, Accelerate – represents a significant milestone for the Group. Our resources and investment will be focused on fewer key categories and brands in only those geographies offering the best potential for scale. Our operations will be further streamlined, our cost base will be tightly managed and we will act at pace. The results from this will not be immediate, but we expect 2019/20 to be an important transitional year. PZ Cussons is a remarkable company. We are fortunate to have talented and committed people, a wealth of cherished brands and enduring partnerships with loyal suppliers and customers. As we begin this next chapter in our story, I believe we have set solid foundations for a return to sustainable growth and long-term success.Caroline SilverChair07PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION--r~_,: ,;,-.: ..;:\ . •.. A CONVERSATION WITH CEO ALEX KANELLISQ: How would you sum up last year’s performance? Our results were mixed. We had a very tough trading year with challenges in Nigeria driven by weak economic conditions, uncertainty in the UK due to Brexit, and lower inflation growth in Asia. Despite these challenges, performance in Europe & the Americas was solid – especially for our US Beauty business. In Asia Pacific, we saw the Australian market recover and Indonesia also did well. Our Nigerian business showed some improvement in the second half, but it declined overall.Q: How did you tackle the various challenges this year? We have implemented an approach that focuses on all aspects of the business. We prioritised resources and investment on fewer initiatives, concentrating on those brands that show the potential to scale up and deliver significant revenue and good margin growth. Our popular Foamburst variants of our Imperial Leather and Original Source brands in the UK are great examples of this, and we saw excellent growth in St. Tropez in the US. We also continued to improve the efficiency of our operating model that we have been working on for the past five years. This included reducing the number of depots in Nigeria and Indonesia and progressing the development of our regional finance shared service centres. With fewer, more efficient locations to process and control our transactional needs, we’ll cut costs and improve our service levels.Q: How will the new strategic direction drive the business forward? Looking back at the last few years, we’ve found it difficult to grow the top line. We have been focused on streamlining our operating model and, as a leaner organisation, we now need to focus on only those activities that give us the best chance for growth. Also, some of the brands and geographies where we have historically done well offer little growth potential in the face of changing consumer needs. With our Focus, Scale, Accelerate strategy, we have clarity about which brands we want to back, what we want to do with them and where we want to do it. We don’t need to be all things to everyone. Our strength has always been our ability to identify niche “Everything we’re doing now is directed towards making the business more sustainable, more profitable and more resilient.”08PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 opportunities in our key markets and to act quickly to take advantage of those opportunities. We are renewing our focus on investing our time, energy and talent into the brands and markets that really hold promise for us.Q: Would you define the new strategy as ‘evolutionary’ or ‘revolutionary’? It is a bit of both. The Focus, Scale and Accelerate strategy is the next evolution of the ‘selected categories and geographies’ strategy we have deployed for many years. However, we are now focusing on fewer core categories, brands and geographies. We have been streamlining our business model for the past few years, but we will now simplify even further, particularly in Nigeria, keep tight control of our costs, and dispose of non-core brands. The new strategy enables us to concentrate only on those categories, geographies and brands that we can scale, accelerating our growth for current and future market conditions. We are also stepping up a gear to apply even more urgency to our efforts. Q: Which are your priority categories? In recent years we’ve invested in too many categories and initiatives. Our Personal Care and Beauty brands are some of our strongest brands and offer the best opportunities for revenue and margin growth, so prioritising our resources and our investment in fewer initiatives within these categories is key to getting back to top line growth. We’ve been really pleased with the growth of Beauty, for example, which contributed over a quarter of Group operating profit during the year. We will also continue to invest in our partnerships with Haier for our Electricals business, and with Wilmar for our Oils business. These businesses offer significant disproportionate long-term growth as the Nigerian economy recovers. Our Home Care brands are also still important to us in specific local markets. They give us real scale and efficiency, both from a supply chain perspective and in terms of distribution and retailer engagement.Q: What’s the position regarding Nigeria? Do you still have faith in the country’s ability to recover? We can’t ignore the fact that the country has endured multiple problems, not least a prolonged period of shrinking consumer disposable income. Hence we’ve carefully considered how best to organise our businesses. Our trading heritage in Nigeria dates back over 120 years; historically it contributed the largest share of Group profits. But we’re not staying for sentimental reasons. Nigeria has a very large, very young and growing population. Put that alongside our sizeable existing footprint and there’s enormous potential. We have the number one and two brands in our markets, so why would we give that up? However, we have to further streamline our operations, and more tightly control our cost base, both to cope with the volatility and to position ourselves well for the economic recovery. We run our Electricals and Oils businesses in conjunction with our partners Haier and Wilmar respectively; they effectively operate as standalone investments. We see genuine longevity in both these businesses – they’re well positioned to deliver disproportionate growth in the long term as consumer spending levels rise. In Electricals, we’ve already seen some evidence of confidence returning at the premium end of the market.Q: Are you planning any disposals? We are reviewing the growth potential of some of our non-core brands and the cost of some of our operational activities. Some brands have done well for us historically, but as the landscape has changed, we may not be the best owners for them. Q: How are you planning to grow new channels to market? There’s no point in us trying to create an online platform ourselves. We’re great at understanding the consumer, but others are great at the technology. Hence the decision to build alliances instead. We’ve been developing relationships for some time with digital commerce partners and online retailers; and in Beauty, for example, digital commerce now accounts for a significant portion of our growth in the US. Our lower-priced items generally reach the consumer as part of their retailers’ grocery deliveries, whereas in Nigeria we’ve partnered with Jumia and Conga to handle our online sales in Electricals. So depending on the product and the market, we’ll find the right digital avenues for it.Q: How do you view the Group’s financial position? As we refine and realign our growth priorities across the Group, we’ll reinvest some of the savings from our simplification programme into those key categories, brands and markets that will make the biggest difference to our growth. The combination of a strong balance sheet and an improved cashflow position means we’ll be able to service the Group’s investment needs – and deliver returns to our shareholders via the dividend.Q: Does the Group’s new strategy come with a new set of values? We’re essentially a family business – I always say we’ve got great genes! So we’ll stay true to the values that have underpinned our success thus far. But the world is changing and we have to change with it. In returning PZ Cussons to sustainable, profitable growth we need to keep close ties with partners, stay accountable to our stakeholders and maintain an environment of trust. That’s how we’ve always done business. Q: What are your thoughts on the year ahead – and beyond? The pleasing performance from Europe & the Americas and Asia Pacific last year gives us confidence for the future in these regions. We’ll maintain our investment in a few key categories and brands in Nigeria pending the return of economic growth. Our new strategy is sharpening our focus right across the portfolio. Everything we’re doing now is directed towards making the business more sustainable, more profitable and more resilient. PZ Cussons is a fantastic business – and it has a very bright future. Alex Kanellis Chief Executive Officer09PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION.... MARKET OVERVIEW
POPULATION : MILLENNIALS VS CENTENNIALS
UK
M
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20%
17%
M
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NIGERIA
19%
33%
USA
21%
19%
M
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M
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Millennial
Centennial
INDONESIA
M
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23%
25%
AUSTRALIA
M
C
21%
19%
Source: Macroeconomic Indicators Database – 12 July 2019 – GlobalData.
FOOD AND PERSONAL CARE PRODUCTS PURCHASED
ONLINE (ANNUAL CHANGE)
UK
Australia
Us
Indonesia
+12%
+25%
+17%
+30%
Source: Digital Around The World In 2019 – January 2019 – Wearesocial
(www.wearesocial.com/global-digital-report-2019)
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PZ Cussons operates in fast-moving
consumer goods (FMCG) categories.
These generally deliver good growth
in countries experiencing economic
and population expansion. However,
some of our markets have experienced
subdued or declining growth in
recent years.
EVOLVING CONSUMER
LANDSCAPES
All our markets exhibit their own unique
characteristics. There is an explosion
of youth in Nigeria, with over 20,000
births a day. Elsewhere there are ageing
populations; in Europe, for example, 25%
of the population is now over 60. Over
half the world’s population now lives
in urban areas – and the global middle
class is expected to double to almost
five billion people by 2030.
Changing consumer behaviour
accompanies these developments
– and shapes new trends. In Nigeria,
inflation and low wage growth have
squeezed family budgets. In Indonesia,
the economy has been softer and
pricing up has been more difficult.
In the UK, discount channels and
promotions have become significant
sales drivers; all of which mean
the value equation for consumers
has changed.
Getting the right brand, the right
product offering, at the right price
and through the right channel have
therefore never been more important.
CHANGING NEEDS AND
PREFERENCES
The commoditisation of many everyday
products presents manufacturers with
multiple challenges. PZ Cussons’ brands
compete for shelf space with other
household names, as well as retail chains’
own-brand and private label goods.
Consumers are faced with a vast array
of choices – and depending on the
category, they have different priorities.
With Personal Care and Beauty brands,
they are generally more discerning –
and prefer branded offerings. With
household goods, however, consumers
are often simply seeking a product
of acceptable quality to clean their
clothing or house well.
Yet, in a turbulent world, consumers
also seek out new sensations, flavours
and fragrances that give them
moments of comfort, escape and
indulgence. With increasing emphasis
being placed on individuals’ physical
and mental wellbeing, there is also
a growing trend towards improved
‘self care’.
BRINGING NEW IDEAS
TO MARKET
Wherever they live, consumers respond
well to innovation. Whether shopping
in a developed market grocer or in
an emerging market traditional stall,
they have an appetite for new ideas
and stand-out products. We therefore
maintain high levels of consumer
interest with selected innovation
focused on delivering to a consumer
need that enhances everyday life and
creates moments of delight. Tailoring
our offerings to specific geographies
also means we are able to directly
address local needs and tastes.
Our relatively small geographic
footprint gives us a deeper
understanding of our regional and
local markets than our competitors.
This enables us to forge close ties with
digital commerce partners, retailers,
and active distributors – and helps
secure their ongoing loyalty to PZ
Cussons brands.
Early recognition of trends, working
with external partners to develop
innovation, and our smaller size mean
we can bring products to market faster
than our competitors. We also identify
opportunities that larger competitors
would not necessarily spot – and
exploit those market niches that they
decide against.
INCREASED ENVIRONMENTAL
AWARENESS
Consumers are increasingly mindful
of their personal environmental impact.
In addition to seeking transparency
and authenticity in their purchases,
they examine the environmental
credentials of products and their
manufacturers. They have also
become more knowledgeable and
inquisitive. They scrutinise ingredients
and packaging, and want to know
about their product’s journey from
factory to shelf. Issues such as single-
use plastic for packaging and palm oil
production are high on many consumers’
awareness agenda – and are proactively
addressed directly by our Plastic and
Palm Oil Promises.
The issue of plastic has taken
centre stage in the past year – and is
changing the way manufacturers think.
Alternative packaging materials are
being developed and buying patterns
are also changing. For example, some
consumers are reverting to using
bar soap. PZ Cussons has embraced
this challenge, initially through the
inclusion of more refills in our portfolio,
developing lighter weight bottles and
ensuring that they are recyclable, and
introducing post-consumer recycled
material into our packaging. But we are
also working on more novel packaging
solutions and innovative ways of
delivering our products to consumers
without using any plastic. In that way,
we can help address the critical problem
of plastic pollution while also finding
new ways to delight our consumers.
DIGITAL COMMERCE
The way consumers shop is changing
rapidly and the digital commerce
revolution is underway, driven by online-
only retailers who are offering diverse
brand and category choices coupled
with convenient shipping and payment
options. In Europe & the Americas, many
products with higher price points – such
as our Beauty ranges – have seen a
significant shift towards online sales,
particularly in the US. Less expensive
items, such as handwash and shower
gels, have also experienced online sales
growth, principally via retailers’ own
grocery delivery services. In Asia Pacific,
traditional retailers are collaborating
with digital commerce operators to drive
better coverage and lower last-mile cost.
In Nigeria, digital commerce is still an
emerging channel but there has been a
noticeable shift towards buying online in
the fashion and electronics categories.
We work with our partners to ensure
our brands have exactly the right online
presence to connect with consumers,
however they choose to buy. This is
particularly important for our Beauty
brands, where we focus investment
on those retailers with growing digital
commerce businesses.
MOVING FORWARD
More than ever, established brands
must have a clear vision and voice,
consistent across everything they do.
Consumers remain under pressure in
all our markets, but we are confident
that our new strategic initiatives will
help us anticipate – and better respond
to – the ongoing changes in the
FMCG landscape.
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OUR BUSINESS MODELOur people, brands, geographies and partnering capabilities combine to deliver competitive advantage and differentiate us in our chosen markets. Our unique business model incorporates our new strategy to help us create shared, sustainable value for all our stakeholders. OUR PEOPLEDiverse, skilled, and passionate employeesOUR BRANDSHigh-quality, trusted and well-loved brands OUR SUPPLY CHAIN World-class manufacturing facilities and owned distribution facilities in selected geographies where in-house manufacturing is a competitive advantageOUR RELATIONSHIPSBusiness, supply and innovation partners that enhance our offering and share our values OUR FINANCIALS Strong balance sheet reflecting our disciplined approachour key inputsHow we create valueOUR PURPOSEENHANCING EVERYDAY LIFE, CREATING MOMENTS OF DELIGHT.OUR AMBITIONTO GROW OUR BUSINESS WHILE STAYING TRUE TO OUR AUTHENTIC FAMILY SPIRIT. FOCUSING ON OUR CONSUMERS AND LOCAL MARKETS BETTER THAN ANYONE ELSE, SO WE CAN RESPOND QUICKLY.BECAUSE WE WANT TO LEAVE A LEGACY FOR THE NEXT GENERATION THAT WE CAN ALL BE PROUD OF.WHAT WE DOVVVVVUNDERPINNED BY OUR CULTURE, VALUES, STRONG GOVERNANCE AND ETHICSDelight our consumersDevelop selected innovation to meet consumer needsDiscover consumer needsManufacture and deliver to customers through optimised channelsSource environmentally responsible materials12PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 FOR INVESTORSSustainable dividend and Earnings Per Share, experienced leadershipFOR EMPLOYEESTraining and development, strong teams and relationships, living CANDO! valuesFOR CONSUMERSInnovative, high quality, trusted brandsFOR SOCIETYGood4Business, community and charitable initiativesFOR THE ENVIRONMENT Sustainable sourcing, Plastic and Palm Oil Promises, reduced carbon emissionsCreating shared valueFOCUSV SEE PAGE 16SCALE V SEE PAGE 18ACCELERATE V SEE PAGE 20WHAT MAKES US DIFFERENTOUR STRATEGY CATEGORY-LEADING BRANDSFOCUSED PRODUCT INNOVATION IN-DEPTH LOCAL MARKET KNOWLEDGEAGILE AND FAST TO MARKET UNIQUE ONE PZC CULTURESTRONG BALANCE SHEETCANDO!ONE PZCGOOD4BUSINESS13PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION OUR STRATEGY FOR GROWTH
Sustainable, profitable growth is essential to the future
of our business. Throughout its 135-year history, PZ Cussons
has successfully evolved and adapted to constantly changing
consumer, market and economic environments. We are an
international consumer goods group with an established
portfolio of trusted brands across a range of markets.
We have an unrivalled heritage and entrepreneurial
culture, robustly supported by our CANDO! values.
We have streamlined our business
model and become more efficient;
however, our performance in recent
years has fallen short of expectations.
With our leaner organisation and in the
face of changing consumer needs, our
portfolio had become too fragmented
and complex for the resources we
have, which had made it difficult
to maximise the growth potential
of our core brands. We therefore
undertook a thorough review of our
business, categories and brands, and
geographic presence.
EVOLVING PZ CUSSONS
We have a new strategy that focuses
our resources and investment on key
categories and core brands across
selected geographies in Europe & the
Americas, Asia Pacific and Africa that
offer the best potential for scale and
can return the Group to sustainable,
profitable growth.
Founded on strong principles
of sustainability, our strategy for
growth emphasises Focus, Scale,
Accelerate. The following pages
explain how we will evolve PZ Cussons
into a more streamlined and dynamic
business, fit for the future and ready
to take advantage of the significant
opportunities that lie ahead.
V focus
V scale
V Accelerate
14
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 focusVPlace the consumer at the centre of our innovation strategyVSimplify the business and our channelsVFocus on our high-margin brands in core categories and geographies: –Beauty and Personal Care focus –Home Care maintained in selected geographies to provide in-market scale –Continue to invest in our partnerships that offer disproportionate growth as the Nigerian economy recovers –Divest non-core brandsOUR OBJECTIVESV Deploy different strategies for each brand: –Drive –Grow –Transform –MaintainscaleV Selectively innovate to scale brands in existing marketsV Scale brands in high-potential new marketsV Leverage distribution partnerships to scale in selected channels with the right consumersV Add scale through digital commerceOUR OBJECTIVESAccelerateV Beauty and Personal Care to drive largest share of revenue and profit growthV US and Asia Pacific to create biggest opportunity for revenue growthV Increase UK and Australia profitability through premium innovation across Beauty and Personal CareV Leverage our knowledge and expertise in Nigeria to rebuild scale in selected categories and brands and through business partnershipsOUR OBJECTIVESV SEE THE PRINCIPAL RISKS TO DELIVERY OF STRATEGY ON PAGES 44 TO 49.15PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTOTHER INFORMATIONFINANCIAL STATEMENTSGOVERNANCE OUR STRATEGY FOR GROWTH
V
focus
Improving Group performance
and maintaining profitability
Our core brands are:
Imperial Leather
Global and Regional brands
• Carex
• Cussons Baby
• Fudge
•
• Morning Fresh
• Original Source
• Premier Cool
• Rafferty’s Garden
• St. Tropez
• Sanctuary Spa
Partnership brands
• Mamador
• King’s
• Thermocool
As part of the strategy, we will
maintain some Food & Nutrition and
Home Care brands in selected local
geographies to provide in-market
scale where necessary, supported
by limited investment.
Nigeria is an integral part of the PZ
Cussons story, where we will focus on
three core brands and our joint venture
businesses, with both elements set to
deliver significant growth over the long
term as the economy recovers.
To improve Group performance and
maintain profitability, we are focusing on
the brands, categories and geographies
that have the strongest potential
for high-margin growth. Above all,
the consumer remains the focus of
everything we do.
We are simplifying our portfolio by
focusing primarily on a few key brands
in Personal Care and in Beauty in our
existing geographies and in selected new
geographies that will offer high growth.
We will also continue to invest in our
partnerships with Haier for Electricals
and with Wilmar for Oils. We will review
and divest non-core brands.
This focus will help us to maximise our
marketing investment and resource
allocation so we can scale those
initiatives and accelerate our growth.
Personal Care and Beauty in all our
existing geographies should deliver
more than 80%1 of our revenue within
five years, and partnerships will deliver
additional disproportionate high growth
as the Nigerian economy recovers.
Within these categories we
have identified ten core brands to
prioritise across all markets, and three
partnership brands in Africa. These
brands offer the best potential to
deliver sustained, high-margin growth.
To deliver this growth, the strategy
prioritises marketing investment
based on growth opportunity,
brand proposition and presence.
1 Excluding revenue from partnerships.
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CUSSONS BABY: TOP BRAND
FOR KIDS 2019
Cussons Baby confirmed its status as the
undisputed babycare brand leader in Indonesia.
It claimed top brand in eight out of ten key
baby categories including Baby Powder, Lotion,
Shampoo, Cotton Buds and Wipes, according to
an independent survey conducted by Frontier
Research across five cities in Indonesia. Presented
annually by Marketing magazine, the Top Brand
award takes into account ‘top of mind’ awareness,
the brand last used and future intention
to purchase.
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BIGGER CHOICE, SMALLER BILLS
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With almost 50 years’ experience, our Thermocool brand continues
to win accolades as Nigeria’s most trusted white goods brand. We
continue to grow our offer with new energy-saving washing machines,
which cut electricity bills and reduce the need for large generators. The
recently launched Haier Thermocool GenPAL Inverter Air Conditioning
Unit is also gaining rapid momentum. Other products under the Haier
Thermocool umbrella include high-quality cookers, generators, water
dispensers and microwave ovens; all of which combine performance,
safety and style.
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ST. TROPEZ – A FOCUS FOR GROWTH
St. Tropez is America’s number one premium tanning brand. Sales
grew significantly in this market last year by 30%, driven mainly by
close strategic retail relationships. Online sales increased by 41%
and our first social media marketing programme, entitled ‘You
Set the Tone’, helped to boost brand awareness. This strategically
important market will be the key focus for the brand growth over
the coming year.
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OUR STRATEGY FOR GROWTH
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scale
The second element of our strategy
is to scale growth of selected
categories and brands
We will prioritise investment behind
a smaller group of existing brands,
which have a greater impact in terms of
revenue and margin growth. Focusing
on fewer brands will enable us to scale
growth in our key existing markets and
selected high-potential new markets
and channels.
In our existing markets, we will focus
our innovation, investing in products
with strategic growth propositions
for both consumers and customers,
primarily in Personal Care and
Beauty. This will include leveraging
trends across fragrance, formats and
ingredients and incorporating our
Plastic and Palm Oil Promise.
We will maximise our distribution in
key established and high-potential
new markets. In geographies where
we already have strong presence we
will leverage our local expertise and
established customer partnerships
to introduce additional high-margin
brands. We will also accelerate growth
of our brands in selected new markets
where we identify good prospects
for success.
We will accelerate growth through
digital commerce for high-value brands
that consumers want and need, through
increased use of influencers and digital
marketing strategies, by leveraging
the successful digital partnerships that
we already have, and by selectively
developing new partnerships.
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• •
•
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FOAMING SUCCESS
Original Source Foaming Shower is a top
performer – driving the highest sales of all
new entrants to the shower category. Around
three-quarters of a million consumers used
Original Source Foaming Shower in the past
year. We ‘Unleashed The Foam’ across several
media platforms, including a partnership with the
stars of ‘Made In Chelsea’ across TV and social
channels. We also promoted our ‘10x More Foam’
message with a new film starring our very own
‘Foamy Man’ via video-on-demand and Facebook.
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IMPERIAL LEATHER
FOAMBURST – DESTINED
FOR GROWTH
A patented technology, unique to PZ
Cussons, Foamburst is a treat for the senses
– with more lather than any other shower
gel on the market. Foamburst has been a
considerable focus for the Imperial Leather
brand over the past year; we see significant
opportunities to raise awareness, drive trial
of the range and unlock further growth –
in the UK and beyond.
''
10x MORE
#IN.Wll1IEFUN
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PREMIER COOL – OFFERING
FRESH CHOICES
In a highly competitive Nigerian bar soap
market, our Premier Cool brand is being
strengthened through the introduction of
new ‘Ultimate’, ‘Odour Defence’ and ‘Sports’
variants. The new product range features
better cooling, improved fragrances and a
new design, as well as the addition of a new
150g pack size. The enhanced Premier Cool
mix shows strong growth potential. It is set
to improve the buying rate from existing
customers – and significantly grow our
market share through attracting new users
to the brand.
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OUR STRATEGY FOR GROWTH
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ACCELERATE
Our new five-year strategy will
accelerate the transformation of
our business, enabling growth from our
highest margin, highest potential brands
In more established markets with
lower percentage growth rates,
such as the UK and Australia, we will
increase profitability principally through
targeted premium innovation across
our Beauty and Personal Care brands.
In Nigeria, we will continue to
simplify our business and target
growth by streamlining and refreshing
our core Personal Care brands – and
driving our established partnerships
with Haier and Wilmar.
Personal Care, including Beauty, will
drive the largest share of revenue and
profit growth in all of our geographies,
as we increase our focus on high-margin
brands. Within five years we aim to
deliver the majority of our revenue
from these categories.
We will continue to invest in our
partnerships with Haier and Wilmar in
Nigeria, aiming to drive disproportionate
growth for the long term as the Nigerian
economy recovers.
The US and Asia Pacific offer the best
opportunities for revenue growth in
Personal Care, including Beauty. We will
therefore build on our existing presence
and experience to drive growth, both
from established brands and from the
launch of carefully selected additional
brands from our portfolio. In Asia,
where the population is growing, we
will focus on improving distribution
for Rafferty’s Garden.
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ACCELERATE
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CAREX – HELPING US DELIVER
ON OUR PLASTIC PROMISE
During the year we successfully drove sales
of refills for our market-leading Carex handwash.
The 500ml refill pack uses 75% less plastic than the
standard packaging – and the one-litre refill uses 85%
less plastic. The popularity of refills with consumers
delivered sales growth of 200% year on year – and
resulted in a saving of 4.3 million pumps.
V
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EXTENDING OUR REACH:
CUSSONS KIDS
We created an exciting limited edition range
of Cussons Kids Body Wash, Shampoo and
Cologne linked to Naura – the Indonesian child
singer and social media sensation. The launch
was supported by promotional activity across
a variety of digital media including YouTube,
Instagram and Facebook, maximising awareness
of – and engagement with – the Cussons Kids
brand across the star’s huge fanbase.
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RAFFERTY’S GARDEN: POISED
FOR FURTHER GROWTH
Rafferty’s Garden is Australia’s leading baby food
brand, and this year we began to roll out a wide
range of innovative snacks. The first bundle-baked
Wafer Bites launched in June 2019, featuring two
exciting variants – Beetroot & Shallots and Cheese –
and we’re also on track to roll out a major innovation
agenda in September 2019. This is set to accelerate
growth in market share for Rafferty’s Garden in
Australia and New Zealand. The programme includes
a new look for the brand, strengthening our superior
product claims, and the launch of first-to-market
wholegrain and plant protein recipes.
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HOW WE MEASURE OUR PROGRESS
We measure our progress against a set of key performance
indicators and our own internal targets.
Financial
REVENUE £m
786.3
739.8
689.4
20171
20181
2019
Definition
Revenue net of discounts, rebates
and sales taxes (does not include
JV revenue)
Why we measure
Revenue growth is a key
strategic aim
ADJUSTED PROFIT BEFORE TAX £m
102.0
80.1
69.8
2017
20182
2019
Definition
Profit before tax and
exceptional items
Why we measure
Measures operating performance
prior to exceptional items and
taxation costs
Basis of calculation
Profit before tax (IFRS)
Exceptional items
2017
£m
86.5
15.5
Adjusted profit before tax
102.0
20182
£m
59.2
20.9
80.1
2019
£m
37.0
32.8
69.8
REPORTED PROFIT BEFORE TAX (IFRS) £m
86.5
59.2
37.0
2017
20182
2019
Definition
Profit before tax after
exceptional items
Why we measure
Measures operating performance
after exceptional items prior to
taxation costs
AVERAGE NET WORKING CAPITAL as % of revenue
19.3
20.0
13.8
20171
20181
2019
Definition
Average net working capital
(defined as trade receivables and
inventory less trade payables)
as a % of revenue
Why we measure
Indicator of the working capital
(stock, debtors, creditors) required
to support the sales that we make
Basis of calculation
Average net working capital £m
Total revenue £m
%
20171
108.7
786.3
20181
142.5
739.8
2019
137.9
689.4
13.8%
19.3%
20.0%
1 Revenue for the years ended 31 May 2017 and 31 May 2018 has been restated to reflect the application of IFRS 15. See Note 1 of the Consolidated Financial
Statements for details.
2 Results for the year ended 31 May 2018 have been restated to reflect prior year adjustments. See Note 1 of the Consolidated Financial Statements for details.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 NET DEBT £m
(143.8)
(165.4)
(152.2)
2017
2018
2019
Definition
Cash, short-term deposits and
current asset investments, less
bank overdrafts and borrowings
Why we measure
Indicator of the overall debt
position of the Company and
a way to evaluate the financial
fitness of the Group
Basis of calculation
Cash and short-term deposits
Overdrafts
Current asset investments
Borrowings
Net debt
2017
2018
2019
150.6
(34.5)
0.3
(260.2)
(143.8)
102.7
(16.5)
0.3
(251.9)
(165.4)
53.5
–
0.3
(206.0)
(152.2)
ADJUSTED BASIC EPS pence
16.42
13.39
13.01
2017
20182
2019
Definition
Adjusted earnings per share
Why we measure
A key indicator of value
enhancement to shareholders
Basis of calculation
Basic earnings per share
Impact of exceptional items
Adjusted basic earnings
per share
2017
14.91
1.51
20182
9.63
3.76
2019
6.24
6.77
16.42
13.39
13.01
DIVIDEND PER SHARE pence
8.28
8.28
8.28
Definition
Dividend per share
Why we measure
Dividend growth is a key
performance indicator in terms
of tangible return to shareholders
2017
2018
2019
ADJUSTED OPERATING MARGIN %
Basis of calculation
Dividend payment
to shareholder £m
Number of shares (millions)
2017
2018
2019
34.6
418
34.6
418
34.6
418
Dividend per share
8.28p
8.28p
8.28p
13.3
11.6
11.1
20171
20181,2
2019
Definition
Operating profit before
exceptional items, as a % of revenue
Why we measure
Indicator of the return on sales
prior to exceptional items, financing
and taxation costs
Basis of calculation
Operating profit (IFRS)
Exceptional items
Adjusted operating profit
Revenue
Adjusted operating margin %
20171
89.3
15.5
104.8
786.3
13.3%
20181,2
64.8
20.9
85.7
739.8
11.6%
2019
43.7
32.8
76.5
689.4
11.1%
1 Revenue for the years ended 31 May 2017 and 31 May 2018 has been restated to reflect the application of IFRS 15. See Note 1 of the Consolidated Financial
Statements for details.
2 Results for the year ended 31 May 2018 have been restated to reflect prior year adjustments. See Note 1 of the Consolidated Financial Statements for details.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION HOW WE MEASURE OUR PROGRESS
OPERATIONAL
PERSONAL CARE AND BEAUTY as % of revenue
53.4
56.8
58.5
20171
20181
2019
Definition
The revenues generated from
the Personal Care category
(including Beauty) as a % of
overall Group revenue
Why we measure
A key part of our strategy is
to increase our Personal Care
business including Beauty
AFRICA ADJUSTED OPERATING PROFIT £m
Basis of calculation
Personal Care revenue
(including Beauty) £m
Revenue for the Group £m
%
20171
£m
419.8
786.3
53.4%
20181
£m
420.1
739.8
2019
£m
403.5
689.4
56.8%
58.5%
28.3
2017
6.3
--
(1.0)
2019
20182
Definition
The adjusted operating profit
of Africa
Why we measure
A key focus of our strategy is to
recover our operating performance
in Africa
Basis of calculation
Africa operating profit
Impact of exceptional items
Adjusted Africa operating
profit
2017
16.0
12.3
28.3
20182
1.6
4.7
6.3
2019
(2.6)
1.6
(1.0)
ASIA PACIFIC REVENUE GROWTH at constant rates %
0.10
(1.2)
(1.8)
2017
2018
2019
Definition
Revenue growth of Asia Pacific
at constant currency
Why we measure
Asia Pacific represents a key
opportunity for growth in our
business in the future
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1 Revenue for the years ended 31 May 2017 and 31 May 2018 has been restated to reflect the application of IFRS 15. See Note 1 to the Consolidated Financial
Statements for details.
2 Results for the year ended 31 May 2018 have been restated to reflect prior year adjustments. See Note 1 of the Consolidated Financial Statements for details.
non_financial
HEALTH AND SAFETY LTIFR
0.29
0.26
0.13
2017
2018
2019
Definition
Lost Time Incident Frequency Rate
(LTIFR) is the number of health
& safety occurrences which result in
one or more days’ absence from work
(excluding the day of the incident) per
200,000 hours worked
Why we measure
To monitor the safety of our operations
CARBON EMISSIONS Total absolute tonnes of CO2
74,171
70,796
61,432
2017
2018
2019
Definition
Total absolute tonnes of CO2
Why we measure
To monitor the impact of our
operations on the environment
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION CREATING A DIALOGUE WITH OUR STAKEHOLDERS
Our approach to doing business is founded on
the principle of creating sustainable value for
all. We believe that PZ Cussons thrives when the
interests of different stakeholders are aligned so
that they all share in our success. It is therefore
important that we fully understand all stakeholders’
priorities, expectations and concerns.
PALM OIL
Our palm oil business in Nigeria exemplifies
the benefits of understanding and aligning
the interest of our stakeholders. Palm oil is a
staple of the Nigerian diet and our Mamador
and King’s brands provide consumers with
a safe, healthy and high-quality product
which was not previously widely available.
Our investment in a vertically integrated
business – a ‘plantation to plate’ approach
which includes palm oil plantations and
investment in smallholdings, a new refinery
and distribution channels – has supported the
Nigerian government’s focus on developing
agriculture in the country while also creating
new jobs and skilled workers and local
wealth. The regeneration of old plantations
has developed local sources of palm, without
any of the negative environmental issues
often associated with production in other
parts of the world. PZ Cussons’ and Wilmar’s
investment in local schools and infrastructure
is also improving the lives of local people.
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STAKEHOLDERS
HOW WE ENGAGE
CUSTOMERS AND
CONSUMERS
One of our key strengths is the ability to build close, long-term
relationships with our customer base. Many of these relationships
are built on loyalty and trust that derive from decades of trading
together – in both developed and emerging markets – and they operate
as genuinely collaborative partnerships. As we evolve new channels
to extend our reach, we continue to focus on forging and maintaining
strong links with customers – and building loyalty with the consumers
who buy our products.
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INVESTORS
EMPLOYEES
COMMUNITIES
PARTNERS
AND SUPPLIERS
The Chair meets privately with our largest shareholders on an annual
basis to discuss business performance and leadership succession.
The CEO and CFO (or interim CFO) deliver the Group’s interim and final
results in person, with presentations, Q&A sessions and roadshows for
our major shareholders. We also organise ad-hoc investor events and
an Annual General Meeting in September to provide an opportunity
for shareholders to meet the Directors and discuss the year’s results.
ONE PZC defines the essence of our business. We are one family,
working together with one purpose, towards one ambition.
Our compact size, flat structure and open culture foster genuinely
open communication between employees across the Company,
regardless of seniority or geography. We have worked hard to create
a supportive environment in which everyone’s ideas are valued equally.
We communicate to employees regularly through local ‘town hall’
meetings, global functional webcasts, and at functional and leadership
events. We also monitor employee engagement through various means.
Ever since the business was founded in the 1880s, we have recognised
the importance of developing good relations with local communities in
the vicinity of our operations. We are committed to making a positive
contribution to society and to minimising any negative impacts from
our operations, and we believe that investment in our communities
also helps create enthusiastic consumers and advocates for our
brands, as well as developing loyal employees. Wherever we operate,
we contribute to local community initiatives, from helping to build
schools or roads in some of our developing markets, to donating
products or mentoring and supporting local children to improve
their life chances.
We work with partners and suppliers whose values and ethical
standards align with our own – and who we know to be diligent,
responsible, honest and fair. We prefer to treat our supplier
relationships as long-term alliances, working in partnership to create
and sustain robust, lasting and mutually beneficial relationships. The
specialists in our Singapore-based central procurement function are
dedicated to sourcing the Group’s key materials; a key aspect of their
role is the maintenance of open, dynamic communication with our
supplier base.
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Big enough to make a mark,
small enough to make it yours.
“What sets us apart and
makes us unique is the way
we go about doing things:
the passion people have to
drive the business, the
ownership they take.”
ALEX KANELLIS
CEO
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 OUR PEOPLE
We are intensely proud of the
unique factors that give PZ Cussons
a competitive edge over its competitors.
Our brands make us special – but it’s
our people and our culture that make
us different.
We are smaller and more agile than our
multinational competitors. Our relative
size, flat structure and open culture
mean that our people at all levels of the
business are able to share their opinions
and have a real influence.
It’s essential that we operate and
think differently, to ensure we stay
relevant to consumers and ahead of
the competition. We encourage all
our employees to share their ideas,
speak their minds, challenge convention
and experiment.
We recently updated the language
we use to describe what makes us
different – both within the Group
and to attract new talent to the
organisation. ‘Big enough to make a
mark, small enough to make it yours’
or more concisely, ‘ONE PZC Make
Your Mark’ is the powerful banner
we use for our employee engagement
activities – but also translates externally
through our recruitment campaigns
and increasing digital presence. It sums
up the category-leading positions we
have in our markets – and the fact that
individual contributions at every level of
the business are recognised and valued.
Act
authentically
Focus
to win
Build
capability
How we
behave
Establish
connections
Challenge
convention
Deliver
fast and smart
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OUR VALUES AND BEHAVIOURS
CANDO! stands for Courage,
Accountability, Networking, Drive,
Oneness. These values are inspired by
our founders’ spirit and vision for the
Company and are integral to the way we
do business and deliver on our purpose
of ‘Enhancing everyday life, creating
moments of delight’. They are at the
very heart of PZ Cussons, epitomising
our culture and what makes us unique.
To help us thrive as a business and
in our individual roles, our CANDO!
values are realised by demonstrating
our behaviours.
We call them the ABCs of how we
behave; which at PZ Cussons is as
important as what is delivered.
Our behaviours dictate our ways
of working and operating and are
embedded in all of our people
processes, from recruitment to
succession, and from development
planning to performance management.
REWARDING CAREERS
We offer a wide range of exciting career
opportunities for ambitious, motivated
team players. Employees are rewarded
with competitive pay and benefits – and
various schemes enable line managers
to independently recognise and reward
a job well done.
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We pride ourselves on being a sought-
after employer. Over 30% of our
employees have over 15 years’ or
more service with the business and,
following four years of significant
change and challenging recruiting in
certain markets, our overall employee
retention is still greater than 90%.
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OUR PEOPLE
In the UK we operate competitive
apprenticeship schemes and internship
programmes. During the year we
provided eight internships in our UK
Beauty and Supply Chain operations;
the latter through a partnership
with Huddersfield University and
NOVUS, a non-profit organisation
who places students from leading
universities into logistics and supply
chain roles. We also developed
seven ILM (Institute of Leadership
& Management) apprentices.
In the second year of our graduate
training programme in Indonesia, 60%
of recruits were female. In Nigeria, we
identified a particular need to bolster
our succession and talent pipeline in
sales, recruiting over 30 graduates
who are now working as territory sales
managers, with a roughly equal split
between male and female graduates.
A key focus continues to be on
building the leadership mindset, skills
and capabilities needed to take the
Group forward. The PZ Cussons Way
of Leading is now in its fourth year
– and we recently widened its remit
by launching our Emerging Leaders
programme. This extension to the
established core global leadership
curriculum will help develop the
next generation of management
for the business.
We attach great importance to the
wellbeing of our employees and the
maintenance of a good work–life
balance. We launched a programme
called Benefits 2.0 in Indonesia that
gets employees involved in a variety
of fitness and wellbeing activities.
We often combine social activities
with giving back to others. ‘Enhancing
everyday life, creating moments of
delight’ for our local communities is
achieved through the countless
activities and events we drive through
our Inner Hearts programme worldwide.
In the UK we have rebranded Inner Hearts
to have a health and wellbeing focus.
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l~ hell
Co.mmunlcaUon !or LUe
MAKE YOUR MARK:
IN THE UK
On 19 May 2019, 40 employees and friends
from our Head Office and Agecroft sites in
Manchester ran the Great Manchester 10k
Run and Half Marathon in aid of the Seashell
Trust. The charity, which has a longstanding
relationship with PZ Cussons, provides a safe,
happy and secure environment for young
people with complex and severe learning
disabilities. The PZ ‘Cosmic Unicorns’ raised
almost £5,000 for this brilliant cause.
MAKE YOUR MARK:
IN ASIA PACIFIC
Traditional trade is the largest revenue
contributor for our business in Asia Pacific.
In order to grow this business, we have
considerably simplified our route to market
in this geography. A three-year initiative has
included reducing the complexity of direct
distribution to smaller supermarkets and
implementing a distributor management
system and sales force automation in
partnership with Accenture.
Our cross-functional team completed the
project on time and to budget. With a
smaller number of active distributors, leaner
sales structure and greater transparency
of data and analytics, we are better able
to manage our product portfolio and
establish more robust business plans with
our distributors. With its original objectives
achieved, the team is now focused on further
strengthening our sales management,
customer service and sales force capabilities.
MAKE YOUR MARK:
IN AUSTRALIA
We took our relationship with Foodbank
in Australia to the next level, becoming a
National Donor. This means we now treat
Foodbank – which supports people with
food insecurity – as a priority customer when
considering donation opportunities. As a
result, we have made a number of donations
of low-coded and obsolete stock. To cement
our National Donor partnership, a group
of PZ Cussons employees from Australia
undertook a volunteering session at the
Foodbank warehouse. They packed seven
tonnes of groceries, which was distributed
to the 470 charities supported by Foodbank.
The year ahead will see us increase our
support through further volunteering days
and stock donations.
CREATING A SUSTAINABLE
TALENT PIPELINE
We have robust processes for identifying
the right development for our talent
pool, and conduct regular development
and succession planning sessions
across the Group at all employee
levels. Progress towards developing
internal talent is monitored and we
review the plans and the metrics with
the Executive Leadership Team and
the Board Nomination Committee
annually. We have also defined critical
roles across the Group with a focus on
who currently holds the position as well
as their potential successors. These
actions are critical not just in terms of
business continuity, but also for creating
developmental stepping stones for
individuals to move up to the next level
within the organisation.
As a signatory to the 30% Club’s targets
to improve gender diversity in senior
leadership teams, we firmly believe that
gender balance is good for business.
Last year we nominated senior-level
female mentees to participate in the
30% Club’s cross company mentoring
programme, all of whom benefited
from the experience and perspectives
of mentors outside the Group.
FOCUSING ON GENDER
DIVERSITY
In July 2018, we created a Diversity
Statement for PZ Cussons in Nigeria. This
was followed by a female leaders’ round-
table discussion, which was the springboard
for a focus on gender diversity across the
business. A special edition of our CANDOERS
staff magazine celebrating PZ Cussons’
female colleagues was circulated to all
employees – and International Women’s
Day on 8 March was marked with an offsite
motivational event attended by 200 women
from across the business.
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FINANCIAL REVIEWBASIS OF PREPARATIONIn our financial statements we use alternative performance measures that are not recognised under IFRS. These metrics are used to allow the readers of the financial statements to obtain a more meaningful comparison of the underlying performance of the Group by adjusting for certain items which, if included, could distort the understanding of the Group’s performance and comparability between periods. The Directors believe that the adjusted presentation (and the columnar format adopted for the Group income statement) assists shareholders by providing a more meaningful basis upon which to analyse underlying business performance and make year-on-year comparisons. The same measures are used by management for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group. The adjusted presentation is adopted on a consistent basis for each of the half year and full year results.Adjusted results are presented before exceptional items, which in the current period include certain restructuring and strategy costs, net profits on the sale of assets and charges relating to impairment of assets. Where relevant, comparative IFRS measures have also been presented. Please see the reconciliation tables on pages 22 to 24 and 34.The reported results for the current year are presented with variances to reported prior year results and also as variances between the current and prior year on a constant currency basis. The constant currency impact was derived by retranslating the 2018 result using 2019 foreign currency exchange rates. The adverse translational impact on revenue and operating profit was £32.2m and £1.0m respectively. As there were no acquisitions or disposals in the current or prior period, the like-for-like impact is equal to the constant currency impact.GROUP HIGHLIGHTS • Moderate decline in revenue of 2.6% at constant currency – driven by weak economic conditions in Africa, partially offset by a solid performance in Asia Pacific and Europe & the Americas. • Adjusted operating profit of £76.5m, 9.7% lower in constant currency – strong performance in Asia Pacific and a solid result in Europe & the Americas, offset by losses in Africa.• Adjusted profit before tax of £69.8m, in line with expectations announced at the half year.• Reported profit before tax declined to £37.0m, largely driven by the non-cash impairment of intangible assets. This impairment is for five:am in Australia and Nutricima in Nigeria.• Improvement in net debt, following a stronger focus on cash management throughout the business – reduction to £152.2m.• New strategy – to deliver increased focus and scale, accelerating the Group’s return to profitable growth.• Reflecting good cash generation and confidence in the new strategy, proposed full year dividend maintained in line with prior year at 8.28p per share.FINANCIAL SHARED SERVICES: SPREADING BEST PRACTICEThe Group has created three regional finance hubs in Manchester, Jakarta and Lagos. This consolidation of back office and transactional services has enabled multiple processes to be standardised – including accounts payable, supplier invoice processing and VAT compliance. Together with the recent SAP implementation, the standardisation has enhanced efficiency and strengthened our internal control framework. Oversight of the new hubs by both regional and central management has helped to drive process and control improvements – and has encouraged the spread of best practice across the Group.32- EUROPE & THE AMERICAS HIGHLIGHTS• Solid adjusted operating profit performance with a constant currency decline of 6.2% to £57.1m. This reflects a strong result in Beauty, offset by lower profit in the UK as a result of planned increased marketing investment. • Revenue adversely impacted by weaker performance in Food & Nutrition in Greece.• Solid revenue and market share performance in Personal Care in the UK across all brands. • Strong revenue and operating profit growth in Beauty largely driven by excellent growth in the US through successful St. Tropez rollout.ASIA PACIFIC HIGHLIGHTS• Strong growth in adjusted operating profit, up 13.7% at constant currency to £20.4m driven by Indonesia and Australia, partially offset by impact of lower revenue in the Middle East.• Good growth in revenue and operating profit in Indonesia, with strong performance of Cussons Baby.• Pleasing operating profit recovery in Australia, largely driven by focus on improving margins across all categories.• Non-cash impairment of £22.3m relating to five:am intangible assets. This has been recognised as an exceptional cost. AFRICA HIGHLIGHTS • Disappointing result with adjusted operating loss for the year of £1.0m. Reflects lower revenue, primarily in Personal and Home Care categories, and increased operating costs predominantly relating to previously highlighted charges associated with port access issues in Lagos.• Good revenue growth in premium brands of Cussons Baby and Morning Fresh in Personal and Home Care categories, offset by decline in value brands due to weak economic conditions.• Strong revenue and profit growth in Electricals in Nigeria, mainly due to increased sales of energy-saving products and related consumer campaigns. • Improvement in Food & Nutrition, with Nutricima loss significantly reduced.• Non-cash impairment of £3.9m relating to Nutricima intangible assets. This has been recognised as an exceptional cost.OUTLOOKWe anticipate that the current economic conditions in our key markets will remain challenging whilst we transition towards a return to revenue growth. Our new strategy increases resources and investment behind key categories and brands in those geographies that have scale to drive a sustainable improvement in Group performance.REGIONAL RESULTSThe moderate decline in Group revenue of 2.6% at constant currency was largely driven by the Personal Care and Home Care categories in Nigeria and the Food & Nutrition category in Europe & the Americas. This was due to economic volatility leading to the value brands being squeezed reflecting lower consumer confidence, price reductions and down-trading.In our key markets of the UK, Indonesia and the US, and across Personal Care and Beauty, revenues grew year on year with a solid performance by core brands and successful innovations launched in the year.Adjusted operating profit at £76.5m declined by 9.7% in constant currency, with a strong performance in Asia Pacific and a solid result in Europe & the Americas impacted by poor results in Africa. ADJUSTED1 RESULTSYear ended 31 May 2019(Restated)* Year ended 31 May 2018Reported % changeConstant currency % change3Like-for-like % change4Revenue2£689.4m£739.8m(6.8%)(2.6%)(2.6%)Adjusted operating profit£76.5m£85.7m(10.7%)(9.7%)(9.7%)Adjusted profit before tax£69.8m£80.1m(12.9%)(11.8%)(11.8%)Adjusted basic earnings per share13.01p13.39p(2.8%)Net debt5(£152.2m)(£165.4m)REPORTED RESULTS (IFRS) Year ended 31 (cid:48)ay (cid:21)(cid:19)1(cid:28)(Restated)*Year ended 31 May 2018Reported % changeRevenue2£689.4m£739.8m(6.8%)Operating profit£43.7m£64.8m(32.6%)Profit before tax£37.0m£59.2m(37.5%)Basic earnings per share6.24p9.63p(35.2%)Total dividend per share8.28p8.28p(cid:13) The results for the year ended 31 May 2018 have been restated to reflect the application of IFRS 15 and prior year adjustments. Further details are set out in Note 1 of the Consolidated Financial Statements.1 Adjusted results are stated before exceptional items. Exceptional items before tax (2019: costs £32.8m; 2018 restated: costs £20.9m) are detailed in Note 3 of the Consolidated Financial Statements.2 As required by IFRS 15, revenue has been stated excluding PZ Wilmar joint venture revenue of £124.2m (2018: £141.6m). 3 Constant currency comparison (2018 results retranslated at 2019 exchange rates).4 Like-for-like comparison after adjusting 2018 for constant currency. There were no acquisitions or disposals in the current or prior year. 5 Net debt above and hereafter is defined as cash, short-term deposits and current asset investments, less bank overdrafts and borrowings (as set out in Note 17 of the Consolidated Financial Statements). Please see the reconciliation tables on pages 22 to 24.33PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION FINANCIAL REVIEW
In Asia Pacific, strong operating profit
growth in Australia reflected a decline
in revenue offset by a focus on cost
management, with Indonesia growing
both revenue and operating profit.
Adjusted operating profit for Europe
& the Americas declined as a result of
planned increased marketing investment
in the UK offsetting the strong revenue
and operating profit performance in the
Beauty business unit.
Africa recognised an adjusted operating
loss and was impacted by lower revenues
in the Personal Care and Home Care
categories in Nigeria, with continued,
albeit reduced, losses in Nutricima as well
as increased costs including additional
expense due to the issues at the Lagos
port. This obscured a good performance
by the Electricals category, which grew
both revenue and profit.
FINANCIAL REVIEW
Improving operating margin is a key
objective under the Group’s new strategy.
Group adjusted operating margin was
11.1% (2018: 11.6%) on adjusted operating
profit of £76.5m (2018: £85.7m) from
revenue of £689.4m (2018 restated:
£739.8m). In Africa adjusted operating
margin declined to -1.4% (2018: 1.8%)
due to increased costs including the
impact of the port charges. Adjusted
operating margin in Asia Pacific grew to
10.6% (2018: 9.2%), an increase of 140
basis points, largely due to an improved
product mix and category focus. In Europe
& the Americas adjusted operating margin
declined slightly to 21.6% (2018: 23.0%),
due to planned increased marketing
investment in the UK.
Net finance costs of £6.7m (2018: £5.6m)
were higher than last year reflecting
the one-off impact associated with the
refinancing of the Group’s banking facility.
The new facility is provided by a syndicate
of lenders in the form of a £325m
Revolving Credit Facility committed
until 28 November 2023.
Adjusted profit before tax at £69.8m
(2018 £80.1m) reflects lower revenue
and reduced margin, planned increased
marketing expenditure and increased
interest charges compared to last year.
The effective tax rate before exceptional
items was 22.6% (2018: 27.6%). This
reflects a lower mix of profits in the
higher rate jurisdiction of Africa and
higher profits in the lower rate Europe &
the Americas and Asia Pacific. See Note 3
of the Consolidated Financial Statements
for further detail.
BUSINESS REVIEW: GROUP PERFORMANCE
Revenue1 (£m)
Europe & the Americas
Asia Pacific
Africa
Adjusted operating profit4 (£m)
Europe & the Americas
Asia Pacific
Africa
(Restated)*
2018
Reported %
change
Constant
currency %
change2
Like-for-like
% change3
264.4
201.3
274.1
739.8
(0.2%)
(4.1%)
(15.2%)
(6.8%)
(0.1%)
(1.2%)
(6.4%)
(2.6%)
(0.1%)
(1.2%)
(6.4%)
(2.6%)
Reported %
change
Constant
currency %
change2
Like-for-like
% change3
(6.1%)
9.7%
(115.9%)
(6.2%)
13.7%
(117.7%)
(6.2%)
13.7%
(117.7%)
(10.7%)
(9.7%)
(9.7%)
2018
60.8
18.6
6.3
85.7
2019
264.0
193.0
232.4
689.4
2019
57.1
20.4
(1.0)
76.5
* The results for the year ended 31 May 2018 have been restated to reflect the application of IFRS 15 and
prior year adjustments. Further details are set out in Note 1 of the Consolidated Financial Statements.
1 As required by IFRS 15, revenue has been stated excluding PZ Wilmar joint venture revenue
of £124.2m (2018: £141.6m).
2 Constant currency comparison (2018 results retranslated at 2019 exchange rates).
3 Like-for-like comparison after adjusting 2018 for constant currency. There were no acquisitions or
disposals in the current or prior year.
4 Adjusted operating profit is stated before exceptional items. Exceptional items before tax (2019: costs
£32.8m; 2018 restated: costs £20.9m) relate to various items which are detailed in Note 3 of the
Consolidated Financial Statements. The segmental impact of exceptional items before tax is detailed
in Note 2 of the Consolidated Financial Statements.
MEMO TABLES ON ALTERNATIVE PERFORMANCE MEASURES
CONSTANT CURRENCY IMPACTS
2019
reported
£m
2018
reported
£m
689.4
76.5
69.8
739.8
85.7
80.1
Impact of
currency
translation
£m
(32.2)
(1.0)
(1.0)
2018
restated
for
constant
currency
£m
707.6
84.7
79.1
Constant
currency
movement
(2.6%)
(9.7%)
(11.8%)
Revenue
Operating profit
Profit before tax
ADJUSTED RESULTS TO IFRS RESULTS
Adjusted operating profit
Exceptional items
Operating profit (IFRS)
Adjusted profit before tax
Exceptional items
Profit before tax (IFRS)
Adjusted basic earnings per share
Exceptional items
Basic earnings per share
2019
£m
76.5
(32.8)
43.7
2019
£m
69.8
(32.8)
37.0
2019
p
13.01
(6.77)
6.24
2018
£m
85.7
(20.9)
64.8
2018
£m
80.1
(20.9)
59.2
Reported
change %
(10.7%)
(32.6%)
Reported
change %
(12.9%)
(37.5%)
2018
p
Reported
change %
13.39
(3.76)
9.65
(2.8%)
(35.2%)
34
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 Adjusted earnings per share of 13.01p (2018: 13.39p) declined by 2.8%, reflecting operating results, a lower tax rate and reduced minority interest due to Nigeria results.Exceptional items of £32.8m (2018 restated: £20.9m) reflect the impairment of Food & Nutrition assets in Nigeria and Australia as well as the continuation of costs associated with the Group Structure and Systems project, partially offset by the profit on the sale of a non-strategic investment. In addition, during the year the Group incurred costs relating to the Group Strategy project. See Note 3 for further details on exceptional items and Note 1 for further details on restatement of prior year comparatives.On an IFRS basis, reported profit before tax was £37.0m (2018 restated: £59.2m) with reported earnings per share of 6.24p (2018 restated: 9.63p) declining by 35.2%, largely driven by the impact of exceptional items.Net debt at £152.2m (2018: £165.4m) reduced due to increased focus across the business on working capital and capital expenditure. Our balance sheet remains strong with a gearing ratio of 1.5 as at 31 May 2019 (2018: 1.5) and net assets of £451.6m as at 31 May 2019 (2018 restated: £463.9m).The Group’s three UK pension schemes have an aggregate pension accounting surplus under IAS 19 of £36.3m (2018: £33.3m). Two of the three schemes are fully funded. As previously disclosed, the remaining scheme is currently expected to require deficit funding payments of c.£6.0m per annum until 31 May 2022, by which point it is expected to be fully funded.The UK remains a significant market for the Group and the impact of the planned exit of the UK from the EU remains a risk, particularly in terms of consumer confidence. Throughout the year multifunctional teams supported by external advisors have been focused across all functions reviewing our consumer plans, supply chain activities and other business areas to ensure we will be able to operate in the event of either an agreed or a ‘no deal’ exit.We anticipate that current economic conditions in our key markets will remain challenging. The key focus this year will be the implementation of our new strategy, and 2019/20 will be an important transitional year.Alan BerginInterim Chief Financial Officer35PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATIONI BUSINESS REVIEW: REGIONAL PERFORMANCE
EUROPE I3 THE
AMERICAS
All growth percentages
are stated in constant
currency and operating
profit is stated and
discussed on an
ad(cid:77)usted basis, unless
otherwise noted.
i< NCTUIII\Y
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Revenue at £264.0m (2018 restated:
£264.4m) was in line with prior year,
with operating profit of £57.1m
(2018: £60.8m) declining by 6.2%.
Revenue grew in our Beauty
business due to strong new product
development and joint customer
programmes. This was offset by a
decline in our Greece food business
and to a lesser extent the impact of (cid:52)3
trading conditions in UK Personal Care,
reducing the growth reported at the
half year.
Operating profit declined by
6.2%. A strong result in our Beauty
business unit, driven by an excellent
performance in the US, was offset
by planned increased marketing
investment in the UK behind our
key Personal Care brands.
In UK Personal Care we maintained
our leadership of the hand wash
segment with Carex accounting for
over 36% market share. We remain
a leading player in shower with nearly
20% market share represented by
our Original Source and Imperial
Leather brands. We maintained
strong positions in both the bar
soap and bath segments.
This year we planned and achieved
strong growth in Original Source on
the back of the introduction of a new
bottle (which significantly reduced the
amount of plastic in the packaging)
together with new products such
as Original Source Water Infusions.
Imperial Leather revenue grew in a
very competitive segment, with a
strong performance by our premium
Foamburst product supported by our
partnership with Skinnydip, and trend-
led innovation with Mermaid and the
Funky Prints editions. The Carex brand
remained strong, receiving excellent
support through the successful Merlin
Entertainments consumer campaign,
and the launch of new products in (cid:52)4.
Our Beauty business unit delivered
a strong performance with revenue
and operating profit significantly
up. This was due to a strong core
performance, the success of new
products, significant focus on
e-commerce and wider distribution.
St. Tropez, our premium self-tan
brand, remains the market leader
in the UK and continued to deliver
excellent growth in the US. The increase
in St. Tropez revenue was driven by our
new product development of Purity
bronzing waters, which received an
excellent consumer response. Our
Sanctuary brand returned to growth
supported by wider distribution,
including new online channels and
product developments such as the
skin restage and sleep range.
In Greece, revenue was impacted by a
reduction in prices for edible oils but
operating profit remained solid. Poland
posted good results with operating
profit ahead of prior year.
On an IFRS basis, reported operating
profit was £49.6m (2018: £48.2m)
with the strengthening of currency
driving an improved performance
compared to adjusted operating
profit at constant currency.
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ORIGINAL SOURCE:
A BRAND NEW LOOK
We relaunched Original Source in
June 2018 with a new identity in
a new bottle. A new TV campaign
brought the brand to life with a
compelling message of ‘Pack More
In’, with a reach of over 27 million
views. The new-look Original Source
has been well received by customers
and consumers alike. It was the fourth
biggest growing brand in the total
toiletries market in 2018/191 – and
was the fastest growing of the top
ten shower brands at the year-end.2
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ST. TROPEZ – INNOVATION
Leading innovation and investment
in consumer acquisition helped
to double consumer numbers
for St Tropez – and our new Purity
range has attracted new ‘skincare’
consumers to the category.
Our Purity Bronzing Water Gel
uses a lightweight gel-to-water
technology that is non-sticky and
fast-acting, and maintains the tan for
longer. Alongside the Purity Bronzing
Face Mist and Purity Bronzing Water
Mousse this winning innovation
creates the perfect sunless tan.
SANCTUARY SPA:
SPREADING THE LOVE
With the highest loyalty and repeat
purchase rates in its category,
Sanctuary Spa is one the UK’s most
loved body care brands. Leveraging
our strength in body moisturisation,
we extended the distribution in
the UK during the year. We are
now building on this momentum
by introducing the Wet Skin
Moisture range to consumers in
new geographies.
Sources:
1 Kantar Worldpanel and Nielsen Toiletries Review June 2019
2 Kantar World Panel Online 52 weeks to 19 May 2019
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BUSINESS REVIEW: REGIONAL PERFORMANCE
MORNING FRESH: EXTENDING
MARKET LEADERSHIP
Morning Fresh is Australia’s
leading manual dishwashing brand.
It increased market share for the
fourth consecutive year, and now
commands a 42% value share. Last
year we launched Morning Fresh
Soft Hands, designed to leave dishes
sparkling and hands feeling soft.
Morning Fresh is recognised as
Australia’s most trusted dishwashing
liquid, winning a suite of consumer-
voted awards including Reader’s
Digest Most Trusted Brand. Our focus
on outstanding in-store execution has
also been a key catalyst for growth.
PURITY THAT PROTECTS:
OUR NEWBORN RANGE
Designed especially for the very
youngest babies in Indonesia, our
newborn range was launched during
the year. Made with organic olive
oil and natural chamomile – and
containing zero soap or colourants –
the hypoallergenic pH-balanced
range comprises a hair and body
wash, lotion and cream to cleanse and
protect the most delicate skins. A TV
campaign, point-of-sale marketing
and digital activity accompanied the
launch. Free product samples were
provided to 12,000 new mothers in
40 hospitals to introduce new parents
to the brand.
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ASIA pacific
All growth percentages
are stated in constant
currency and operating
profit is stated and
discussed on an
ad(cid:77)usted basis, unless
otherwise noted.
-
The performance of our export
business was adversely impacted
by tougher trading conditions in the
Middle East. In contrast, we developed
a stronger platform for Rafferty’s
Garden in China and selected other
Asia Pacific countries.
On an IFRS basis, the reported
operating loss was £3.3m (2018
restated: reported operating profit
of £15.0m), due predominantly to the
non-cash impairment of the five:am
Australian brand. See Note 3 of the
Consolidated Financial Statements
for further details.
Revenue at £193.0m (2018 restated:
£201.3m) was 1.2% down with
operating profit significantly ahead of
prior year, growing 13.7% at £20.4m
(2018: £18.6m).
Revenue grew modestly in a
competitive market in Indonesia.
This growth was offset by a small
decline in Australia, mainly due to the
consequences of increasing pricing in
our Home Care category, and increased
competition in our trading business,
primarily in the Middle East.
Operating profit in Indonesia grew due
to the performance of Cussons Baby.
The brand maintained its leadership
position in baby care, with market
share of over 30%. This reflected good
performance from the core products
and new product launches such as
Cussons Baby Happy Fresh and the
Cussons Baby Newborn range. Cussons
Kids continued to be a strong player.
In Australia operating profit also grew
due to an improved focus on mix
and cost base, despite a reduction in
revenue. Morning Fresh continued to
lead the dishcare market with over
40% market share. Rafferty’s Garden
maintained its number one position in
the baby food market with over 30%
market share. We saw some good
progress with St. Tropez, and five:am
delivered a strong brand awareness
campaign, where implementation of
our new Simply range helped to deliver
revenue in line with the previous year.
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BUSINESS REVIEW: REGIONAL PERFORMANCE
Africa
All growth percentages
are stated in constant
currency and operating
profit is stated and
discussed on an
ad(cid:77)usted basis, unless
otherwise noted.
Revenue at £232.4m (2018 restated:
£274.1m) was 6.4% below prior year.
This led to an adjusted operating loss
with results disappointingly down on
prior year.
Revenue in Nigeria was impacted by
adverse economic conditions leading
to contraction in the market, down-
trading and increased price competition
as well as delays in supply of raw
materials due to additional port charges
in Lagos, as discussed at the half year.
As a result, revenue declined in
Home Care, Personal Care and Food
& Nutrition categories. Revenue grew
strongly in our Electricals category,
mainly due to increased sales of our
energy-saving products and well
received consumer campaigns.
Our Nigeria Home Care and Personal
Care categories delivered losses this
year due to revenue reduction and
increased costs driven by external
factors. Nutricima also made a loss,
albeit significantly reduced compared to
the prior year. These losses masked the
solid results in our Electricals business,
which delivered a good operating profit
result despite the impact of additional
Lagos port charges.
Our market shares remain strong
in Personal Care but increased
competition and new entrants
impacted our Home Care brands
at the value end.
In Personal Care, our Premier brand
was impacted at the value end but the
more premium Premier Cool delivered
a resilient performance. Cussons Baby
grew revenue as a result of the success
of our gift packs, as well as our baby oil
and wipes products. The relaunch of
Morning Fresh delivered strong revenue
growth, despite the significant overall
decline of the Home Care category due
to increased competition.
Kenya revenue was slightly below
the prior year, while operating profit
grew as a result of improved margins.
Ghana revenue declined, but operating
profit was ahead of prior year despite
a transactional impact associated with
the devaluation of Ghanaian Cedi in the
latter half of the year.
Our investment in PZ Wilmar, which is
equity accounted for, delivered a very
solid revenue performance despite
difficult economic conditions and
continued palm oil supply constraints.
Operating profit improved versus
prior year due to improved margins
and lower interest payments. In the
last quarter we launched our Kings
and Mamador margarine products,
following completion of our new
manufacturing facility.
On an IFRS basis, the reported
operating loss was £2.6m (2018:
reported operating profit of £1.6m)
reflecting the impact of the non-cash
impairment of the Nutricima Nigerian
brand. See Note 3 of the Consolidated
Financial Statements for further details.
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CUSTOMER SERVICE
EXCELLENCE: COOLWORLD
We have a direct interface with
consumers through our CoolWorld
electrical retail stores. CoolWorld
is West Africa’s leading electrical
retailer, and the principal retailer
of our Thermocool brand. With
outstanding customer service,
product expertise, flexible payment
options, and leading warranty
and unrivalled after sales support,
Coolworld provides a world-class
buying experience, whether in-store
or online.
MAMADOR – DELIVERING
HEALTH BENEFITS
We believe in creating products that
not only taste great, but provide health
benefits as well. Our Mamador pure
vegetable oil is triple-filtered to ensure
removal of all impurities and contains
Omega 6 and 9 – proven to keep
hearts healthy – as well as vitamins A
and E. Made from a blend of carefully
selected herbs and spices, Mamador
seasoning cubes are available in Classic,
Beef and Chicken variants.
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SUPPLY CHAIN
Our business is supported by flexible, customer-
oriented supply chain operations. These include our
research and development operations, procurement
processes, modern manufacturing facilities and
efficient distribution networks.
OUR TWO GLOBAL FUNCTIONS
Global
Procurement
Based in Singapore
Global
Technical
Oversees:
R&D
PACKAGING
REGULATORY AND
QUALITY ASSURANCE
IN OUR FACTORIES
OUR THREE REGIONAL SUPPLY CHAINS
ASIA
PACIFIC
AFRICA
EUROPE I3 THE
AMERICAS
Focus on:
DELIVERY LOGISTICS
AND PLANNING
supported by: GROUP ENABLING FUNCTIONS
We have two global functions: Global
Procurement, based in Singapore, and
Global Technical, which oversees R&D,
packaging, and regulatory and quality
assurance. Our three regional supply
chain hubs focus on delivery, logistics
and planning.
TECHNICAL
As well as assuring quality and
regulatory compliance, our Technical
function is a key engine in delivering
impactful innovation. We have built
R&D and packaging capability and
strong external partnerships to
ensure competitiveness in our selected
consumer and technology platforms.
Through close partnering with our
Category and Brand function, and
by focusing on consumer-insight-led
projects we direct our capability to
deliver great innovation.
PROCUREMENT
Our global Procurement function
is headquartered in Singapore. We
place considerable emphasis on
close collaboration with suppliers
– and apply rigour to the tendering
process, which will help us deliver cost
leadership. By applying critical selection
criteria when identifying potential
suppliers, we are able to mitigate risk,
maximise opportunities and enhance
value creation. With formal planning
processes and key performance
indicators in place, we are poised
to realise significant savings in the
year ahead.
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FOCUS TO WIN
With a target of a 3% year-on-year reduction
in energy, water and waste across the Group,
we created a strategy to achieve this. We
engaged key stakeholders – from Board
Directors and the Executive Leadership Team
to supply chain leaders and factory teams.
We developed a measuring tool, which
was rolled out to all the Company’s sites
and delivered the improvements through
the factory continuous improvement
programme. This collective ownership of the
change process is now delivering tangible
progress against our Good4Business agenda.
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GETTING MORE FROM
FOAMBURST
In the past year, the R&D team commissioned
a technology project to explore how we
could get more from our unique foaming
shower technology – Foamburst. This
18-month project resulted in a complete
redevelopment of this technology, simplifying
the formulation and process, opening up
new formulation options and driving up
profitability. The technical approach was so
revolutionary that it enabled us to register
three new global patents.
R&D then worked with brand managers in
the Beauty and Personal Care category brand
teams to develop plans for expanding this
superior technology into new product areas
that the old formulation technology simply
wasn’t capable of supporting.
As a result we have been able to expand
our footprint in the premium foaming
shower category through a series of product
launches, such as the Sanctuary Spa 3 Day
Long Lasting Moisture Shower Burst, the
Original Source range in Germany, the new
Original Source Foaming Shower in the UK
market, and the refreshed core Imperial
Leather range including the new Imperial
Leather Foamburst Oils range launched in
June 2019.
By the end of 2018, this market had grown
by 38% over the prior year with our superior
technology delivering the number one and
two brands (Imperial Leather and Original
Source) with a 74% share between them.
MANUFACTURING
We make our products close to the
markets in which we sell them. They
are sourced through a combination of
our own manufacturing facilities and
carefully selected external providers.
Our use of third parties to develop
and manufacture specific products has
increased, bringing us greater flexibility
of production output and enabling us
to maximise efficiencies.
We have three manufacturing facilities
in Nigeria, one in Kenya, two in Asia,
one in Australia, and one in the UK,
each specialising in a different type
of manufacturing.
We operate an ongoing programme
to ensure our own manufacturing
facilities are run as efficiently as
possible, and that margins are
maximised and environmental
targets met. Thanks to aggressive cost
reduction initiatives, our factory costs
and supply chain overheads continued
their downward trend.
DISTRIBUTION
We optimise our regional distribution
activities wherever possible to
maximise cost-effectiveness and reduce
our environmental impact. In Europe
& the Americas and some parts of Asia
Pacific, our products reach consumers
mainly through supermarkets and other
retailers using third-party logistics
providers. In emerging markets, local
knowledge is essential to navigate the
multiple challenges that inevitably arise
in these regions. Hence in both Africa
and Indonesia our logistics model is
tailored to these specific markets.
With few supermarket chains, Nigerian
consumers usually obtain our products
from small stores, individual traders
and ‘wet’ markets. In Nigeria we have
concentrated our efforts on improving
distribution efficiency and reducing
costs; as a result, we have simplified
our operations and significantly scaled
down our depot network. We now sell
to fewer, larger distributors who ship
our products to their point of sale with
the rest of their portfolios.
LOOKING FORWARD
As markets and consumer needs evolve,
we will continue to adapt our supply
chain operations across all categories
and regions to add value and enhance
our competitiveness. Our renewed
focus on cost containment, innovation
and improved service will help to ensure
we remain flexible, fit for purpose and
fully aligned with the Group’s new
growth strategy.
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PRINCIPAL RISKS AND UNCERTAINTIES
INSIGHT FOR EFFECTIVE RISK MANAGEMENT
VIABILITY STATEMENT
PZ Cussons has over 130 years of trading history, with
a longstanding tradition of sustainable growth in our key
regions of Europe & the Americas, Africa and Asia Pacific.
Our in-depth local understanding, strong brand position
and robust infrastructure within these markets, allied
to a strong Group balance sheet, enable us to withstand
short- to medium-term political and financial instabilities
that may adversely impact the Group.
The Directors have assessed the prospects of the Group
over a period of three years from the balance sheet date.
A three year period is considered appropriate for this
assessment because this period is covered by the Group’s
strategic financial planning cycle and it enables a high level
of confidence in assessing viability, even in the extreme
scenarios described below.
Assessment
The business model and strategy as set out on pages 12 and
13 and pages 14 to 21 are central to an understanding of
the Group’s prospects and provide the framework for the
strategic plan, which is reviewed and approved annually by
the Board, including detailed trading and cash flow forecasts
covering that period.
In order to report on the viability of the Group, the Directors:
• considered the Group’s revenue/profit projections, cash
generation and financing position (including headroom
and covenants on existing facilities); and
carried out a robust assessment of the principal risks and
uncertainties facing the Group, including those that would
threaten its business model, future performance, solvency
and liquidity.
•
The viability assessment has two parts:
1. The Directors considered the period over which they have
a reasonable expectation that the Group will continue to
operate and meet its liabilities as they fall due; and
2. The Directors considered the potential impact of severe
but plausible scenarios over this period. Alternative
forecasts have been prepared that take account of the
Group’s principal risks and uncertainties and the impact
they could have, both individually and taken in aggregate,
on the Group’s performance.
Of these, the most severe but plausible scenarios
(or combinations thereof) reviewed were as follows:
Scenario
A continued economic downturn
in Nigeria leading to sustained
losses from this market,
combined with an increase in
funding costs
A material reduction in
profitability in our main markets
of UK (including Beauty),
Indonesia and Australia
A reduction in profit due to a
one-off charge received from a
regulatory body
(cid:47)ink to principal risk(cid:11)s(cid:12)
Consumer, Customer and
Economic Trends
Treasury and Tax
Consumer, Customer and
Economic Trends
IT and Information Security
Treasury and Tax
Legal and Regulatory
Compliance
As set out within the Group’s risk profile on pages 46 to 49,
the Group has considered the risks in the context of the
UK’s proposed exit from the EU. Given the limited impact
expected on the business, this has not been modelled as a
specific scenario for viability but rather considered as part
of an overall risk on consumer confidence impacting UK
profitability in the second scenario.
Findings
The alternative scenarios assumed reductions in revenue,
margin, net profit and cash flow over the three year period.
The scenarios modelled accounted for mitigating actions
that the Group could take, such as a reduction in capital
expenditure, reduction in overhead spend, reduction in the
dividend and increase in financing facilities. In all cases the
Group remained viable.
Conclusion
Based on their assessment of prospects and viability, the
Directors confirm that they have a reasonable expectation
that the Group will be able to continue in operation and meet
its liabilities as they fall due over the three year period ending
31 May 2022.
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Our approach to risk management
The Group continues to use the
enhanced risk management process and
strengthened common risk framework
which were introduced last year to
ensure we capture and mitigate risks
as our new strategy is deployed. The risk
management process covers initial risk
identification, including emerging risks
(as detailed below), and assessment of
the gravity of the risk and the extent to
which it can be reduced, and planning
for and implementing effective
risk mitigation activities. We have
developed a well-defined and well-
understood timetable which ensures
we routinely monitor and report the
Group risk profile to the Board, which
has ultimate responsibility for ensuring
effective risk management across the
business. The Board has considered and
approved the risk management policy
and the risk appetite for the Group; a
review of risk appetite is currently in
progress, to ensure that it fully reflects
the new strategy for the Group. The
Board periodically reviews the top risks
identified in the risk register and has
delegated the ongoing review of risk
management effectiveness to the Audit
& Risk Committee (see pages 78 to 83
for further information).
The Audit & Risk Committee assesses
and reviews the effectiveness of the
Group’s risk management framework
by routinely receiving from the
Executive Leadership Team analysis and
assessment of the principal risks facing
the Group, to ensure, where possible,
that appropriate action is being taken
to manage and mitigate those risks.
This includes periodic presentations
from those within the business who
are responsible for ‘first line’ activities.
The Group operates both top-down and
bottom-up approaches to ensure that
significant strategic and operational risks
are identified. The Executive Leadership
Team performs an assessment of all
principal risks facing the Group including
consideration of any internal or external
risk trends which may give rise to new or
emerging risks. In addition, ‘deep dive’
reviews of specific principal risks are
performed to ensure that the controls
are adequately resourced and are
effective to maintain exposure within
the defined risk appetite parameters.
Each principal risk is owned by an
Executive Leadership Team member.
The process and timetable are
replicated at regional business level and
the regional teams report the outcome
of their risk management process to
the Executive Leadership Team. In this
way, the Executive Leadership Team can
satisfy itself that risks are being properly
managed; the process also ensures that
risks which may have a potential Group-
wide impact or dimension are captured
and that best practice in respect of
risk mitigation is shared across the
business. Again, at a regional level each
risk which is identified is owned by a
designated senior member of local
management who has responsibility
for mitigating actions.
The Group Internal Audit function
provides independent assurance to
both the Executive Leadership Team
and the Audit & Risk Committee on
the effectiveness of the Group’s risk
management framework and as to
whether sound internal control systems
operate to mitigate these risks.
Our Group risk management processes
are designed to manage rather than
eliminate the risk of failure to achieve
our strategic objectives, and can provide
only reasonable not absolute assurance
against material misstatement or loss.
OUR RISK MANAGEMENT PROCESS
I d entify
ort
nitor
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P l a n
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Identifying and assessing risk
and implementing effective
risk mitigation activities are
essential elements of ensuring
that we are able to deliver
on our strategy.
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PRINCIPAL RISKS AND UNCERTAINTIES
OUR RISK MANAGEMENT FRAMEWORK
Board of Directors
Defines policy, sets risk appetite and assesses principal risks for the Group. Has overall responsibility
for sound risk management and internal controls.
Audit & Risk Committee
Assesses and reviews the effectiveness of the Group’s risk management framework and internal
control systems.
Executive Leadership Team
Ensures that the risk management framework is embedded and operates throughout the Group.
Regularly reviews the regional and consolidated risk registers and ensures that mitigation activities
are in place.
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Regional and Business
Unit Management
Ensures that the risk management framework is embedded at a regional and local level.
Regularly reviews the risk register and ensures that mitigation activities are in place.
OUR RISK PROFILE
Our assessment of our current gross risk profile (i.e. before we take any mitigating actions) is presented below:
RISK HEAT MAP
Principal risk
Change in risk
assessment in year
1 Consumer, customer and economic trends
2 IT and information security
3 Sustainability and environment
4 Legal and regulatory compliance
5 Talent retention
6 Business transformation
7 Consumer safety
8 Supply chain and logistics
9 Treasury and tax
)
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3
8
7
4
Likelihood (Gross)
Key
Change in risk assessment in year
Unchanged
Increased
Reduced
46
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019
• Legal and regulatory compliance:
as part of our routine refresh of
our Anti-Bribery and Corruption
risk assessments as required under
the UK Bribery Act, we engaged
our internal audit co-source
assurance partner to review our
control framework and identify any
further actions which could be taken
to mitigate related risks. Whilst this
will assist us to continue to reduce
the ‘net’ risk to the Group, increasing
regulatory activity means that the
gross risk (i.e. before undertaking
mitigating actions) has increased
slightly year on year.
CHANGES TO OUR GROSS
RISK PROFILE
On a continuing basis, we assess,
on a gross basis (i.e. before we take
any mitigating actions), whether the
principal risks facing the Group are
‘increasing’, showing ‘no change’ or
‘decreasing’ compared to prior year.
Those risks that we believe are currently
most prominent or increasing in profile
to the Group are:
•
• Consumer, customer and economic
trends: as noted in both the Chair’s
Statement and Chief Executive
Officer’s Review/Q&A, the year
has been particularly challenging
in our largest markets, Nigeria and
the UK. We believe these factors
will not decrease in the short term
and therefore maintain an elevated
risk status;
IT and information security: as
highlighted by an in-depth internal
audit review of information
security which was undertaken
during the year, the prevalence and
sophistication of cyber security
incidents across all sectors and
companies continues to increase.
Consequently, there is an increased
risk of disruption to our operations
and/or unauthorised access and
misuse of our sensitive information
as a result of our systems
being attacked;
• Sustainability and environment:
the focus on the environmental
and human safety implications
of plastic pollution continues to
intensify in many of the countries
where we operate, as does concern
regarding climate change. Whilst
our Good4Business approach offers
opportunities for competitive
advantage, the risk of adverse
consumer reaction, increased cost
or regulatory penalties continues
to rise; and
OUR APPROACH TO
EMERGING RISK
In line with our early adoption of
the 2018 Corporate Code, we have
a particular methodology to identify
emerging risks, which is important
as we execute our new strategy.
New and emerging risks are identified
in a number of ways:
• twice a year, the Executive
Leadership Team reviews the key
strategic objectives of the business
specifically in the context of risk,
with each member of the team
considering the key milestones which
must be achieved to successfully
deliver the strategy and undertaking
a holistic review of the risks which
might arise or impact upon these.
Potential new and emerging risks
are reported to the Board and
considered during its bi-annual
reviews of the Group risk register;
in formulating and evolving the
Group risk register, the Executive
Leadership Team and the Board
take into account the principal risks
identified by individual regions and
business units to determine whether
there are any new risks which require
Group-wide focus and mitigation;
• at its annual strategy session the
•
Board assesses any emerging risks
(or opportunities) which might
arise and which should be taken
into account when formulating and
executing strategy in the future; and
• these processes are informed by
regular discussions with the Group’s
network of external advisors
including its lawyers across all
relevant territories, accountants
and tax advisors, internal audit
partners, insurance brokers, health
and safety advisors, and sustainability
and PR advisors. External advisors
are encouraged to conduct regular
‘horizon scanning’ exercises to
identify emerging issues, trends
or changes which might be of
relevance to the Group’s activities.
The Company is also a member of
various trade and industry bodies
across the world and leverages the
experience of its peers and external
industry experts.
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PRINCIPAL RISKS AND UNCERTAINTIES
(cid:53)isk
1
CONSUMER,
CUSTOMER AND
ECONOMIC
TRENDS
Link to strategy
0000
1 2 3 5
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IT AND
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SECURITY
Link to strategy
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SUSTAINABILITY
AND
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Link to strategy
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LEGAL AND
REGULATORY
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Link to strategy
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Description of risk
(cid:48)easures to manage risks
In an environment where consumer
preferences and behaviours are
changing more rapidly, and the
channels by which our consumers
purchase our products evolve, there
is a risk that we neither meet our
consumers’ needs nor ensure that our
brands are well presented and easily
available to purchase.
In addition, we operate in a number
of markets that are exposed to
elevated economic and political
volatility that can impact our
consumers’ purchasing ability.
We communicate with our customers
and suppliers electronically and our
manufacturing, sales and distribution
operations are dependent on reliable
IT systems and infrastructure.
Prolonged disruption to these systems
could have a significant negative
impact on the performance of the
Group. Additionally, cyber security
threats are becoming more prevalent
and sophisticated in nature, which
could lead to unauthorised access
to our systems and loss of sensitive
information.
The need to find more sustainable ways
of doing business is vital. This includes
ensuring the raw materials we need
are responsibly sourced and efficiently
used and that we are responsible and
an integral part of the communities in
which we operate. Failure to do so risks
alienating key stakeholders, including
consumers and customers, and
damaging the goodwill in our brands,
with consequent limitation of our
ability to grow and create value.
We are subject to a wide spectrum of
legislation, regulation and codes of
practice that can vary between the
geographies in which we operate.
Examples include product safety,
competition, Anti-Bribery and
Corruption, health & safety and
employment. Failure to adhere to
such laws and regulations can result
in reputational damage, as well as
significant fines and the possibility
of criminal liability.
We continue to actively listen to our consumers via social listening, market
research and shopper insights to ensure that our product development pipelines
respond rapidly and meet our consumers’ needs. This is particularly important in
respect of the key focus brands which will drive our future growth.
We continue to focus on maintaining strong relationships with our existing
customers and our revised strategy requires us to also develop relationships with
new customers, ranging from centrally managed large ‘modern’ retailers to small
‘traditional’ traders accessed via distributors in developing countries. Our long-
established history of operating in these markets has allowed us to develop a deep
understanding of our consumers and to evolve our product portfolio accordingly.
Joint business plans are in place with our key customers, with agreed KPIs that
are subject to regular monitoring and performance reviews.
Our strategy continues to be to operate across a number of both developed
and developing markets and therefore we are able to mitigate, to a degree,
regionalised risks. During FY20, we will also further evolve our e-commerce
channel to ensure we maximise our exposure to new generations of consumers.
We have also specifically considered risks in the context of the UK’s proposed
exit from the EU. During the last year we have been working closely with
our customers to prepare for and implement contingency plans to ensure
supply continuity in the event of a ‘no deal’ Brexit. We have secured additional
warehousing capacity within the UK to allow for increased stockholding of
finished goods over the key risk periods.
A centrally governed IT function continually monitors known and emerging
threats that may impact us.
As detailed in the Audit & Risk Committee report, during the year the business
undertook an in-depth externally facilitated Information security review to
ensure our controls remain robust; as a result we further developed our IT policy
suite and training and awareness programmes to our employees to ensure both
business and personal information remain protected.
Processes continue to be maintained to ensure that our critical data is backed
up and recoverable and our ongoing investment in upgrades/patches of our
systems and the applications we use ensures their security and reliability. We
routinely test our systems to ensure that they remain robust.
Our Good4Business strategy and, in particular, our Environment, Sourcing
and Community & Charity programmes, which are led and monitored by the
Good4Business Committee, ensure that we understand and take account
of the environmental impact of our operations and that we proactively seek
opportunities to align the interests of our key stakeholders and create value for all.
This includes taking account of the human rights of all those working within our
supply chain and in local communities.
In particular, during the year we launched initiatives to address two of the
gravest threats to the planet: plastic pollution and deforestation. Our Plastic
Promise is a global commitment to reduce the use of plastic across our business
whilst our 2020 Palm Oil action plan will help us meet our goal that by 2020 100%
of the palm oil which we use comes from producers which are independently
verified to be NDPE (No Deforestation/no Peat/no Exploitation) compliant.
Our legal, regulatory and safety specialists at both Group and regional level
monitor and review the external legal and regulatory environment to ensure that
we remain aware of and up to date with all relevant laws and legal obligations.
They are also supported by a network of external experts who can be engaged
as required. This is particularly important in developing countries where changes
in the law can be sudden and unpredictable.
During the year we engaged our external co-source assurance partner to
complete our annual Anti-Bribery and Corruption risk assessment as required
under UK Bribery Act 2010. As a result, we are further enhancing our controls
and employee training to ensure all measures are taken to prevent bribery and
corruption throughout the organisation.
In addition, we operate a confidential global whistle-blower hotline,
called ‘Speak Up’, details of which are widely communicated and available
to all our employees.
In the context of the UK’s proposed exit from the EU, there is the potential that
a ‘no deal’ Brexit could render UK-held Registaration, Evaluation, Authorisation
and restriction of Chemicals (REACh) registrations invalid for sale of products
in the EU. In order to mitigate this we are transferring the registrations for UK
products to an EU27 representative to allow future supply into the EU.
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TALENT
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Link to strategy
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BUSINESS
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Link to strategy
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CONSUMER
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Link to strategy
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SUPPLY CHAIN
AND LOGISTICS
Link to strategy
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9
TREASURY
AND TAX
Link to strategy
4
Link to strategy
Description of risk
Measures to manage risks
We recognise that in order to deliver
sustained growth, we require the
best calibre people. Failure to attract,
develop and retain the correct
combination of appropriately qualified,
experienced and motivated employees
could jeopardise our ability to meet our
strategic objectives.
We regularly review our reward programmes, and as detailed on page 29,
we have introduced a behaviour/value framework to ensure our culture
provides an attractive employment proposition to current and prospective
future employees.
Attracting key talent in some regions remains a challenge but our global
appraisal and employee management process helps us to identify training
requirements and validate succession plans, as well as identify our future
leaders and critical talent that needs to be retained within the business.
During the year we recalibrated our
strategy to best reflect opportunities
to differentiate our consumer
proposition. We will continue to
leverage additional cost synergies as
we execute the strategy; however,
there is a risk that failure to execute
these initiatives effectively could result
in under-delivery of the expected
benefits and consequently impact
the return we are able to make to
our shareholders.
The safety and quality of our products
is of paramount importance to us
to ensure the well-being of our
consumers. A failure in the practices
we adopt to ensure product safety
may result in reputational damage,
significant financial loss from product
recalls and fines from regulators
together with possible criminal
liability for the Group.
Our production and distribution
facilities could be severely impacted by
adverse events, such as a failure of a
key supplier, a health & safety incident,
or an environmental failure.
Dedicated programme management teams have been established that include
Executive Leadership Team members, who conduct in-depth analysis of progress
and make regular reports to the Board.
We apply robust quality management standards and systems, rigorously
monitoring them throughout all stages of the supply chain. This applies not only
to our own production facilities but to our third-party manufacturers as well.
We also maintain a dedicated consumer complaints hotline. Any incidents
relating to the safety of our consumers or quality of our products are actively
investigated to ensure that timely and effective action is taken.
We undertake a rigorous selection process prior to engaging with new third-party
suppliers and perform ongoing audits and performance monitoring to ensure
that contracted standards are being maintained or exceeded. We use multiple
suppliers where possible.
Our dedicated Group Procurement team has specialist knowledge and
understanding of key raw materials and commodities markets and our
systems allow us to review forward requirements and to obtain value.
In the context of the UK’s proposed exit from the EU and in order to ensure
continuity of supply for our customers, we are working closely with our supply
partners to build stock of critical raw materials and packaging within the UK close
to our manufacturing operations. This seeks to ensure the smooth running of
manufacturing and secure supply should there be any delays or disruption at
ports for items sourced from Europe.
The international nature of our
operations gives rise to both
transaction exchange rate risk
and translation exposure when
the results, assets and liabilities of
foreign subsidiaries are translated
into Sterling.
In addition, in the event of tax
authority challenge to a filed tax
position in a jurisdiction in which we
operate, there is a risk of an unplanned
charge and resulting cash outflow.
We maintain an established Group Treasury function and our Group Treasury
Policy defines our non-speculative approach to the management of foreign
currency exposures.
Transactional currency exposures are managed within prescribed limits with
short- to medium-term forward exchange contracts taken to reduce our
exposure to fluctuations.
A Group Taxation Policy is in place (available on our website), which defines the
way in which we conduct ourselves with respect to our tax affairs.
Our in-house taxation expertise is also complemented by the use of specialist
tax consultants and advisors to ensure compliance with all local and international
tax regulations and treaties.
1 Leverage our market-leading brands with a focus on Personal Care and Beauty
2 Deliver growth through existing and selected new geographies and channels that can scale
3 Simplify Nigeria organisation and activities and invest in Haier and Wilmar partnerships
4 Continue to operate more efficiently and contain costs
5 Dispose of non-core brands
6 Embrace CANDO! culture and integrate Good4Business principles in all we do
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We aim to comply with the non-financial reporting requirements
contained in sections 414CA and 414CB of the Companies Act 2006.
A summary of our relevant policies and outcomes, together with
references to where further information and KPIs on these areas
can be found, is detailed below. Details of our business model can
be found on pages 1(cid:21) and 13 and our principal risks on pages (cid:23)(cid:23) to (cid:23)(cid:28).
BUSINESS GOVERNANCE AND ETHICS
SOURCING
We are committed to compliance with relevant laws and
regulations in all the countries where we do business and
we do not tolerate corruption in any part of PZ Cussons.
We operate in a business environment which is carefully
curated to be open, honest and fair with our suppliers,
customers and business partners. We show respect and
integrity in our dealings with all our stakeholders in the
active pursuit of our Good4Business values.
The safety of our consumers is of paramount concern and
we will never compromise this, applying our own standards
and protocols in excess of local requirements where we feel
this is necessary in order to ensure consumer safety or to
respond to consumer concerns.
The policies and standards which govern our approach include:
• Our Anti-Bribery and Corruption Policy
• Our Modern Slavery Act Statement
• Our Supplier Code of Conduct
(cid:114) Our ‘Speak Up’ whistle-blower process
• Our Animal Testing Policy
V SEE PAGE 52
We recognise that, for certain ingredients, the biggest
environmental impacts lie outside our direct manufacturing
operations. We will establish strategies to address our usage
of commodities which may be identified as contributing to
significant deforestation, including palm oil, paper and pulp,
and to ensure that our use of finite resources is efficient. We
are committed to sustainable and ethical farming practices
within our palm oil plantation business and have set ourselves
the target of sourcing 100% of our palm oil from producers
whose entire operations have been independently verified
as compliant with NDPE standards by 2020.
We are committed to delivering globally consistent and
excellent standards of health & safety in respect of all of
our employees, contractors, visitors and suppliers.
The policies and standards which govern our approach include:
(cid:114) Our PZ Cussons Palm Oil Promise
(cid:114) Our 2020 Action Plan
• Our Supplier Code of Conduct
• Reporting of health & safety KPIs
V SEE PAGES 55 AND 56
THE ENVIRONMENT
COMMUNITY AND CHARITY
We recognise that business has an impact on the environment.
As such, we have an obligation to play a part in conserving
the planet’s precious natural resources and in safeguarding
the environment for future generations as well as ensuring
that we limit any negative impact on our communities
and our customers. We measure and disclose various data
in respect of our environmental performance including
carbon emissions, water usage and landfill waste, and we
are committed to future disclosure of information relating
to our use of plastic across the business.
The policies and standards which govern our approach include:
(cid:114) Our 25 by 25 Plastic Promise
(cid:114) The PZ Cussons Environmental Policy
• Our participation in the Carbon Disclosure Project
V SEE PAGES 53 AND 54
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We are committed to being a force for positive change
in society. Helping and supporting our local communities
and improving the living conditions and life chances of our
neighbours are a key feature of how we do business around
the world.
V SEE PAGE 57
Find out more about our policies at
www.pzcussons.com
GOOD4BUSINESS
G4B
We believe passionately that business can be a force for
positive change. (cid:48)ore than that, we believe that
businesses have an active obligation to make a positive
contribution to society and to minimise any negative
impacts on the environment from their operations.
For us at PZ Cussons, this is not
something new or unusual – it has been
a key part of our culture and of who we
are ever since the business was founded
in Africa in the 1880s. We have always
aimed to make a positive impact on
society through the products which we
sell, the way in which our products are
designed, manufactured and packaged
and through the contributions we
make to the communities in which
we operate.
Our Good4Business (G4B) approach
is at the heart of everything we do. It
provides four areas of focus through
which we can assess our business and
ensure that we are driving sustainable
value and growth through our day-to-
day decision-making:
• Business Governance and Ethics
• Environment
• Sourcing
• Community and Charity
We do this both because we know that
it’s the right thing to do and because
we believe that it is Good4Business.
By forging strong links with our local
communities and mutually beneficial
relationships with our business
partners, by conducting our activities
with integrity and responsibility and
by helping to conserve the planet’s
precious natural resources, we are
creating sustainable value for all our
stakeholders, now and into the future.
We can be confident that this value
will endure.
G4B draws on the values and
experience which have made PZ
Cussons the company it is today. Our
ambition is to grow the business while
staying true to our authentic family
spirit, and we are guided by our wish to
leave a legacy for the next generation
which we can all – shareholders,
customers and consumers, business
partners, local communities and
employees – be proud of.
THE GOOD4BUSINESS
COMMITTEE
The Good4Business Committee is
one of the standing committees
of the Board. The Committee
is chaired by independent
Non-executive Director John
Nicolson and is responsible
for agreeing and overseeing
a programme of specific G4B
activities for each financial year.
The Committee is also responsible
for ensuring that our G4B principles
are reflected in our Group strategy
and that the Group’s social,
environmental and economic
activities are aligned.
The Committee’s terms of
reference and a copy of the
G4B statement are available on
the PZ Cussons Group website
(www.pzcussons.com). Further
details on the membership of the
Committee are set out on page 72.
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GOOD4BUSINESS
BUSINESS
GOVERNANCE
AND ETHICS
ETHICS AND OUR VALUES
Our Good4Business ethics and
principles apply to all our Group global
operations and to every Board member
and employee. We encourage and
motivate everyone in the business to
use these principles in their day-to-day
working lives.
We operate in an open, honest and fair
way with our suppliers, customers and
business partners. We show respect
and integrity in our dealings with all
our stakeholders in the active pursuit
of our G4B values.
We do not tolerate corruption in
any part of PZ Cussons. We regularly
review our activities across the Group
to ensure that we are fully compliant
with the UK Bribery Act, the Corporate
Criminal Offence of failing to prevent
the facilitation of tax evasion and other
relevant legislation around the world,
and also that we are living up to our
CANDO! and G4B values in every part
of the Group.
During the year, we completed a
comprehensive risk assessment exercise,
working with external advisors, to
ensure our continuing compliance in all
of our operations. Building on that, we
are presently rolling out a revised global
Anti-Bribery and Corruption Policy
and ensuring that all of our employees
understand what is expected of them
and how to manage any issues which
they experience in their working lives.
CONSUMER SAFETY
We put consumer safety first and will
never compromise on it. The sectors
which we operate in are generally highly
regulated and we ensure that we are
fully compliant at all times with local
and international regulations. Where
we feel that it is appropriate, we will
apply our own standards and protocols
in excess of local requirements in
order to ensure consumer safety or
to respond to consumer concerns.
We regularly review the ingredients
used within our range of global
products. Our Materials of Concern
Committee monitors the materials
which we use in the light of evolving
scientific evidence, regulatory
opinion and the views and concerns
of our consumers. Where the science
supports the safe use of an ingredient
but there are consumer concerns,
we take this into consideration and
aim to find alternative ingredients.
To help us make informed choices,
we participate actively in responsible
trade associations, professional
societies, regulatory authorities and
consumer groups.
During the year, our Materials of
Concern Committee has reviewed (and,
where appropriate, initiated appropriate
action in respect of) a number of issues
and materials including:
•
•
in line with our Plastic Promise,
proactively removing PVC from all
our global gift packs because of its
potential environmental impact;
identifying alternative hair and skin
care technologies which enable us to
proactively and voluntarily phase out
the use of silicone D5;
• reviewing our quality procedures for
sourcing talc;
• responding to the consumer demand
for ‘clean beauty’ products, for
example offering the consumer
choice by providing products
which do not contain SLES (Sodium
Lauryl Ether Sulphate), parabens or
silicones; and
• deploying technical documentation
systems which give us real-time
access to material usage across our
Beauty product portfolio.
AGAINST ANIMAL TESTING
We are against all forms of animal
testing in the development or
marketing of our products. We do
not test ingredients on animals. We
do not commission or request any
of our suppliers or associates to test
ingredients or our products on animals.
It has been some years since animal
testing on cosmetic products and
ingredients in European Union countries
was prohibited. We fully support the
stance taken by governing bodies, such
as the European Union, and the changes
being made in this direction in other
regulatory environments in China, India,
the US and elsewhere to eradicate
the use of animals in the testing of
cosmetics globally.
To safeguard our consumers, we
recognise the need for reliable, fully
validated non-animal testing methods
and we support the charity FRAME
(Fund for the Replacement of Animals
in Medical Experiments). We help
to fund their independent research
activities and support their campaign
for better science and the advancement
of non-animal methods, which we
believe will benefit the whole cosmetics
and household products industry.
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ENVIRONMENT
PLASTIC
We recognise the need for us all to do
something about the proliferation of
plastic packaging, particularly single-
use packaging, in all parts of the world.
Like most businesses in our sector, we
use plastic across all of our categories
and we understand the responsibility
which we have – to our consumers and
our local communities – to play our
part in providing a solution to this issue.
We also recognise that, increasingly,
consumer choices and habits are driven
by environmental and social concerns
and that our brands can and must
respond to this and have ‘social purpose’
at their core if they are to thrive in the
future. Proactively addressing the issue
of plastic pollution makes the business
more resilient in relation to actions which
governments, NGOs or our customers
may take in the future.
As we have reported previously, we
have been reducing plastic across the
whole Group for many years. Over the
past 12 months we have taken the
opportunity to step up our efforts and
to drive a genuine transformation of
our approach to plastic.
In June 2018 we launched our ‘25 by
25’ Plastic Promise. This commits us,
by 2025, to:
• reduce the amount of plastic we use
by 25%;
• ensure 100% of any remaining plastic
we use is reusable, recyclable or
compostable; and
• use at least 30% recycled materials in
all our plastic packaging.
Our Plastic Promise builds on the
significant work we have already
undertaken to reduce plastic in our
products. Through light-weighting bottles
and introducing refills, over recent years
we have reduced plastic in our business
by hundreds of tonnes across Europe
& the Americas and Asia Pacific. We are
now redoubling our efforts to reduce
our use of plastic by identifying more
projects to optimise structural and
material design to eliminate unnecessary
packaging materials, as well as looking at
more innovative ways of delivering our
products without relying on plastic.
Whilst our Plastic Promise is driving
change across all brands and categories,
we are prioritising those areas within
the business where our current use
of plastic is the greatest. We are also
seeking out opportunities to deliver
additional product benefits to consumers
by providing new packaging solutions,
creating a closer bond with consumers by
acting on an issue which is clearly of real
concern to them. In this way, we can make
a positive impact on our environment but
also reduce cost and protect and enhance
brand equity. Identifying and addressing
these ‘sweet spots’ is an example of
how our Good4Business approach, in
which we seek to understand and align
the interests of all our stakeholders, is
creating shared value for all.
Brands like Carex in the UK are already
driving significant reductions in plastic
and fundamental changes in consumer
behaviour in our category. Sales of our
refill pouches – enabling consumers to
reuse their current bottles – are growing
by over 240% year on year, reflecting
consumers’ clear wish to reduce plastic
in their households. Our 500ml refill
reduces plastic by 75%, while our 1000ml
refill uses 80% less plastic – driving our
refill business resulted in a reduction of
4.2m pumps last year.
Looking forward, this year we are
focused on ensuring that our bottles are
fully recyclable. This will help us achieve
our commitment that any remaining
plastic in our business is either reusable,
recyclable or compostable. We are also
launching bottles containing 30% post-
consumer recycled material, in line with
our global target.
Our detailed road maps for UK
brands like Carex enable us to drive
our Plastic Promise more quickly
across other markets including in
those countries where the level of
consumer or customer concern is not
currently as high, but which we believe
will inevitably follow suit over time.
Additional priority areas for us include:
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• our Cussons Baby business
in Indonesia;
• plastic containers used in our
PZ Wilmar business in Nigeria;
• our wipes business; and
• our Beauty brands.
Our Plastic Promise is also driving
innovation across our categories as we
explore ways in which we might deliver
our products to consumers without
using any plastic. Our teams have
identified novel packaging solutions
and potential new products which we
will be trialling this year. Again, they
will allow us to significantly reduce our
plastic footprint, while also opening up
new commercial opportunities for us
and further developing our relationship
with consumers and customers.
WATER REDUCTION
There are increasing problems of water scarcity on the island
of Java. High levels of water extraction though boreholes
have drained aquifers and many have become contaminated
with sea water. The Group challenge to reduce water
consumption was therefore very relevant for staff at our
Tangerang factory. The first step was to mobilise our staff to
take measurements and get a detailed understanding of all
areas where water is used, and then pull together a plan to
reduce consumption. As a result of their efforts they were
able to reduce water consumption by 7% year on year.
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GOOD4BUSINESS
ABSOLUTE REDUCTION (cid:470) (INCREASE) YEAR ON YEAR
Water:
0
CD
0
Carbon:
Waste:
26%
12%
(8%)
WATER, CARBON AND WASTE
We care about how our business may
impact the environment, from the
way we manufacture products and
bring them to market to the way in
which consumers use them. We are
focused on a programme of constant
improvement within our global
operations, and committed to yearly
reductions in our water and carbon
consumption and waste generated.
Water
The Group operates in a number of
environments which experience water
scarcity. Water is also an important
component of many of our products
and manufacturing processes. In the
circumstances, water conservation
has been a key Good4Business
environmental focus for the Group
for some years and we have reduced
consumption by millions of tonnes over
that period. As part of our continuous
improvement programme, water
reduction objectives are incorporated
into the operational plans of every
factory in the Group. Principally, this is
achieved though detailed mapping of
water usage, focused improvements
in operating methods and targeted
investment in water-saving technologies.
In this way, we have been able to reduce
our global consumption by around a
quarter this year – both in absolute terms
and per tonne of production. This builds
on annual reductions of 7%, 16% and
34% achieved over the last three years.
Our factory in Aba, in the east of
Nigeria, has again led the way in
finding innovative solutions. Previously,
a borehole pump had to operate
continuously to service the domestic
demand of our residential compound.
The installation of elevated water
storage tanks this year has enabled us
to turn off the pumps at the weekend.
We have also been able to reduce
water consumption at our UK Head
Office by 63% year on year through a
combination of new equipment and
changes in working practices.
Carbon
All of our factories incorporate
energy reduction objectives into
their operational plans, mapping
and identifying energy-intensive
processes and implementing reduction
projects via a continuous improvement
programme. Reducing the amount of
energy we use obviously reduces carbon
emissions, but also reduces our running
costs. This is particularly important
at more energy-intensive factories
such as those at Aba, and Tangerang
in Indonesia, and we have completed
detailed energy audits at those sites
during the year to provide medium-
term road maps for energy reduction.
Our Agecroft and Aviator Way sites
in the UK have been using 100%
renewable power since June 2018.
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Carbon Disclosure Project
The Group has been a participant in
the Carbon Disclosure Project (CDP)
for over ten years, currently reporting
our Scope 1 and 2 emissions. CDP is
an internationally renowned not-for-
profit organisation which provides
an independent global system for
companies and cities to measure,
disclose, manage and share vital
environmental information.
This year, we were graded B- by CDP,
indicating effective management of our
environmental impact – our best score
since we commenced participation.
Waste
The total amount of landfill waste
generated by the Group has gone up
this year. This is principally because of
our Nigerian palm oil joint venture, PZ
Wilmar, whose production volumes for
the business have increased by around
9%. This, in combination with a change
in the mix of sourced oils, has resulted
in an increase in landfill waste per tonne
of production of 18%. We are urgently
seeking to identify alternative non-
landfill disposal routes.
Excluding the PZ Wilmar joint venture,
the Group performance has been very
positive. Waste per tonne of production
has decreased by 13% year on year,
building on reductions of around 75%
over the last two years.
One focus this year, particularly at
our Thai soap factory and at Aba,
is on wrapper waste. This requires
underlying improvements in supplier
quality and our own manufacturing
techniques, but results in both reduced
environmental impact and cost benefits
to the business.
In Indonesia we have worked to improve
our waste segregation so that a greater
proportion of factory waste is being
recycled rather than landfilled.
We have ensured that our UK head
office practises what it preaches. During
the year, as we launched our Plastic
Promise, we also introduced full waste
segregation initiatives to eliminate
waste from our offices and maximise
recycling of tins, plastic and glass.
SOURCING
PALM OIL
Last year, we published an action plan
to meet our 2020 No Deforestation
/ No Peat / No Exploitation (NDPE)
commitments on palm oil.
Part of our Good4Business strategy to
drive positive change in society, our Palm
Oil Promise sets out clear timebound
goals to help address one of the most
important sustainability issues facing
our planet: deforestation.
Palm oil is one of the most widely used
vegetable oils in the world and can be
found in nearly 50% of the packaged
products in our supermarkets. The
increasing demand for palm oil has
resulted in the destruction of natural
habitats, particularly in south-east Asia,
as local growers have rushed to plant
and grow new plantations. PZ Cussons
is not a huge consumer of palm oil –
we use less than 0.001% of the world’s
supply. However, we hold ourselves
accountable for the palm oil which we
source and we are fully committed to
playing our part in the reform of the
industry. Our 2020 Action Plan builds on
the commitments we made in our 2014
PZ Palm Oil Promise and the progress we
have made since then.
Although transformation of the palm
oil industry is extremely challenging,
we do not believe that switching to an
alternative ingredient would have a
positive impact, as alternatives such as
soy or vegetable oil require more land to
produce the equivalent amount of oil.
Instead, our action plan focuses on
how we are going to deliver on our
commitment to source 100% of our
palm oil from producers whose entire
operations have been independently
verified as compliant with NDPE
standards by 2020. That way, our
consumers can be assured that the
products which they love are not
causing deforestation anywhere in the
world. The plan establishes 12 detailed
goals against five strategic objectives,
focusing on governance, traceability,
transformation, transparency and
leveraging PZ Cussons’ unique position
in Nigeria to drive NDPE compliance.
We are really pleased with the progress
we have made since publishing our 2020
Action Plan in October last year, but we
recognise that we still have a way to
go on some of our goals. For example,
we have developed an outline plan to
address the regeneration of cleared
forests, but finalising this remains work
in progress and is a priority.
Understanding where our palm oil
comes from is a critical first step in
delivering on our Palm Oil Promise. We
can currently trace 92% of our crude
palm oil and palm kernel oil back to the
mill and, whilst we have not yet hit our
interim goal of 80% traceability for palm
oil derivatives, 90% of our derivatives
are supplied by suppliers with NDPE
commitments aligned with ours. We are
in final-stage discussions with two key
derivative suppliers and are confident
that we will meet our interim goal of
80% traceability very shortly.
We recognise that we are not able to
meet our commitments alone, which
is why we are working closely with
our direct suppliers, our joint venture
partners and with NGOs. Our starting
point is to shift our sourcing towards
suppliers who can demonstrate that
they have credible systems to monitor
the producers in their supply chains and
hence ensure they are fully compliant
with NDPE standards throughout
their operations.
DEVELOPING NIGERIA’S PALM OIL SECTOR
As part of our strategy to support
the development of Nigeria’s palm
oil sector, we are supporting 43
smallholder palm oil farmers, who
together cultivate 150 ha of land in
Cross River state.
The Biase Plantations Limited (BPL)
Outgrower Scheme is a pilot project
to demonstrate how a viable and
sustainable outgrower scheme
can function.
Before starting the pilot,
detailed social and environmental
assessments were conducted,
including ‘high conservation value’
assessments to ensure that the
project areas do not fall within
priority conservation areas. Farmers
were also supported in forming
cooperatives, opening bank accounts
and obtaining legal land ownership
documents. With support from BPL,
detailed boundary surveys were
conducted and Customary Rights
of Occupancy documents acquired
and approved.
Planting has been completed on
the farms of three of the four
cooperatives, with the remaining
farm expected to be fully planted
by August 2019.
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GOOD4BUSINESS
One of the most significant steps
forward we have taken is the selection of
Starling and Kumacaya to independently
verify compliance across our global
supply chain. Starling, created by our
NGO partner Earthworm Foundation
and Airbus, uses a combination of
high-resolution imagery and radar data
to provide monitoring of land cover
change, focusing on forest cover loss. It
is a private and independent tool which
allows us to monitor the implementation
of our No Deforestation Policy and
ensure that none of our suppliers are
causing deforestation. With sharp
accuracy and detailed resolution,
Starling’s reference maps differentiate
between production forests which
include palm plantations, natural forests
and other areas. Kumacaya (the name
comes from the words for ‘talk’ and
‘trust’ in Bahasa and local dialects)
provides independent monitoring
of social and environmental issues
by local people.
We have also begun transformation
work by implementing Earthworm
Foundation’s High-Impact Supplier
Programme. This will address identified
non-compliance and drive change in
local communities. We look forward
to reporting on the outcomes in
future years.
Finally, in Nigeria, where the oil palm
is indigenous and grows naturally, PZ
Cussons is working alongside our joint
venture partner Wilmar to support
the development of Nigeria’s palm oil
industry in line with NDPE standards.
For example, we are working with
local banks to create access to finance
for smallholders with verifiable land
titles to invest in revitalising old and
inefficient plantations.
2014/15
2015/16
2016/17
2017/18
2018/19
Fatalities
LTI/yr
LTIFR
AAIFR
0
14
0.17
1.87
0
7
0.12
2.08
0
15
0.29
3.09
0
13
0.26
2.17
0
8
0.13
2.13
Change
from
2011/12
baseline
0
(25)
(0.28)
n/a
Change
year on
year
0
(5)
(0.13)
(0.04)
employee being given first aid. We also
continue to track and report the Lost
Time Incident Frequency Rate (LTIFR).
Lost Time Incidents include all health
& safety occurrences which result in
one or more days’ absence from work
(excluding the day of the incident).
The frequency rate for both measures
is calculated as the number of incidents
per 200,000 hours worked.
WORKING WITH SUPPLIERS
It is critical to us, particularly as we
continue to increase our use of third-
party manufacturers to develop and
make specialist products, that our
suppliers, contractors and partners
share our values and live up to the
high ethical standards which we set
for ourselves. To some extent, our
reputation is in their hands and so we
take great care to understand how
third parties work whenever we are
considering establishing or continuing
business relationships.
We set out our expectations of our
suppliers in a Supplier Code of Conduct.
This lists a number of mandatory
requirements (covering a range of
Good4Business values including Anti-
Bribery and Corruption, sustainability
(including alignment with our positions
on plastic and palm oil), fair treatment
of workers, health & safety, modern
slavery and animal testing). During the
year, we have continued to engage with
our suppliers in respect of compliance
with our Code and we have developed
robust process flows to ensure long-
term alignment with our values and/or
termination of relationships with non-
compliant suppliers where appropriate.
HEALTH & SAFETY
We regard health & safety as a
fundamental business responsibility
and the Group’s health & safety
performance and its regulatory
compliance are scrutinised at all
meetings of the Group’s Executive
Leadership Team and the Board.
Our business spans diverse geographies
with differing levels of regulation and
we are committed to delivering globally
consistent and excellent standards
of health & safety in respect of all
of our employees, contractors and
visitors. To that end, our operations
meet local rules and regulations but
also comply with our robust Group-
wide standards, which invariably
exceed local law. We employ a team of
health & safety specialists to develop,
monitor and implement best practices
and we empower and encourage our
employees to identify and report
hazards or near misses.
We have made further progress
towards achieving international safety
certification for all our sites around the
world. All but one of our manufacturing
sites are now accredited to the
internationally recognised occupational
health & safety management system
OHSAS 18001, and all sites are presently
working towards the new best practice
safety standard ISO 45001.
REPORTING OUR PROGRESS
The business tracks and reports on key
health & safety performance indicators,
enabling us to review our progress,
identify any issues and trends and
develop strategies to address areas
for improvement. We follow industry
practice and focus on the All Accident
Incident Frequency Rate (AAIFR) which
includes: all reportable incidents, all
Lost Time Incidents and all First Aid
Cases, i.e. incidents which result in the
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COMMUNITY
AND CHARITY
We are committed to helping and
supporting the local communities in
the vicinity of our factories and offices.
Many of our employees come from
those communities and we are often
reliant on them for their support,
goodwill and cooperation. But our
presence in the community, particularly
in emerging markets, also puts us in
the privileged position of being able
to help improve the living conditions
and life chances of our neighbours. This
obviously helps us to establish good
relations with governments and other
local stakeholders but, more than this,
it reflects a fundamental belief which
has been at the heart of PZ Cussons’
approach to business since the days of
our founding fathers in the 1880s. For a
business to grow sustainably, it must be
a force for positive change in society.
PZ CUSSONS NIGERIA
FOUNDATION AND INNER
HEARTS
In Nigeria, we established a charitable
foundation in 2007 to assist in the
development of better transport links
and roads, potable water, sanitation,
health and education and to improve the
quality of life of people living near our
operations in Nigeria. The Foundation
funds and implements projects which
promote the well-being of local people,
are sustainable, and produce innovative
solutions which can be easily replicated
throughout the country.
Our Inner Hearts programme was
also started in Nigeria and has been
adopted by all our global operations.
The programme encourages our
employees to become involved with
initiatives which they care about,
giving them support and a framework
to benefit local communities and
charities. We are proud of the fantastic
commitment and enthusiasm which
so many of our employees have
demonstrated throughout the year in
support of a range of wonderful charities
which are making a real difference to
lives all over the world.
GLOBAL HANDWASHING DAY
In October 2018 our Carex brand once again joined
forces with United Purpose, our international
development charity partner, to support Global
Handwashing Day. This annual event, which was
started by the United Nations ten years ago,
touches over 200 million people and promotes a
simple and life-saving message: that handwashing
with soap saves lives. In Nigeria, thousands
of students were inspired and empowered
to encourage their schoolmates, families and
communities to make handwashing a habit.
-~·
YOUR
• 0
United
I~
Purpose U
PZ CUSSONS NIGERIA FOUNDATION
During the year, the Foundation undertook a number of projects including
the construction of a block of three classrooms at Hardawa Community
School in the north-eastern city of Bauchi and of a solar-powered water
system in the eastern state of Adamawa. The latter project comprises a
solar-powered borehole with an overhead storage tank and livestock
drinking troughs, with the capacity to provide clean drinking water for
300 cattle per day and 30 local households in an area of significant water
scarcity. The Foundation has also continued to run its nationally recognised
PZ Cussons Chemistry Challenge for a fifth year. The initiative encourages
secondary school students to study the sciences, especially chemistry.
AUSTRALIA FOODBANKS
In Australia, PZ Cussons became a proud National
Partner of Foodbank Australia, an organisation
which supports the homeless and food-insecure by
providing food and grocery donations. Supporting
Foodbank Australia’s aim to provide over 600 million
meals last year, our Australian business donated
almost 50,000 cases of free food and personal
care and home care products. We also supported
Foodbank by providing ‘volunteer’ days which
enabled our team to get out of the office and pick
and pack product ready for delivery.
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Governance
An experienced Board with
strong leadership
Q&A with the Chair
Leadership and culture
The role of the Board and
its responsibilities
Board composition, succession
and evaluation
Audit, risk and internal control,
remuneration and relations
with shareholders
Audit & Risk Committee report
Nomination Committee report
Remuneration Committee report
Report on Directors’ remuneration
Report of the Directors
60
62
64
70
74
76
78
84
88
91
110
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AN EXPERIENCED BOARD
WITH STRONG LEADERSHIP
CAROLINE SILVER
Non-executive Chair
Appointed: 2014
N G
ALEX KANELLIS
Chief Executive Officer
E G
JOHN NICOLSON
Senior Independent Director
G A N
Appointed: 2003
Appointed: 2016
Skills & experience: Caroline Silver joined
the PZ Cussons Board as a Non-executive
Director in 2014, becoming Senior
Independent Director in 2016 and Chair in
2017. She has worked within the investment
banking sector for over 30 years and was
most recently a Partner and Managing
Director at Moelis & Company. She is a
chartered accountant and has previously
held senior corporate finance and M&A
positions at Morgan Stanley and Merrill
Lynch. She has a wealth of international
experience, especially within African markets.
Other appointments:
– Non-executive Director of BUPA
– Non-executive Director of Meggitt Plc
– Senior Independent Director at M&G
Prudential plc
– Trustee of the Victoria & Albert Museum
Skills & experience: Alex Kanellis joined
PZ Cussons in 1993. He was appointed
Managing Director of the Group’s
Thailand operations in 1998 and Managing
Director of Indonesia in 2001. He joined
the Board in 2003 as Regional Director
of Asia before becoming Chief Executive
Officer in June 2006. Alex has a PhD in
mechanical engineering.
Skills & experience: John Nicolson joined
the PZ Cussons Board as a Non-executive
Director in 2016. John has significant
experience of global consumer goods
businesses for both developed and
emerging markets. He has held senior
positions in the FMCG sector, including
Regional President and Executive
Committee member of Heineken NV and
Executive Board Director for international
markets at Scottish & Newcastle.
Other appointments:
– Non-executive Chairman of A G Barr Plc
– Non-executive Director of Stocks Spirits
Group Plc
– Member of the Advisory Board at
Edinburgh University Business School
JEZ MAIDEN
Non-executive Director
Appointed: 2016
A N R
Skills & experience: Jez Maiden joined the
PZ Cussons Board as a Non-executive
Director in 2016. He currently holds the
post of Group Finance Director at Croda
International Plc, the FTSE 100 global
speciality chemicals company. He has
previously held similar positions at National
Express Group Plc, Northern Foods Plc and
British Vita Plc and was, until 2015, Senior
Independent Director and Chair of the
Audit Committee of Synthomer Plc.
Other appointments:
– Group Finance Director of Croda
International Plc
60
TAMARA
MINICK-SCOKALO
Non-executive Director
Appointed: 2018
Skills & experience: Tamara Minick-Scokalo
joined the PZ Cussons Board as a
Non-executive Director on 1 May 2018.
Tamara has held senior marketing and
general management positions at
consumer businesses including P&G,
Coca-Cola Company, Cadbury Plc and
Mondelēz. Until 2016, she was Regional
President, Growth Markets for Pearson Plc,
the FTSE 100 international publishing and
education company, with responsibility
for emerging markets.
Other appointments:
– Non-executive Director of Avast Plc
– Member of the Advisory Board of
Mustad HoofCare and OHorizons
Charitable Solutions
A G N
DARIUSZ KUCZ
Non-executive Director
N R D
Appointed: 2018
Skills & experience: Dariusz Kucz joined
the PZ Cussons Board as a Non-executive
Director on 1 May 2018. Until recently,
he was Chief Top Line Officer of Haribo,
the international confectionery company,
leading its global commercial operations.
He has previously held senior leadership
roles at Danone, where he led the baby
food business in Asia Pacific, and Wrigley,
where he was Regional VP, Central and
Eastern Europe.
Other appointments:
– Member of the Supervisory Board
of the University of Economics and
Business in Poznan
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 HELEN OWERS
Non-executive Director
Appointed: 2012
R N
Skills & experience: Helen Owers joined
the PZ Cussons Board as a Non-executive
Director in 2012. Prior to this she held
senior roles within Thomson Reuters,
including Chief Development Officer
with responsibility for the company’s
expansion in rapidly developing economies,
and President of Global Businesses for
Thomson Reuters Legal, responsible for
building businesses outside North America.
She also has extensive experience working
as a consultant for Gemini Consulting,
developing and implementing corporate
and operational strategies for consumer
products clients.
Other appointments:
– Co-Chair of Eden Project International
– Non-executive Director of Informa Plc
– Governor of Falmouth University
GENDER DIVERSITY
Male
Female
3
4
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P
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SECTOR EXPERTISE
Consumer
goods
Finance
Marketing
Technology
NATIONALITY
British
4
Polish
1
American
1
Greek
1
TENURE
1
3
0–3 years
4–7 years
8+ years
3
Chair
N Nomination Committee
A Audit & Risk Committee
R Remuneration Committee
E Executive Leadership Team
D
G Good4Business Committee
Director with responsibility for
representing the employee voice
and employee engagement
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019GOVERNANCE
Q&A WITH THE CHAIR
“ I am pleased to present the
Corporate Governance report
for the year ended 31 (cid:48)ay (cid:21)(cid:19)1(cid:28).
This year, my letter takes the
form of a Q&A where I discuss
how sound corporate governance
is at the heart of PZ Cussons.(cid:113)
CAROLINE SILVER
Non-executive Chair
Q: What is unique about the
culture at PZ Cussons?
What sets us apart from our
competitors is our culture, rooted in
the CANDO! values of our founders
and demonstrated through our
behaviours. They are at the core
of how we operate. Our people
are passionate about our brands
and feel a sense of ownership and
accountability in delivering on our
purpose to enhance everyday life
and create moments of delight
for our consumers, our customers
and also our communities and
colleagues. It’s what binds
our diverse and global family
business and enables us to work
collaboratively as ONE PZC.
Q: What role does the Board
play in shaping the culture?
The Board plays a critical role
in ensuring that those values
continue to live and breathe
throughout the organisation.
We determine the ‘tone from
the top’, from the priorities which
we set for the business and the
policies and processes which we
adopt to the personal messages
which we give to our people as we
travel around the Group. Our PZ
culture – including our commitment
to our Good4Business approach –
is something which many boards,
over many decades, have treasured
and nurtured. The current Board
is committed to ensuring that
the values which have helped
PZ Cussons grow and thrive in
the past continue to drive success
in the future.
Q: Why is good governance
important to PZ Cussons?
In volatile and uncertain times,
we need to have confidence that
the values and behaviours which I
talked about run throughout the
whole organisation. We also need
to be sure that they are applied
to the thousands of decisions we
make every day across the business,
at all different levels, locations
and in all environments. Good
governance – clear and transparent
systems and processes which are
rooted in our values – helps to
ensure that everyone in the business
understands the part they play in
delivering the strategy and what is
expected of them. It provides a solid
foundation for the business so that
our stakeholders can be assured
that future growth is sustainable.
It also provides a framework within
which the Board can be confident
that it can identify risks – financial,
reputational or otherwise – and
mitigate them effectively.
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Q: Does the Board have the right
skills and experience to lead
the Company through the
new strategic transition?
During the year, we looked at the
key skills and areas of experience
which will be necessary for the
business. We mapped the current
profile of the Board against this and
we continue to focus on ensuring
we have the right Board to deliver
the new strategy. The Board has a
blend of recent experience across
a range of different and relevant
areas. These include the FMCG
sector, developed and emerging
economies, sales and marketing,
the development and deployment
of strategy, business transformation
and FTSE 100 governance and
compliance standards. That said, we
are constantly looking at the Board’s
composition and performance
and we will be seeking to add new
and complementary skills and
experience as we make further
appointments in the coming year.
Brandon Leigh stepped down from
the Board as Chief Financial Officer
in June so we will be appointing a
permanent Chief Financial Officer
later this year. In the meantime,
Alan Bergin, Commercial Finance
Director on the Executive
Leadership Team, is performing
the role on an interim basis.
Q: What is the Board’s approach
to stakeholder engagement?
Our approach to doing business
at PZ Cussons is founded on the
principle of creating sustainable
value for all. We believe that the
business thrives when the interests
of different stakeholders can be
aligned so that they all share in our
success. So it is really important that
we fully understand their priorities,
expectations and concerns. My
Board colleagues and I are always
happy to meet with or speak to
shareholders; I offer to meet our
largest shareholders without
management present at least
annually and we always take the
opportunity to speak to shareholders
before and after the Annual General
Meeting. Similarly, we seek out
opportunities to meet with business
partners, suppliers, customers and
distributors whenever we travel to
our operations around the world.
It is obviously also critical that we
create a real and ongoing dialogue
with our internal stakeholders – our
employees – and we talk about how
we will continue to achieve that on
page 67.
Q: How often do you conduct
effectiveness reviews of
the Board?
We conduct annual reviews. Every
three years the process is externally
facilitated; we bring in an expert
to review how we operate and to
identify areas where we can improve.
The reviews look at all aspects of
the Board including the conduct
and focus of Board meetings,
decision-making, the quality of Board
papers and information provided
to the Directors, and composition
and succession planning. They also
include induction of new Board
members, relations within the Board
and engagement with management
and the wider employee population.
In between these in-depth external
reviews, we conduct annual reviews
which focus on the same issues,
facilitated by the Company Secretary.
As I mention in my report as Chair
of the Nomination Committee, we
continued throughout the year
to look at any areas for action or
improvement to ensure that we stay
focused on them and that we are
continuously improving as a Board.
Q: How do you think the Board
has performed this year?
It has obviously been a challenging
year for everyone associated with
PZ Cussons. We have faced difficult
trading conditions in many of our
markets and our financial results
have clearly been below what we
expect and demand of ourselves.
However, alongside our senior
management team, the Board
has worked hard to develop the
right strategy for the future. We
have also continued to ensure that
we have sound and consistent
governance policies and processes
in place across the business. The
introduction of Tamara Minick-
Scokalo and Dariusz Kucz as new
Non-executive Directors at the
end of last year increased the level
of recent FMCG expertise within
the boardroom and our improved
induction processes have ensured
that they have each already made
an effective contribution to the
Board’s work this year.
Q: How is the Board adopting
the new 2018 UK Corporate
Governance Code?
The new 2018 Code will not apply
to us formally until next year, i.e. the
year ending 31 May 2020. However,
as a Board we recognise the benefit
of early adoption of the more robust
governance standards set out in
the new Code. Accordingly, we have
resolved to adopt elements of the
new Code with immediate effect,
and we have already introduced
a number of changes. These
include the recent appointment
of a Director to act as the principal
focus for engagement with our
employees (as discussed in more
detail on page 67). Looking forward,
the Remuneration Committee
will reflect the provisions of the
Code in the revised version of our
Remuneration Policy which we will
put to shareholders at the 2020
Annual General Meeting. We have
complied fully with the provisions of
the 2016 UK Corporate Governance
Code, which applied to the Company
for the year ended 31 May 2019.
Q: What is the key focus for the
year in 2019/20?
Clearly, our key priority is returning
the business to sustainable growth
through implementing our new
strategy. From a governance
perspective, we will support this by
continuing with the work which we
have done this year to make sure
that there is a clear and consistent
‘tone from the top’ in respect of
the key areas of decision-making
and that our related policies
and processes are functioning
effectively everywhere.
63
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
REPORT ON CORPORATE GOVERNANCE
Leadership
and culture
The Board is committed to meeting the standards of good corporate
governance as established by the Financial Reporting Council. This
year, the 2016 UK Corporate Governance Code applied to the Company,
however, we are already responding to the new 2018 Code (which will
apply to us next year) and over the following pages we set out the
steps which we are taking to ensure that we will be fully compliant
with the new Code. Both versions of the Code are publicly available
on the Financial Reporting Council’s website (cid:11)www.frc.org.uk(cid:12).
All Directors communicate with each
other on a regular basis and have
regular and ready access to members
of the Group’s management team.
Senior executives are regularly invited
to attend Board meetings to make
presentations on specific matters
or projects, and the Non-executive
Directors attend the Company’s annual
leadership team gathering. Board
papers are prepared and issued to all
Directors in good time prior to each
Board meeting to enable Directors to
give due consideration to all matters
in advance of the meeting. During
the year, the Board maintained an
understanding of the views of major
shareholders through periodic face-to-
face meetings, invitations to meet with
the Non-executive Chair in the absence
of management and briefings from the
Company’s advisors.
OPERATION OF THE BOARD
The Board is responsible for the
Group’s strategic development,
monitoring its business objectives
and maintaining a system of
effective corporate governance.
Six formal meetings of the Board
were scheduled during the year.
The Directors met on a number
of further occasions as necessary
to consider specific matters arising
and to review and develop the
Company’s corporate strategy.
The differing roles of the Chair
and Chief Executive Officer are
acknowledged and set out in terms
of reference which have been adopted
by the Board. The Chair is responsible
for running the Board and ensuring
that it is supplied in a timely manner
with sufficient information to enable
it to discharge its duties. The Chief
Executive Officer is responsible
for running the business and
implementing Group strategy.
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The Board has adopted formal
procedures for Directors to take
independent professional advice
where necessary at the Company’s
expense. Each Director has full access
to the services of the Company
Secretary, who is also responsible
for ensuring that Board procedures
and all applicable rules and regulations
are followed.
The Board has an approved and
documented schedule of matters
reserved for its decision. These include
approval of the Group’s strategy, annual
budgets, material agreements, major
capital expenditure and acquisitions,
financial arrangements and the
monitoring of performance, health,
safety, environmental matters and
risk management procedures.
The Board has also adopted a formal
induction process for Directors,
including visits to principal sites and
meetings with operating management.
Training sessions have been organised
during the year for the Board on
matters considered relevant to the
discharge of the Directors’ duties, and
Directors may undertake additional
training where necessary as part of
their continuing development, at
the expense of the Company.
BOARD LEADERSHIP
PZ Cussons is led by a Board
whose Directors are collectively
responsible for creating and
delivering long-term sustainable
value for the business. A key
responsibility of the Board is
to balance the interests of the
Group, including our shareholders,
stakeholders, employees and the
wider communities we serve.
We will achieve this through:
V Developing the Group’s strategy
and monitoring its performance
and progress
V Leading and overseeing culture,
and providing support to the
Executive Directors in the
discharge of their duties
V Taking responsibility for the
Board’s own succession and
oversight of effective senior
management succession
V Ensuring the business meets all
of its regulatory obligations and
upholds the highest standards of
corporate governance
V Assessing the financial, operational
and reputational risks facing the
Group and ensuring appropriate
measures are in place to mitigate
and control these risks
V Ensuring that decisions and actions
taken are properly informed and
effectively communicated
V Ensuring active engagement with
the employee population.
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REPORT ON CORPORATE GOVERNANCE
GOVERNANCE FRAMEWORK
The Board has ultimate responsibility for the long-term success and sustainability of the business. It approves the Group’s long-term
objectives and commercial strategy, and provides oversight of the Group’s operations to ensure competent and prudent management,
sound planning, an adequate system of internal control, adequate accounting and compliance with statutory and regulatory obligations.
THE BOARD
V SEE PAGES 70 TO 73
T(cid:43)(cid:40) (cid:37)OA(cid:53)D D(cid:40)(cid:47)(cid:40)(cid:42)AT(cid:40)(cid:54) C(cid:40)(cid:53)TA(cid:44)N (cid:48)ATT(cid:40)(cid:53)(cid:54) TO (cid:44)T(cid:54) P(cid:53)(cid:44)NC(cid:44)PA(cid:47) CO(cid:48)(cid:48)(cid:44)TT(cid:40)(cid:40)(cid:54),
WHICH ARE RESPONSIBLE FOR:
AUDIT & RISK
CO(cid:48)(cid:48)(cid:44)TT(cid:40)(cid:40)
Reviewing the Group’s
accounting and financial
policies, its disclosure
practices, internal controls,
internal audit and risk
management; and overseeing
all matters associated with
the appointment, terms,
remuneration and performance
of the External Auditor.
NO(cid:48)(cid:44)NAT(cid:44)ON
CO(cid:48)(cid:48)(cid:44)TT(cid:40)(cid:40)
Ensuring that the structure,
size and composition of
the Board and the senior
leadership team are best
suited to deliver the
Company’s strategy and meet
current and future needs.
(cid:53)(cid:40)(cid:48)(cid:56)N(cid:40)(cid:53)AT(cid:44)ON
CO(cid:48)(cid:48)(cid:44)TT(cid:40)(cid:40)
Reviewing and recommending
the framework and policy
for remuneration of the
Executive Directors and
senior executives.
GOOD4BUSINESS
CO(cid:48)(cid:48)(cid:44)TT(cid:40)(cid:40)
Reviewing and developing the
Company’s corporate strategy
to ensure that Corporate
Social Responsibility (CSR) is
an integral part of the strategy
and that the Group’s social,
environmental and economic
activities are aligned.
V SEE PAGES 78 TO 83
V SEE PAGES 84 TO 87
V SEE PAGES 88 TO 90
V SEE PAGE 51
The Executive Leadership Team (ELT) comprises the Executive Directors, Regional Managing Directors and Global Heads of key enabling
functions. It is responsible for the delivery of the Group strategy and the day-to-day operational performance of the business.
T(cid:43)(cid:40) (cid:40)(cid:59)(cid:40)C(cid:56)T(cid:44)(cid:57)(cid:40) (cid:47)(cid:40)AD(cid:40)(cid:53)(cid:54)(cid:43)(cid:44)P T(cid:40)A(cid:48)
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BOARD COMMUNICATION WITH EMPLOYEES
The UK Corporate Governance Code
requires company boards to listen to –
and understand – the ‘employee voice’.
Our Directors already engage with
employees in several ways, including
Board visits to our locations around
the world and participating in the
Group’s Annual Leadership Week which
is attended by senior leaders from all
across the world. The Chair also visits
business units three to four times
annually and Board meetings usually
include presentations from our business
leaders and employees.
Dariusz Kucz was appointed at the end
of the year as the Group’s designated
Non-executive Director to represent
the employee voice and engagement
on the Board. He will work with the
Group Human Resources Director,
drawing insights and actions from
our employee communications
channels and reporting to the
Board as appropriate.
It is anticipated that he will visit our
Nigeria, Indonesia, UK and Beauty
businesses annually and at least one
other business unit every two years.
Visits will include interaction with
leaders and employees at all levels on
pre-determined topics and will feature
‘town hall’ and (cid:52)&A sessions.
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INITIATIVES TO ENCOURAGE TWO-WAY COMMUNICATION
AND EMPLOYEE ENGAGEMENT
Designated Non-
executive Director
to work with HR
to draw insights
and actions from
all communication
channels as well
as Chair and Board
business unit visits
Designated Non-
executive Director
to visit Nigeria,
Indonesia and UK
operations annually to
interact with leaders
and employees at
(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:83)(cid:79)(cid:72) (cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)
Introduce ‘town
hall’ sessions with
Q&A sessions on pre-
determined topics
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REPORT ON CORPORATE GOVERNANCE
• reviewed health & safety,
consumer safety and
environmental performance
across the Nigerian business;
• reviewed key Good4Business
initiatives in Nigeria; and
• met and socialised with members
of the PZ Cussons Nigeria Plc Board
of Directors, members of the local
management team and high-potential
junior employees, and visited the
Nigerian Stock Exchange upon which
PZ Cussons Nigeria Plc is listed.
In addition, as part of their induction
as new Directors, Dariusz Kucz visited
the Group’s operations in Indonesia,
Singapore and Australia, while Tamara
Minick-Scokalo visited Indonesia
and Singapore.
BOARD SITE VISITS
During the year, the Directors visited
various Group operations around
the world. The aim of these visits
is to ensure Directors have a good
understanding of the Group’s markets
and operations and to maintain a
regular dialogue with employees at
all levels of the business.
It is the Board’s practice to visit at least
one of our major markets, together,
every year and to hold one of our
regularly scheduled Board meetings
in that location. In 2018/19 the Board
visited Nigeria. In the course of its visit,
the Board:
• heard from a leading Nigerian
economist regarding macro-
economic, social and political
conditions in one of the Group’s
most important markets;
• undertook a tour of local markets,
visiting both traditional and modern
trade to see the Group’s products in
the field and meet with customers
and distributors;
• toured the Nigerian business’s
factories in Ikorodu and Ilupeju,
receiving presentations from
employees at all levels of
the business;
• received presentations from the
local senior management team
on trading performance and
key initiatives;
BOARD VISIT TO NIGERIA
In November 2018, the Board of
Directors – including Group Chair
Caroline Silver – visited Nigeria to
see the Group’s operations at first
hand. The itinerary included a tour
of our Ikorodu factory production
lines and distribution centre, as
well as presentations and meetings
with suppliers and distributors. The
Directors also spent time with several
‘high-potential’ employees, whose
qualities and abilities distinguish
them as likely candidates for our
next generation of leaders.
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OUR CULTURE, VALUES AND BEHAVIOURS
Over the last year, our leaders have been sharing what we call our
‘PZ Story’ with employees: a way that we graphically describe our
organisational purpose and ambition born out of the belief of our
forefathers, and underpinned by our CANDO! values and behaviours.
Our story not only describes our culture, which is unique to PZ Cussons
and sets us apart from other organisations, but it also sets the
expectations for how things get done and why. It serves as our ‘true
north’, guiding the decisions that we make and how we do business.
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Build
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Focus
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Why we exist
Enhancing everyday life,
creating moments
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Our
Ambition
To grow our business while staying
true to our authentic family spirit.
Focusing on our consumers and
local markets better than anyone
else, so we can respond quickly.
Because we want to leave a legacy
for the next generation that we
can all be proud of.
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REPORT ON CORPORATE GOVERNANCE
The role of the
Board and its
responsibilities
The Board is responsible for the long-term success and sustainability
of the business. The responsibility of the members of the Board and
of each of the Board Committees is set out below.
REMUNERATION COMMITTEE
The Remuneration Committee
is responsible for reviewing and
recommending the framework and
policy for remuneration of the Executive
Directors and senior executives, which
the Board as a whole is responsible for
approving. The Committee is responsible
for evaluating the performance of, and
determining specific remuneration
packages for, each Executive Director,
the Chair and the Company Secretary.
With the exception of the Non-executive
Chair, the fees of the Non-executive
Directors are determined by the
Executive Directors.
Further details of the Committee
members, its responsibilities and
its activities during the year, and of
Directors’ remuneration, are set out in
the Report on Directors’ Remuneration.
BOARD AND ITS
RESPONSIBILITIES
The Board has established a number of
standing committees to which various
matters are delegated according to
defined terms of reference. The terms
of reference of the committees are
available on the Company’s website
www.p(cid:93)cussons.com and will also be
available at the Annual General Meeting.
NOMINATION COMMITTEE
The Nomination Committee is
responsible for regularly reviewing the
structure, size and composition of the
Board, identifying and recommending
appropriate candidates for membership
of the Board when vacancies arise,
and ensuring that effective succession
planning procedures are in place for
senior roles.
Details of the Committee members, its
responsibilities and principal activities
and priorities during the year are set
out in the separate Statement from the
Chair of the Nomination Committee.
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CHAIR
> Responsible for the effective running
of the Board and ensuring that the
Board plays a full and constructive part
in the development and determination
of the Group’s strategy and overall
commercial objectives;
> Ensures there is effective communication
by the Group with its shareholders and
that members of the Board develop
an understanding of the views of
major investors;
> Ensures that the performance of the
Board as a whole, its Committees, and
individual Directors is formally evaluated
at least once a year; and
> Promotes the highest standards of
integrity and corporate governance
throughout the Group, particularly
at Board level.
CHIEF EXECUTIVE OFFICER
> Responsible for all executive
management matters affecting
the Group and leads the Executive
Leadership Team;
> Responsible for proposing and
developing the Group’s strategy
and overall commercial objectives
(in close consultation with the Chair and
the Board);
> Promotes and conducts the affairs of
the Group with the highest standards of
integrity and corporate governance; and
> Champions the Company’s values and
behaviours across the whole Group.
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NON-EXECUTIVE DIRECTORS
> Contribute to the development
of the Group’s strategy; and
> Review and constructively challenge
the performance of management in
the execution of strategy.
THE
BOARD
COMPANY SECRETARY
> Facilitates the effective operation
of the Board and ensures that
the Directors receive accurate,
timely and clear information to
enable them to discharge their
responsibilities; and
> Provides advice to the Board in
respect of governance matters
and champions good corporate
governance across the business.
CHIEF FINANCIAL OFFICER
(CURRENTLY PERFORMED
BY THE INTERIM CFO)
> Provides accurate, timely and clear
information to the Board in respect
of the Group’s performance;
> Responsible for the preparation and
integrity of financial reporting; and
> In conjunction with the Chief Executive
Officer, leads the communication
programme with shareholders and
other stakeholders.
SENIOR INDEPENDENT
DIRECTOR
> Available for confidential discussions
with other Non-executive Directors;
> Conducts an annual appraisal of the
Chair’s performance;
> Available to shareholders if they have
concerns which contact through the
normal channels has failed to resolve or
for which such contact is inappropriate;
and
> Provides a sounding board for the Chair.
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REPORT ON CORPORATE GOVERNANCE
Attendance at meetings
The number of scheduled meetings
of the Board (excluding such ad-hoc
meetings as were necessary during
the year to address specific matters
arising) and of each of the Audit &
Risk, Remuneration and Nomination
Committees during the year ended
31 May 2019, together with a record of
the attendance of the current Directors
who are their respective members,
is detailed in the table below:
AUDIT & RISK COMMITTEE
The Audit & Risk Committee is
responsible for reviewing, on behalf of
the Board, the Group’s accounting and
financial policies, disclosure practices,
internal controls, internal audit and
risk management. It is responsible for
overseeing all matters associated with
the appointment, terms, remuneration
and performance of the External
Auditor and for reviewing the scope
and results of the external audit and
its cost-effectiveness.
Further details of the Committee
members, responsibilities and activities
during the year are set out in the Audit &
Risk Committee Report on page 78.
Board
Audit & Risk Committee
Remuneration Committee
Nomination Committee
Number of
meetings
eligible to
attend
Number of
meetings
attended
Number of
meetings
eligible to
attend
Number of
meetings
attended
Number of
meetings
eligible to
attend
Number of
meetings
attended
Number of
meetings
eligible to
attend
Number of
meetings
attended
6
6
6
6
6
6
6
6
6
6
6
6
6
6
5
6
n/a
n/a
n/a
5
n/a
5
5
n/a
n/a
n/a
n/a
5
n/a
5
4
n/a
n/a
n/a
n/a
n/a
4
4
n/a
4
n/a
n/a
n/a
n/a
4
4
n/a
4
n/a
n/a
4
1
4
1
1
4
n/a
n/a
4
1
4
1
0
4
Mr G A Kanellis
Mr B Leigh
Mrs C Silver
Mr J Nicolson
Mrs H Owers
Mr J Maiden
Mrs T Minick-Scokalo
Mr D Kucz
Note:
‘n/a’ indicates that the Director is not a member of the Committee.
No Director participates in meetings when matters relating to him/her are being discussed.
GOOD4BUSINESS COMMITTEE
The Good4Business Committee is responsible for reviewing and developing the Company’s corporate strategy to ensure
that Corporate Social Responsibility (CSR) is an integral part of the strategy and that the Group’s social, environmental and
economic activities are aligned. The Good4Business Committee is responsible for the development of policies on all key areas
of the Company’s CSR programme – Good4Business – including Business Governance and Ethics, the Environment, Sourcing
and Community and Charity. Further details of the Committee’s terms of reference and activities during the year are set out
in the Good4Business section of the Strategic Report.
During the year ended 31 May 2019, the Committee members were:
Mr Nicolson (Committee Chair)
Mr Kanellis
Mr Leigh
Mrs Minick-Scokalo
Mrs Silver
The Company Secretary, Mr Plant, is secretary to the Committee.
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WHAT THE BOARD DID THIS YEAR
In addition to standing items of business, the Board addressed the following key matters during the year:
July 2018
September 2018
November 2018
January 2019
March 2019
May 2019
Approved
the Financial
Statements and
Annual Report &
Accounts for FY18
Held the 2018
Annual General
Meeting
Reviewed the
commercial
strategy for the
Group’s Beauty
business unit
and expansion
in the US
Reviewed the
strategy for the
Group’s Personal
Care and Home
Care categories
Reviewed plans
to communicate,
embed and
activate the
Group’s Palm
Oil and Plastic
Promises
Reviewed key
actions and
recommendations
from the Board
effectiveness
review
Visited the
Group’s Nigerian
business (see
further details
on page 68)
Reviewed the
Group’s five year
strategic plan
Reviewed global
IT risk and the
Company’s
mitigation plan
Approved the
interim results
and related
announcements
for the six
months ended 30
November 2018
Reviewed the
potential impact
of Brexit on the
business and the
Group’s related
mitigation plans
Reviewed the
performance
and key strategic
initiatives for the
UK business
Reviewed the
outcome of a
global anti-bribery
and corruption risk
assessment and
the related action
plan
Undertook a full
review of the
Group’s strategy
Approved the
Group budget
for FY20
Undertook a
comprehensive
review of the
Group’s Nigerian
business
Reviewed and
approved the
Group’s global
plan in respect
of the Plastic
Promise
Reviewed the
key focus and
strategic initiatives
of the global
procurement
function
ADVICE AVAILABLE TO THE DIRECTORS
All our Directors have access to the advice and services
of the Company Secretary. Directors may also take
independent professional advice at the Company’s expense
where they judge it necessary to do so in order to discharge
their responsibilities as Directors.
CO(cid:48)PAN(cid:60)
(cid:54)(cid:40)C(cid:53)(cid:40)TA(cid:53)(cid:60)
EXTERNAL
CONSULTANCIES
I
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P
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O
V
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A
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T
A
T
E
M
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N
T
S
O
T
H
E
R
I
N
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M
A
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REPORT ON CORPORATE GOVERNANCE
Board
Composition,
succession and
evaluation
COMPOSITION AND
INDEPENDENCE
The size of the Board allows individuals
to communicate openly and make a
personal contribution through the
exercise of their individual skills and
experience. As at the date of this
report, the Board of Directors has
seven members: the Non-executive
Chair, the Chief Executive Officer and
five other Non-executive Directors.
The names of the Directors together
with their biographical details are set
out on pages 60 and 61.
The Non-executive Directors have been
appointed for their specific experience
and expertise and are all considered
to be independent of management
and free from any business or other
relationship which could materially
interfere with the exercise of their
independent judgement. Mr Nicolson
is the Senior Independent Director.
Non-executive Directors may serve
on the boards of other companies
provided this does not involve a
conflict of interest and that the
appointment does not restrict their
ability to discharge their duties to
the Company in any way.
As set out in the Report of the
Directors, the Board has resolved to
comply with the provisions of the Code
and each Director seeks re-election
annually. In view of the existence of
a group of controlling shareholders
(see the Report of the Directors on
page 111), the election or re-election
of independent Directors is subject
to a dual shareholder vote at the
Annual General Meeting, pursuant to
which re-election or election must be
approved by a majority vote of the
shareholders of the Company and,
separately, by a majority vote of the
shareholders of the Company excluding
the controlling shareholders.
The Executive Directors’ service
contracts and the letters setting out
the terms of appointment of the Non-
executive Directors are available for
inspection at the Company’s registered
office during normal business hours and
at the Annual General Meeting.
ADDITIONAL APPOINTMENTS
TO THE BOARD
The Board recognises that the Company
benefits from the experience and
different perspectives which Directors
bring from other boards or businesses.
However, this must be balanced against
the need to ensure that Directors
have sufficient time and capacity to
fully discharge their responsibilities to
the Board. The Board has accordingly
adopted the provisions of the 2018
Code in requiring that Directors
may accept additional external
appointments only with the prior
approval of the Board.
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SUCCESSION AND TALENT
DEVELOPMENT
Effective succession planning,
underpinned by robust talent
development, is critical to the future
health and sustainability of the
business. This is recognised as a key
responsibility of the Board and forms
an important component of the
work of the Nomination Committee,
of which each Non-executive Director
is a member. Further details on the
Board’s work in this respect are set out
in the Nomination Committee report
on page 84.
BOARD INDUCTION PROCESS
The Board recognises the importance
of ensuring that new Directors have an
early and complete introduction to the
business so that they are able to make
a full and meaningful contribution to
its work. To that end, the Board has
adopted a comprehensive induction
programme for new Directors,
including orientation meetings
with key senior executives and
advisors, bespoke training on relevant
regulatory and legal obligations and
on important Board procedures and
processes, and visits to key business
units. The programme was further
refined and improved during the year.
Further details on the Company’s
induction programme are set out in
the Nomination Committee report
on page 84.
During the year, the Board consented
to each of Mrs Silver, Mrs Owers, Mrs
Minick-Scokalo and Mr Kucz taking
on additional appointments. In each
case, the Board received information
regarding the proposed appointments
and determined that there was no
potential for conflict and that they
would not have any impact upon the
individuals’ capacity to discharge their
duties as Directors. In providing its
consent, the Board took particular
account of the fact that, during the
year, Mrs Silver and Mr Kucz each
stepped down from full-time executive
roles and that Mrs Minick-Scokalo had
retired from one of her pre-existing
non-executive positions before seeking
to take on a new role.
DIVERSITY
PZ Cussons supports the Code
provision that boards should consider
the benefits of diversity, including
gender, when making appointments.
The Company is committed to ensuring
diversity not just at Board level but
also across the Company’s senior
management team, not least because
it believes that business benefits from
the widest range of perspectives and
backgrounds. The Company’s aim, as
regards the composition of the Board,
is that it should have a balance of
experience, skills and knowledge to
enable each Director, and the Board
as a whole, to discharge their duties
effectively. The Board’s approach to
diversity is set out in the Nomination
Committee report on page 84. Further
details on diversity within the business
are set out in the Report of the
Directors on page 110.
PERFORMANCE EVALUATION
Effectiveness reviews of the Board
and its committees, including their
composition, governance and
performance, are carried out annually.
It is the Board’s policy to conduct an
externally facilitated review every
three years. Ahead of the next such
review in 2020, the Board’s performance
and effectiveness in this period has been
facilitated by the Company Secretary
who, in conjunction with the Chair of the
Board, prepared a detailed questionnaire
relating to the composition, governance
and performance of the Board for
completion by the Directors. The
results of that exercise have been
reviewed by the Chair of the Board and
the Chairs of each Board committee,
discussed in a formal meeting and
the recommendations recorded and
acted upon. Further details are set out
in the Nomination Committee report
on page 84.
The review process undertaken during
the year concluded that all Directors
continue to contribute effectively
and with proper commitment,
allocating adequate time to carry
out their duties. The Chair conducts
one-to-one performance evaluations
with each of the Non-executive
Directors, taking due account of the
results of the Board effectiveness
review, and also conducts an annual
assessment of the performance of
the Chief Executive Officer. Her own
performance is considered by the
Non-executive Directors, meeting in
her absence, and the results of this
process are reviewed with her by the
Senior Independent Director. The
Remuneration Committee reviews
Executive Directors’ performance with
guidance from the Chief Executive
Officer (other than in respect of his
own position).
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Audit, risk and
internal control,
remuneration and
relations with
shareholders
INTERNAL CONTROL
AND POLICIES
The Board is ultimately responsible for
the Group’s system of internal control
and for reviewing its effectiveness.
Such a system is designed to 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 Board is of the view that there is
an ongoing process for identifying,
evaluating and managing the Group’s
significant risks, that it has been in
place for the year ended 31 May 2019
and up to the date of the approval
of the Annual Report & Accounts,
that it is regularly reviewed by the
Board, and that it accords with
the Financial Reporting Council’s
Guidance on Risk Management,
Internal Control and Related
Financial and Business Reporting.
The process includes:
• frequent communication between
the Board and the Audit & Risk
Committee and subsidiary
management on all critical
business issues;
• regular visits to operating units by
the Board, Head Office management
and Internal Audit;
• regular review of budgets,
forecasts, periodic reporting and
variance analysis;
• regular review by the Board and
Audit & Risk Committee of risk
throughout the Group and the risk
management processes in place; and
• taking necessary action to remedy
any significant weaknesses
found as part of the review of
the effectiveness of the internal
control system.
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The Company has periodic discussions
with institutional shareholders on a
range of issues affecting the Group’s
performance. The Board is also kept
informed of investors’ views through
regular discussion of analysts’ and
brokers’ briefings and investor
opinion feedback.
All shareholders, including private
investors, have an opportunity to
present questions to the Board at
the Annual General Meeting, and the
Directors make themselves available
to meet informally with shareholders
before and after the meeting.
GENERAL MEETINGS
OF SHAREHOLDERS
The business to be conducted at
the Annual General Meeting of the
Company is set out in the separate
Notice of Annual General Meeting
which accompanies the Annual Report
& Accounts. Resolutions put before
shareholders at the Annual General
Meeting will usually include resolutions
for the appointment of Directors,
approval of the Report on Directors’
Remuneration, declaration of the
final dividend and authorisation for
the Board to allot and repurchase
shares. At the 2019 Annual General
Meeting, voting on each resolution
will be by way of a poll. At each Annual
General Meeting there is an update
on the progress of the business over
the last year and also on current
trading conditions.
Throughout the year, the Board carried
out assessments of internal control
by considering documentation from
the Executive Directors, Audit & Risk
Committee and Internal Audit function
as well as taking into consideration
events since the year end. The internal
controls extend to the financial
reporting process and the preparation
of consolidated accounts. The basis
for the preparation of consolidated
accounts is as set out in Note 1 to the
Consolidated Financial Statements.
The Group continues to take
steps to embed internal control
and risk management further into
the operations of the business and
to deal with areas for improvement
which come to the attention
of management and the Board.
The Group has ethical guidelines
and a defined fraud reporting and
whistle‑blowing process which
are issued to all employees within
the Group.
Overall no control failings or weaknesses
were identified that would have a
significant impact on the Group. However,
recommendations were raised where
necessary at specific sites or in respect
of functions or operations to strengthen
existing processes and controls, and
follow-up audit visits were carried out
as necessary to ensure that agreed
corrective actions were being taken.
RELATIONS WITH
SHAREHOLDERS
In its financial reporting to shareholders
the Board aims to present a balanced
and understandable assessment
of the Group’s financial position
and prospects.
The Company maintains a corporate
website, www.pzcussons.com. This
contains a wide range of information
of interest to institutional and
private investors and a subscription
email service is available which gives
access to Company notifications
and news releases.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION AUDIT & RISK COMMITTEE REPORT
JEZ MAIDEN
Chair of the Audit &
Risk Committee
KEY OBJECTIVE OF THE COMMITTEE
To oversee the quality and integrity of the accounting, auditing,
reporting and risk management practices of the Company and
compliance with related legal and regulatory obligations.
KEY RESPONSIBILITIES OF THE COMMITTEE
• Monitor the integrity of the Financial Statements and
announcements and review significant financial reporting
requirements, issues and judgements;
• Review the adequacy and effectiveness of the Group’s systems
and processes for internal financial control;
• Review the effectiveness and output of the Group’s Internal
Audit function and programme;
• Oversee the appointment, terms, remuneration and
performance of the External Auditor and the scope, results,
cost effectiveness and quality of the audit;
• Review the adequacy and effectiveness of the Group’s
risk management systems and mitigation programmes; and
• Review the adequacy of the Group’s whistle-blowing
arrangements and procedures for detecting fraud.
Detailed responsibilities are set out in the Committee’s Terms
of Reference, which can be found on the Company’s website
www.pzcussons.com.
PRIORITIES FOR 2020
• Support induction of the new Chief Financial Officer and Group
Head of Internal Audit role holders;
• Monitor the continued extension of automated IT and
system controls;
• Review findings of the expanded risk-based internal
audit programme;
• Monitor ongoing changes to financial systems and controls,
including extension of regional shared service functions;
• Follow up findings from the FY19 internal audit programme; and
• Consider implications for the Group’s external audit arising
from emerging developments in corporate governance and
auditor regulation.
COMMITTEE MEMBERSHIP
Member
JM Jez Maiden
JN John Nicolson
TMS Tamara Minick-Scokalo
Joined
2016
2016
2018
78
INTRODUCTION
On behalf of your Board, and as Chair
of the Audit & Risk Committee, I am
pleased to present the Committee’s
report for the year ended 31 May 2019.
I set out below how the Committee has
carried out its responsibilities during
the year and provide detail on the
Committee’s principal activities.
The experience of the Committee
members is summarised on pages 60
and 61. I have held a number of listed
finance director roles and am Group
Finance Director of Croda International
Plc, the FTSE 100 speciality chemicals
business. The Board considers each
member of the Committee to be
independent within the definition of
the 2018 UK Corporate Governance
Code and they bring a broad and diverse
spread of commercial experience,
such that the Board is provided with
assurance that the Committee has the
appropriate skills and experience to
be fully effective and meets the Code
requirement that at least one member
has significant, recent and relevant
financial experience.
The Committee meets regularly
with the External Auditor and
representatives attend all meetings.
The Group Head of Internal Audit
& Risk also attends all Committee
meetings. The Non-executive Chair
and the Executive Directors are not
members of the Committee but they
attend meetings where appropriate,
by invitation, along with the Group
Financial Controller and Head of
External Reporting.
The Committee periodically and
I more regularly, meet separately
with the External Auditor, without
the Executive Directors being present.
I also meet separately with the Group
Head of Internal Audit & Risk before
each meeting. This helps me to better
understand the key issues and to ensure
that sufficient time is devoted to them
at each meeting.
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 COMMITTEE ACTIVITIES DURING 2018/19 AND ATTENDANCE
July 2018
September 2018
November 2018
January 2019
May 2019
Engagement of
internal audit co-source
partner
Review of feedback
from the FY18 audit
process
Review of controls
assurance
Review of Group
litigation register
Review of financial
controls
Approval of
preparation of
accounts on a going
concern basis and
review of viability
assessments
Review of SAP control
environment
Review of internal
audit programme and
key issues arising
Review of UK payment
practice reporting
Annual review of the
Committee’s Terms of
Reference
Review of the report
of the External Auditor
Review of internal
audit programme and
key issues arising
Review of regional
risk registers, with
particular focus on the
key risks for Nigeria
and socio-political risks
Review of new
accounting standards
for FY19
Bi-annual review of the
Group risk register
‘Deep dive’ review of
a key risk – consumer
safety
‘Deep dive’ review of a
key risk – IT
Agreement of half year
external audit plan
Review of draft report
and accounts and
results announcement
for the year ended
31 May 2018
Review and approval
of non-audit fees
Meeting with the
External Auditor
without management
present
Review of the report
of the External Auditor
Approval of the new
Internal Audit Charter
Review of the interim
results announcement
for the six months
ended 30 November
2018
Review of internal
audit programme and
key issues arising
Meeting with the
External Auditor
without management
present
Review of the
effectiveness of the
Internal Audit function
Review and approval
of revised Treasury
and Non-audit Services
Policies
Review of the FY19
external audit plan
Review of internal
audit programme and
key issues arising, and
approval of the FY20
programme
Meeting with the
Group Head of Internal
Audit in the absence of
management
Bi-annual review of the
Group risk register
Members present
Members present
Members present
Members present
Members present
JM
JN
TMS
JM
JN
TMS
JM
JN
TMS
JM
JN
TMS
JM
JN
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
AUDIT & RISK COMMITTEE REPORT
KEY FOCUS AREAS DURING FY19
During the year, the Committee reviewed a range of topics, including the following key focus areas:
(cid:46)ey focus area
Audit (cid:9) (cid:53)isk Committee input
Areas of significant financial
judgement
The Committee received regular updates from management on the areas considered to have
significant financial judgement applied. These are set out on pages 82 and 83.
SAP governance
Controls assurance
Risk management
Information security
The Committee considered the ongoing effectiveness of the SAP controls across the Group
including receiving updates on the introduction of continuous monitoring and data analytics
tools used in key business processes and systems.
The Committee received regular updates on internal control actions including a detailed review
of trade promotions, a major area of expenditure.
The Committee has continued to review, on behalf of the Board, the register of material risks
facing the Group and the adequacy and effectiveness of management’s risk mitigation plans in
respect of the risks. The Committee regularly reviews the plans in place and schedules periodic
‘deep dive’ reviews of individual risks at which key personnel are required to appear before the
Committee to report on progress, challenges and key activities. During the year, ‘deep dive’
reviews were undertaken in respect of a range of risks including IT and consumer safety.
The Internal Audit function, utilising the expertise of the co-source assurance partner KPMG,
undertook a cyber security maturity review to obtain a holistic view of the Group’s information
security assurance capability. A report was presented to the Committee, which included a
maturity assessment across several areas, including: leadership and governance; training and
awareness; information risk management; business continuity; operations and technology; and
legal and compliance. The Committee discussed how the Group benchmarked against industry
peers, identified opportunities to improve cyber security and agreed a detailed action plan with
management. Cyber security testing forms a core part of the IT controls testing by Internal Audit
and the Committee approved a follow up review to be performed as part of the FY20 audit plan
to ensure all required actions are undertaken.
Where appropriate, I comment further on these areas below.
‘BUSINESS AS USUAL’ ACTIVITY
The Committee routinely reviewed
the key Financial Statements and
financial announcements of the Group.
At the request of the Board, the
Committee considered whether the
2019 preliminary results and the Annual
Report & Accounts were fair, balanced
and understandable and whether they
provided the necessary information
for shareholders to assess the Group’s
position, performance, business model
and strategy. This followed a revision
to the style and format of the Annual
Report, completed at the request
of the Board. The Committee was
satisfied that, taken as a whole, the
2019 results reports were fair, balanced
and understandable.
A significant part of the Committee’s
routine work relates to monitoring
the Group’s system of internal control.
This is set out in the Report on
Corporate Governance.
EXTERNAL AUDIT
FY19 was the second year to be audited
by Deloitte LLP. The Committee
reviewed and approved: the external
audit plan; an assessment of significant
audit risks; the scope of the audit; an
assessment of the members of the
external audit team, agreeing relevant
changes to ways of working and to
audit and management reporting
processes from the first audit year;
audit quality; non-audit services and the
independence of the External Auditor.
The Committee also reviewed and
agreed the external audit fee.
INTERNAL AUDIT
The Internal Audit function carries out
work across the Company, providing
independent assurance and advice
to help the organisation achieve its
strategic priorities. In May 2018, the
Committee agreed the FY19 audit
plan to be undertaken by the internal
audit team.
Whilst risk-based, the audit plan
coverage also ensures all components
of the Group are routinely reviewed.
In addition, the services of a co-source
assurance partner are retained to
ensure complex or bespoke areas of risk
are adequately appraised. In FY19 the
Committee approved the appointment
of KPMG LLP to this role. The Committee
reviews the results of the internal audit
reports during each meeting, looking in
detail at any reports where processes
and controls require improvement.
The Committee is also provided with
updates on implementation of agreed
actions and overall control environment
progress at each meeting. Internal audit
resource is maintained at a level where,
if internal or external circumstances
should give rise to an increased level of
risk, the audit plan can be supplemented
accordingly during the year. Any changes
to the agreed audit plan are presented
to and agreed by the Committee.
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The effectiveness of the Internal Audit
function is reviewed on an annual
basis. The FY19 review was conducted
with the Committee, the Executive
Leadership Team and senior business
unit management and covered the
function’s independence, its experience
and expertise, the scope of the annual
audit plan, the quality of reports issued
and the identification of issues. The
Committee concluded that the Internal
Audit function remained effective in
FY19. In June 2019 the Group Head
of Internal Audit left the business
and the Committee is supporting the
appointment of a new Head.
RISK MANAGEMENT
The Executive Leadership Team is
responsible for identifying, assessing and
prioritising the principal risks facing the
Group and ensuring, where possible, that
appropriate action is taken to manage
and mitigate those risks in line with a
framework of risk limits and risk appetite
which has been set by the Board. The
Audit & Risk Committee is accountable
for reviewing the effectiveness of this
approach to risk management, and that
of the internal control systems that
monitor this, on behalf of the Board,
which retains overall responsibility for
risk management.
To enable it to complete its oversight,
the Committee has established a
Risk Management Policy to drive a
consistent Group-wide approach to risk
identification and management. Material
risks facing the Group are identified,
informed by both ‘top-down’ reviews
by the Group’s Executive Leadership
Team and ‘bottom-up’ reviews by
business units and functions, and their
importance is assessed by reference to
their likelihood and potential impact.
Material risks are allocated to a member
of the Executive Leadership Team who
has responsibility for formulating a
plan to eliminate, reduce or transfer
risk where practicable. The Committee
then undertakes ongoing reviews of
management’s plans to ensure that
they are effectively implemented.
The Committee is also responsible for
encouraging and supporting two-way
communications in respect of risk issues
within the business and with external
stakeholders including shareholders,
suppliers and customers. The key risks
that the Committee reviewed are set
out on pages 44 to 49. During the year,
the Board as a whole conducted a
robust review of the principal risks and
uncertainties facing the Group and the
output of this review formed the basis of
the work undertaken by the Committee
during the year.
‘SPEAK UP’ POLICY
The Group’s ‘Speak Up’ policy
contains arrangements for an
independent service provider to
receive, in confidence, reports of
breaches of any legal or Company
policy requirements, including those
related to accounting, auditing, risk,
internal control and related matters.
All disclosures are reported to the
Committee, together with the outcome
of an independent investigation.
EFFECTIVENESS,
INDEPENDENCE AND
REAPPOINTMENT OF THE
EXTERNAL AUDITOR
During the year, the Committee
reviewed its Provision of Non-Audit
Services Policy to ensure its continuing
suitability and effectiveness and
its compliance with the Financial
Reporting Council’s Guidance on Audit
Committees (2016) and Revised Ethical
Standard (2016). The Policy recognises
the criticality of the independence
and objectivity of the External Auditor
and the need to ensure that this is not
impaired by the provision of non-audit
services. The Policy also recognises,
however, that it may be beneficial
for the External Auditor to provide
certain services because of its existing
knowledge of the business or because
the information required is a by-
product of the audit process. In these
circumstances, the External Auditor is
permitted to provide certain non-audit
services where these are not, and are
not perceived to be, in conflict with
its independence.
The Policy identifies services that
are prohibited and those that are
permitted subject to formal approval.
Prohibited services include those where
the External Auditor participates in
activities that are normally undertaken
by management, is remunerated
through a success fee or similar, or
may be required to audit its own work
(including tax services, legal services,
internal audit work and work on
internal control or risk management
procedures). Other non-audit services
may be undertaken by the External
Auditor where it has the requisite skills
and experience, it is considered to be
the most appropriate to undertake such
work in the best interests of the Group,
the provision of such services does not
impair its independence and objectivity
and the related fees – both in respect
of individual services and in aggregate
– are not material relative to the
Group external audit fee. Any services
attracting a fee of more than £10,000
must first be approved by the Chair of
the Audit & Risk Committee, with any
services in excess of £50,000 requiring
prior full Committee approval.
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All assignments are monitored by the
Committee. The amounts paid to the
External Auditor were £812,000 (2018:
£801,000) during the year, comprising
£770,000 (2018: £760,000) for audit
services and £42,000 (2018: £41,000)
for other services as set out in Note 4 to
the Consolidated Financial Statements.
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In conclusion and taking into account
the appointment of a new External
Auditor and the application of the
revised Provision of Non-Audit Services
Policy, the Committee is satisfied that
Deloitte LLP was independent at all
times during the year under review.
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AUDIT & RISK COMMITTEE REPORT
EXTERNAL AUDITOR
EFFECTIVENESS
It is the Committee’s usual practice
to undertake a detailed review of the
performance and effectiveness of the
External Auditor in performing the
audit, informed by the output from
a questionnaire completed by senior
finance personnel across the Group.
Taking into account the positive nature
of the feedback received from the
business and the Committee’s own
experiences working with Deloitte LLP
during the year, the Committee has
satisfied itself that the External Auditor
is providing an effective service.
EXTERNAL AUDITOR
REAPPOINTMENT
Taking into account the audit tender
process concluded in FY17 which
culminated in the appointment of
Deloitte LLP in September 2017 and
the firm’s performance in its first
two years as External Auditor, the
Committee has recommended to the
Board that Deloitte LLP be offered
for reappointment at the 2019 Annual
General Meeting.
AREAS OF SIGNIFICANT
FINANCIAL JUDGEMENT
The Committee assesses whether
suitable accounting policies have been
adopted and whether management
has made appropriate estimates and
judgements. During the year, the
Committee reviewed accounting
papers prepared by management which
provided details on the main financial
reporting judgements. The Committee
also reviewed reports by the External
Auditor on the half year and full year
results which highlighted any issues
arising from the work undertaken in
respect of the half year review and
year end audit. The Committee was
cognisant of the additional judgements
and review required in a challenging
year for performance and in managing
the change to senior financial
management at the end of the year.
The specific areas of audit and
accounting judgement reviewed
by the Committee were:
Carrying value of goodwill and
other intangible assets
The Group’s goodwill and other
intangible assets are material balance
sheet items. Management performed its
annual impairment review of goodwill
and other indefinite-life intangible
assets. Impairment reviews are
performed based on key judgements
including forecasts and estimates of
future business performance and cash
generation, discount rates and long-
term growth rates. The Committee
reviewed management’s analysis and
confirmed the appropriateness of the
key judgements, as well as the specific
risk factors and sensitivities applied to
individual impairment reviews.
As part of the Board’s review of
performance, the Committee met in
June 2019 to review plans for both the
Nutricima and five:am cash-generating
units (CGUs). At its July meeting, it was
concluded by management and agreed
by the Committee that it was appropriate
to impair these CGUs by £3.9m and
£22.3m respectively. The Committee
also reviewed the plan for Rafferty’s
Garden and the conclusion not to impair,
but noted the limited headroom. The
Committee will continue to monitor
these operations to confirm that revised
plans are being delivered and that no
further impairment is required.
In addition, the impairment reviews
highlighted some prior year errors in the
calculation of goodwill and intangible
assets. The Committee reviewed these,
the restatements required and the
actions taken to avoid reoccurrence.
As required under IFRS, management
has included additional disclosures
around prior year restatements and
impairment in the Financial Statements.
The Committee has reviewed these
disclosures, included within Notes
1 and 10 of the Consolidated Financial
Statements respectively, and considers
them appropriate.
Classification of exceptional items
The Committee discussed the
treatment and disclosure of amounts
included within exceptional items and
noted that such items reflected the way
in which they, as members of the Board,
viewed the underlying performance
of the Group, and that the items were
treated consistently year on year and
were disclosed appropriately.
Tax provisions
Judgements have to be made by
management on the tax treatment of
a number of transactions in advance
of the ultimate tax determination
being known. In assessing the
appropriateness of the provision
recognised in respect of uncertain tax
provisions, the Committee considered
a report from management setting out
the basis of the assumptions made. The
Committee concluded that the position
taken on uncertain tax provisions
was appropriate.
Promotional trade spend
Trade spend remains a significant cost
for the Group; the main judgements
relate to trade accruals, and specifically
the timing and extent to which
temporary promotional activity
occurred. The Committee reviewed
with management its assessment
of the control environment and the
findings of the Internal Audit function
relating to trade spend and considered
that, with the benefit of further
improvements adopted during the year,
management operates an appropriate
control environment which recognises
the risks in this area.
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COMMITTEE PERFORMANCE
AND EFFECTIVENESS
The Committee undertook a review of
its own performance and effectiveness
during 2018/19. This was facilitated
by the Company Secretary, who acts
as Secretary to the Committee and
who reviewed the results with me,
as Chair of the Committee, before a
wider discussion with other Committee
members. The review concluded
that the Committee is operating
effectively and is increasingly focused
on key issues, risks and controls,
aided by continued improvements
during the year in the quality and
depth of Committee papers and the
establishment of a new calendar for
the Committee. Looking forward, the
Committee recognises the important
role which it will play in respect
of the induction of the new Chief
Financial Officer and Group Head
of Internal Audit.
Jez Maiden
Chair of the Audit (cid:9) (cid:53)isk Committee
26 July 2019
In addition, the Committee considered
the following areas impacting the
Group’s financial reporting:
Impact of new IFRS reporting
standards
The Committee reviewed with
management its assessment of the
impact of IFRS 15 ‘Revenue from
Contracts with Customers’, IFRS 9
‘Financial Instruments’ and IFRS 16
‘Leases’, including any supporting
reports obtained from third parties
in the assessment process. The
Committee is comfortable with the
impact assessments performed and
agrees that the appropriate disclosures
have been made to the readers of the
Consolidated Financial Statements in
Note 1, highlighting the impact of these
new standards.
Defined benefit obligations
(including Guaranteed Minimum
Pension (GMP) estimate)
The Group’s defined benefit pension
schemes are material to its financial
position. The amounts shown in the
Consolidated Balance Sheet are highly
sensitive to changes in key actuarial
assumptions. The Committee reviewed
and agreed the appropriateness and
consistency of these assumptions
with management. During the year,
the Group included a new provision
on the Consolidated Balance Sheet
for the impact of the Guaranteed
Minimum Pension, as required by UK
law from October 2018. The Committee
reviewed and approved this provision,
as well as the disclosures required to
reflect the provision to readers of the
Consolidated Financial Statements.
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NOMINATION COMMITTEE REPORT
CAROLINE SILVER
Chair of the Nomination
Committee
KEY OBJECTIVE OF THE COMMITTEE
To ensure that the structure, size and composition of the Board and
the senior leadership team are best suited to deliver the Company’s
strategy and meet current and future needs.
KEY RESPONSIBILITIES OF THE COMMITTEE
• Regularly review the skills, knowledge, experience, diversity and
•
independence of the Board;
Identify and nominate, for the approval of the Board, candidates
to fill Board vacancies as and when they occur;
• Review the health of the talent and succession programme
and ensure that there is an effective pipeline of talent for key
executive roles;
• Keep under review the leadership needs of the organisation, both
Executive and Non-executive, to ensure the continued ability of
the organisation to compete effectively; and
• Review annually the time required from Non-executive Directors.
Detailed responsibilities are set out in the Committee’s Terms
of Reference, which can be found on the Company’s website
www.pzcussons.com.
PRIORITIES FOR 2020
•
Identify and appoint a permanent Chief Financial Officer to
the Board;
• Complete the recruitment process to appoint a new Non-
executive Director to chair the Remuneration Committee from
September 2020;
• Review and assess the role of the Board in, and approach taken
to, employee engagement; and
• Continue to drive the development of talent and a succession
pipeline for leadership roles.
COMMITTEE MEMBERSHIP
Member
CS Caroline Silver
HO Helen Owers
DK Dariusz Kucz
JN John Nicolson – From March 2019
JM Jez Maiden – From March 2019
TMS Tamara Minick-Scokalo – From March 2019
Joined
2014
2012
2018
2016
2016
2018
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INTRODUCTION
On behalf of your Board, and as Chair
of the Nomination Committee, I am
pleased to present the Nomination
Committee report for the year ended
31 May 2019.
Our discussions with leading
shareholders support our view that the
Committee should play an increasingly
significant role in ensuring the effective
operation and development of the
Board and the Executive Leadership
Team. The composition of the Board
and the Executive Leadership Team is
a critical component in the delivery of
our strategy, and during the year the
Committee has carefully considered the
key skills and experience which we will
require in future and how we ensure
that these are available to the Board
and the wider business.
During the year we worked hard to
complete the effective induction of
our newest Board members, as well
as securing the reappointment of
key Non-executive Directors whose
terms were expiring. Working with
management and the Global Head
of Talent, we have also continued to
intensify our focus on the development
of talent into key leadership roles
throughout the business and on
improving our succession pipeline in
respect of the Executive Leadership
Team and the Managing Directors who
run our largest business units, while
also mapping and opportunistically
considering external candidates.
The importance of the Committee is
reflected in the Board’s recent decision
to expand its membership to include all
of the Non-executive Directors, and in
an increase in the number of times the
Committee met during the year.
DIVERSITY AND INCLUSION
The Committee considers diversity
to be a key factor in the Company’s
strategic and financial success. We
believe that diversity of thought,
skills, knowledge, experience, gender
and ethnicity are critical to our future
sustainable growth.
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 COMMITTEE ACTIVITIES DURING 2018/19 AND ATTENDANCE
September 2018
January 2019
March 2019
may 2019
Update on actions arising
from the 2018 Board
effectiveness review
Review of the induction
process for new Directors
Review of Board composition
Update on the search
for a new Chair of the
Remuneration Committee
Appointment of a Non-
executive Director to
represent employees
Global talent and succession
review following the March
strategy session
Reappointment of
Helen Owers as a Non-
executive Director
Review of Board composition
Reappointment of
John Nicolson as a Non-
executive Director
Reappointment of
Jez Maiden as a Non-
executive Director
Members present
Members present
Members present
Members present
CS
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CS
HO
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CS
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JN
JM
The Executive Leadership Team
conducts regular global reviews of
talent across the business and, during
the year, the Committee reviewed
the outcome of the reviews, and the
underlying processes, to ensure this
diversity is adequately reflected in the
Group’s future leaders. The Company –
through its Group CEO – has also signed
up to the 30% Club. This is a group of
FTSE companies which have made a
public statement that they believe
that gender diversity is good for their
business and have set an aspirational
target of 30% female representation
on their senior leadership teams by
2020. Currently, 43% of the members of
the Board are female and we continue
to focus on increasing the number of
women in leadership roles across the
wider Group.
Equally, PZ Cussons is an extremely
diverse organisation in terms of its
ethnic and cultural make-up and this
is something which we continue to
promote. As a business which is not
only committed to making a positive
contribution to our local communities,
particularly in developing markets,
but which also seeks to be closer to
our local consumers and markets than
anyone else, we actively seek to develop
and appoint leaders from across all of
our territories. Our annual leadership
gathering, which is attended by the
Board and which brings together
business leaders and high-potential
candidates for senior leadership
positions, is attended by people from
many different countries including
India, China, Poland, Indonesia,
Singapore, Thailand, Malaysia, Greece,
Australia, Nigeria, Ghana, the US and
the UK.
BOARD AND COMMITTEE
COMPOSITION
The composition of the Board and
each of our principal committees is
reviewed by the Nomination Committee
on a regular basis. This is to ensure
that we have the particular skills and
experience which will be required to
successfully deliver the Group strategy
and that we have the benefit of a range
of different, but complementary,
styles and approaches.
As noted above, earlier this year we
expanded the membership of the
Nomination Committee to include
all of the Non-executive Directors.
This reflects the Board’s belief that,
going forward, ensuring an effective
and productive talent and succession
pipeline is a critical success factor for
the business and we will benefit greatly
by having each of the Non-executive
Directors participate in the detailed
reviews and discussions.
During the year, the Committee
considered and recommended to
the Board the reappointment as
Non-executive Directors of John
Nicolson, with effect from the
expiry of his first three year term
on 1 May 2019, and – in anticipation
of the expiry of his first three year
term later this year – Jez Maiden. In
recommending their reappointment
for a further three year term, the
Committee carefully considered their
respective contributions to the Board,
the extent to which their skills and
experience were appropriate for the
challenges ahead, their independence
of management and freedom from
any business or other relationship
which could materially interfere with
the exercise of their independent
judgement, and their capacity to
commit the required time for the
proper performance of their duties.
At the end of the prior year, in May
2018, we appointed two new Non-
executive Directors (Tamara Minick-
Scokalo and Dariusz Kucz). The
Committee has reviewed with them
the induction processes which were
undertaken for them. The focus of
this work was both to optimise the
contribution which each was able to
make during the year and to ensure
that the Company’s induction processes
continue to operate as effectively
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
NOMINATION COMMITTEE REPORT
BOARD AND COMMITTEE EVALUATION
ACTIONS FROM OUR 2018 REVIEW
WHAT WE DID THIS YEAR
2018
Continue to improve our senior leadership succession planning
process and give greater visibility to the Board.
Identified internal successors in respect of critical senior
leadership roles. Expanded the membership of the Nomination
Committee to ensure visibility for, and the participation of, all
Non-executive Directors in respect of the development of talent
and succession planning.
Provide greater clarity on which key policy decisions should be
shared with or escalated to the full Board after review by the
relevant Board committee.
Ensured more effective escalation and sharing with the wider
Board of key decisions or recommendations from the Chairs of
the principal standing committees.
Establish a more predictable yearly cycle for key Board
presentations or topics.
Reviewed and agreed key topics and Board agenda items for the
full year (accepting the need for a degree of flexibility and agility
in planning the Board’s priorities from time to time).
POINTS FROM OUR 2019 REVIEW
2019
WHAT WE PLAN TO DO IN (cid:21)(cid:19)(cid:20)(cid:28)(cid:470)(cid:21)(cid:19)
2020
Monitor progress throughout the year in respect of the
deployment of the new strategy and attainment of key
strategic goals.
Ensure that the Board has a clear line of sight of progress and
challenges, through focused Board papers and data in respect
of key performance indicators.
Ensure that the Board continues to have the key skills and
experience required to execute the new strategy.
Conclude key appointments in respect of the roles
of Chief Financial Officer and new Non-executive Chair
of the Remuneration Committee.
as possible in respect of further
appointments in the future. As a
consequence of this review, the Board
has revised its processes, including the
acceleration of orientation visits to
Nigeria and Indonesia for new Directors.
Looking forward and as reported in
more detail below, the Committee
is already taking steps to identify
candidates to fill certain vacancies on
the Board which have arisen or will do
so in the near future.
BOARD AND EXECUTIVE
SUCCESSION
During the year, the Committee
reviewed the operation of the global
talent programmes and the health
of succession planning in respect of
the Executive Leadership Team and
the Managing Director roles at our
largest business units. We have good
succession plans for most global
functions and commercial roles,
although succession planning for the
Africa region remains an area of focus
for 2019/20.
As announced, on 13 June Brandon
Leigh stepped down from the Board as
Chief Financial Officer. The Committee
has initiated a process to identify and
nominate, for the approval of the
Board, appropriate candidates for the
role. Working with the Chief Executive
Officer, the Committee evaluated
the balance of skills, knowledge and
experience on the Board and, in the
light of this evaluation, prepared
a description of the role and the
capabilities required. In identifying
suitable candidates the Committee has
engaged the services of a professional
recruitment firm to facilitate the search,
considering internal and external
candidates from a wide range of
backgrounds and taking proper account
of the benefits of diversity on the
Board. In the meantime, as previously
envisaged, the role of Chief Financial
Officer is being performed by Alan
Bergin, Commercial Finance Director
on the Executive Leadership Team.
BOARD AND COMMITTEE
EVALUATION
The Nomination Committee reviewed
the progress which has been made to
implement the recommendations arising
from last year’s annual assessment of the
effectiveness of the Board and of each
of the principal standing committees.
Going forward, we will also assess the
adequacy of the Board’s response to
our latest annual review, conducted at
the end of the 2018/19 year, and plan
for our triennial externally facilitated
effectiveness review next year.
The Committee also considered the
time commitment required of the
Non-executive Directors and is satisfied
that they all remain able to commit
the required time for the proper
performance of their duties. The Non-
executive Directors are all considered to
be independent of management and free
from any business or other relationship
which could materially interfere with the
exercise of their independent judgement.
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SKILLS AND KNOWLEDGE OF THE BOARD
The Board possesses a broad range of key skills and relevant areas of experience which are required for the future.
LISTED COMPANY
EXPERIENCE
UK INSTITUTIONAL
SHAREHOLDERS
RECENT FINANCIAL
EXPERIENCE
SECTOR EXPERIENCE
STRATEGY
RETAIL EXPERIENCE
M&A, STRATEGIC
PARTNERSHIPS
AFRICA EXPERIENCE
M&A INTEGRATION
REMUNERATION
EXPERIENCE
SOUTH EAST ASIA
EXPERIENCE
BUSINESS
TRANSFORMATION
CHAIR SKILLS
MENTORING
SKILLS
ENTREPRENEURIAL
EXPERIENCE
OPERATIONAL
EXPERIENCE
E-COMMERCE
SALES & MARKETING
V SEE BOARD OF DIRECTORS PAGES 60 AND 61
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Finally, building on the work done this
year, the Committee will continue
to accelerate the development of
successors for global functional roles
where the senior leader is likely to retire
in the next five years, and to improve
the succession pipeline for key roles
in Africa.
I will be available at the Annual General
Meeting to respond to any questions
shareholders may raise on the
Committee’s activities.
Caroline Silver
Chair of the Nomination Committee
26 July 2019
COMMITTEE PERFORMANCE
AND EFFECTIVENESS
The Committee undertook a review of
its own performance and effectiveness
during 2018/19. This was facilitated by
the Company Secretary, who acts as
Secretary to the Committee and who
reviewed the results with me, as Chair of
the Committee, before a wider discussion
with other Committee members. The
review indicated that the Committee
is operating effectively and that its
contribution has been enhanced by the
decision during the year to expand its
membership to include all Non-executive
Directors and by the scheduling of
more regular meetings than in prior
periods. The criticality of effective
succession planning is highlighted
elsewhere in my report and our review
suggests that this is an area which we
should maintain as a high priority and
where we should continue to build on
recent improvements.
PRIORITIES FOR 2020
The appointment of a permanent Chief
Financial Officer is clearly a key priority
for the Committee. Notwithstanding the
need for careful and thorough review,
reflecting the obvious importance
of the role, and the fact that the role
is currently being performed on an
interim basis by our Commercial Finance
Director, the Committee will seek to
complete the process and make a
recommendation to the Board in respect
of a permanent appointment as soon as
reasonably possible.
The Committee is also conscious of
the fact that Helen Owers, Chair of the
Remuneration Committee, has served
on the Board since January 2012 and
it is proposed that she will retire with
effect from the 2020 Annual General
Meeting. In the circumstances, earlier
this year the Committee initiated
a search for a new Non-executive
Director who will assume the Chair of
the Remuneration Committee from
that time. Conscious of the Code
requirement that the Remuneration
Committee Chair should have served on
such a committee for at least 12 months
before assuming chairship, it is our
intention to make a new appointment
as soon as possible.
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REMUNERATION COMMITTEE REPORT
HELEN OWERS
Chair of the Remuneration
Committee
KEY OBJECTIVE OF THE COMMITTEE
To assist and advise the Board on matters relating to the
remuneration of the Board and senior management, in order to
motivate and retain executives and ensure that the Company is
able to attract talent in the market.
KEY RESPONSIBILITIES OF THE COMMITTEE
• To review and recommend the framework and policy for the
remuneration of the Executive Directors and senior executives;
and
• To evaluate the performance of and determine specific
remuneration packages for each Executive Director,
the Chair, the Company Secretary and direct reports to the
Chief Executive Officer.
Detailed responsibilities are set out in the Committee’s Terms
of Reference, which can be found on the Company’s website
www.pzcussons.com.
PRIORITIES FOR 2020
• To review the ongoing appropriateness of our remuneration
structures in light of the evolution of the Company’s strategy
and wider developments in corporate governance; and
• To formulate a revised Remuneration Policy to present to
shareholders at the 2020 Annual General Meeting.
COMMITTEE MEMBERSHIP
Member
HO Helen Owers
JM Jez Maiden
DK Dariusz Kucz
Joined
2012
2016
2018
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INTRODUCTION
On behalf of the Board, I am pleased to
present our 2019 Remuneration Report.
The Remuneration Committee is
responsible for the framework and
policy for the remuneration of the
Executive Directors and the Company
Chair. With effect from 1 June 2019
the Committee is also responsible for
setting the remuneration of the direct
reports to the Chief Executive Officer
in line with the recommendations of the
2018 UK Corporate Governance Code
(‘the Code’). It is also responsible for
the operation of senior management
incentive schemes throughout
the Group.
The members of the Committee are
all independent within the definition
of the Code. The Company Secretary,
Mr Plant, is Secretary to the Committee.
The Chair, the Chief Executive Officer
and the Global HR Director attend
meetings by invitation where this is
appropriate. They do not participate
in any discussion regarding their
own remuneration.
A summary of the Remuneration
Policy approved by our shareholders
at the 2017 Annual General Meeting
is provided on page 91 for reference.
The Report on Directors’ Remuneration
(pages 100 to 109) sets out how we
implemented our Remuneration Policy
for the year ended 31 May 2019 and
how we intend to implement it during
the year ending 31 May 2020. We
have made a number of best practice
refinements to the intended operation
of our current Remuneration Policy
which are detailed below. These revisions
will form part of the new Remuneration
Policy we will put to shareholders at
the 2020 Annual General Meeting. The
Report on Directors’ Remuneration
will be put to an advisory shareholder
vote at our Annual General Meeting
on 25 September 2019.
REMUNERATION POLICY
Our Remuneration Policy is designed
to encourage the generation of long-
term sustainable shareholder value by
aligning the interests of our executives
with those of our shareholders.
The creation of shareholder value is
supported by an annual bonus, which
is heavily weighted towards achieving
profitable growth and improved
operational performance, and a long-
term incentive which only rewards for
delivering long-term earnings growth.
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 COMMITTEE ACTIVITIES DURING 2018/19 AND ATTENDANCE
July 2018
January 2019
March 2019
may 2019
Presentation from the
remuneration advisor on
governance, remuneration
trends and the implications
for the business
Mid-year review of progress
in respect of key business
objectives under the annual
bonus scheme for FY18/19
Annual review of the
Committee Terms of
Reference
Review and approval of
budgeted salary review
levels for FY19/20
Review of the Remuneration
Policy
Review and approval of KPIs
and key business objectives
to be applied in respect of
the annual bonus scheme for
FY19/20
Review of the timeline and
critical steps in respect of
the formulation of a new
Remuneration Policy to be
put to shareholders in 2020
Review of annual bonus
awards for FY17/18
Approval of the annual bonus
scheme and salary reviews for
FY18/19
Review of vesting of past
awards under the Performance
Share Plan
Approval of annual awards
under the Performance Share
Plan for FY18/19
Review and approval of the
Remuneration Report in
respect of FY17/18
Members present
Members present
Members present
Members present
HO
JM
DK
HO
JM
DK
HO
JM
DK
HO
JM
DK
The long-term focus of our policy is
strengthened through the requirement
to defer part of the annual bonus
into shares until our share ownership
guidelines are met and the requirement
to retain a portion of vested long-term
incentive awards beyond the three year
vesting period.
The current Remuneration Policy
was approved by shareholders at
the 2017 Annual General Meeting.
The Committee has considered its
effectiveness, taking into account
dialogue with shareholders during
the year, and concluded that the
Remuneration Policy remains
appropriate and continues to
effectively align performance with
reward over the long term. In line with
legal requirements, the Remuneration
Policy will be presented to shareholders
at the 2020 Annual General Meeting for
approval and as a result the Committee
intends to undertake an in-depth review
of the current Remuneration Policy and
its operation over the coming year.
During this process we will engage
with the Company’s major shareholders
to ensure that their views are taken
into account.
Outside of the current Remuneration
Policy, in line with the approach taken
when granting the 2018 long-term
incentive awards, the Committee will
require a two year holding period to
apply to any shares that vest under
the 2019 long-term incentive award.
The Committee has also resolved
that should we need to recruit a
new Executive Director prior to the
introduction of a new Remuneration
Policy at the 2020 Annual General
Meeting, the pension provision
would be aligned with that offered
to employees in the location in which
the Executive Director resides. Finally,
the Committee has increased the
shareholding requirement for Executive
Directors to two times base salary. All
other best practice features arising
from the 2018 Code will be considered
for implementation in a revised
Remuneration Policy as detailed earlier.
As reported elsewhere, the Board
has elected to meet the 2018 Code
requirement for meaningful, regular
dialogue between the Board and
employees by designating one of the
Non-executive Directors, Dariusz Kucz,
as primarily responsible for employee
engagement. He will work with the
Group Human Resources Director
to understand the remuneration
of the wider employee population
and to further assist the Committee
in ensuring that the approach to
remunerating the Directors and senior
executives is aligned with practice
throughout the business.
REMUNERATION EARNED IN
THE YEAR ENDED 31 MAY 2019
The Group’s results for the year have
been mixed: whilst our Europe & the
Americas business has performed
solidly and there has been strong
growth in Asia Pacific and the Beauty
business unit, the performance of
our African business has been very
disappointing, impacted significantly
by extremely tough macroeconomic
conditions in the key market of Nigeria.
89
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
REMUNERATION COMMITTEE REPORT
However, notwithstanding the
challenging trading conditions
experienced by the Group during the
year, solid progress continues to be
made with optimising the Group’s
overall product portfolio and improving
efficiencies in the way we operate.
The objectives put in place by the
Committee for the 2019 financial year
focused management on continuing
to grow our leading brands through
maintaining a strong innovation
pipeline, driving higher margins across
our businesses and restructuring the
way we work to realise efficiency
savings. The Committee also set
challenging targets in relation to
reducing the amount of plastic used by
the Group. Whilst the progress made
in all of these areas has not resulted
in overall financial performance in line
with Board’s plans at the start of the
year, we believe that the focus on these
areas provides a strong platform for
future growth.
Taking into account performance, the
key aspects of remuneration earned
during the year were:
Salary reviews
• As disclosed in last year’s Annual
Report on Remuneration, the salary
of Mr Kanellis, the Group Chief
Executive Officer, and Mr Leigh, the
former Group Chief Financial Officer,
increased by 2% on 1 September
2018. These percentage increases
were considered to be consistent
with those awarded to the wider
employee population in the UK.
Annual bonus pay-out
•
In last year’s Annual Report on
Remuneration we reported that we
would continue to focus executives
on bonus targets primarily relating
to three key financial indicators:
adjusted profit before tax; net
working capital percentage; and
adjusted operating contribution
margin. The balance of the bonus
would be subject to delivery against
key strategic stretch objectives.
• The Performance Share Plan will
remain subject to a challenging
range of adjusted basic EPS targets.
The choice of adjusted basic EPS
continues to reflect the Board’s
long-term objective of delivering
profitable growth and sustaining a
progressive dividend policy. As was
the case for the PSP awards made
in 2018, the awards to be granted
in the 2019/20 financial year will be
subject to a requirement that any
vested shares (after meeting any
tax liability) must be retained for a
minimum period of two years from
the date of vesting (i.e. a minimum
of five years from the date of grant).
• The range of targets in both the
annual bonus and Performance
Share Plan are set with reference
to both internal planning and
external market expectations for
the Company’s performance.
LOOKING FORWARD
Looking ahead to the next 12
months, we will monitor the ongoing
appropriateness of our remuneration
structures in light of the evolution of
the Company’s strategy and wider
developments in corporate governance.
In particular, the Remuneration
Committee is considering the changes
to the UK Corporate Governance Code
and wider regulatory changes, with
a view to taking the necessary steps
to ensure that we continue to take
account of best practice expectations
and regulatory requirements.
I hope you will find the Report on
Directors’ Remuneration transparent
and informative and that this report
has been helpful in setting out both
how we have implemented our
Remuneration Policy this year and
our approach for the year ending
31 May 2020. We are committed to
engaging with shareholders in respect
of remuneration issues and I therefore
welcome your views on the matters set
out within the report.
Helen Owers
Chair of the Remuneration Committee
26 July 2019
•
In the context of the challenging
trading conditions for the Group
noted above, it was not considered
that the level of profitability
achieved justified the award of an
annual bonus. As a result, whilst
good progress was made against a
number of key strategic objectives,
the Committee used its discretion
to reduce the bonus that would
otherwise have been earned from
15.5% of the maximum bonus
opportunity to nil.
• Further details of the targets set
for the year ended 31 May 2019
are disclosed in this year’s Report
on Directors’ Remuneration on
pages 101 and 102.
Long-term incentives
• The awards made to Executive
Directors in 2016 are subject to
Earnings Per Share (EPS) performance
over the three-year period ended
31 May 2019. These performance
conditions were not achieved and
accordingly, these awards will also
lapse in full, as disclosed on page 103.
Our approach for the year ending
(cid:22)(cid:20) May (cid:21)(cid:19)(cid:21)(cid:19)
The Remuneration Policy is being
implemented for the year ending
31 May 2020 on broadly similar terms
to the prior year. However, I would like
to draw shareholders’ attention to the
following matters:
• Salary increases – having had regard
to the challenging trading conditions
during the year, it was agreed that
Mr Kanellis would not receive a
salary increase with effect from
1 September 2019.
• Otherwise, no changes are
•
being made to the quantum
of remuneration.
Incentives – the Committee has
reviewed both our short- and
long-term incentive plans for
the year ended 31 May 2019 and
has concluded that they remain
appropriate.
• The annual bonus plan will continue
to operate based on delivery against
challenging financial targets (adjusted
profit before tax, net working capital
percentage and adjusted operating
contribution margin) and non-
financial strategic targets. The choice
of metrics reflects the Board’s focus
on delivering improved profitability,
operational efficiency and the
strategic changes within the business.
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REPORT ON DIRECTORS’ REMUNERATION
AT A GLANCE SUMMARY: HOW WE WILL IMPLEMENT THE POLICY IN 2020
The table below summarises how the Committee intends to implement the Remuneration Policy for the forthcoming financial
year ending 31 May 2020.
IMPLEMENTATION OF REMUNERATION POLICY FOR 2020
(cid:46)ey policy features
(cid:21)(cid:19)(cid:21)(cid:19) implementation
(cid:47)ink to (cid:46)P(cid:44)s
(cid:54)ee pages (cid:21)(cid:21) to (cid:21)5
Salary
Base salaries are normally reviewed annually
taking into account:
•
the scope of the role and the markets in
which PZ Cussons operates;
the performance and experience of the
individual;
•
• The Committee reviewed salaries in the context of a
challenging year and concluded that no salary increase
would be awarded to the Chief Executive Officer.
• pay levels in other organisations of a similar
size and complexity; and
• pay increases elsewhere in the Group.
Pension/
benefits/
all-
employee
share
schemes
Pension: The Chief Executive Officer receives a
defined contribution, or salary supplement in lieu
thereof, of 20% of salary. Future Executive
Director appointments will receive pension
benefits in line with those generally provided to
employees in the location in which they are based.
•
Implementation in line with the Policy and no change
from 2019.
• Pension contribution for any new appointment
expected to be in line with that for the employees
in the location where he or she is based.
–
–
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Annual
bonus
Long-term
incentive
plan
Directors receive market competitive benefits
and may participate in all-employee benefit
arrangements.
Policy maximum of 150% of salary.
Incentive scheme which focuses Directors on
delivery of annual goals and milestones which
are consistent with the Group’s longer-term
strategic aims.
Committee may adjust outturn where
bonus pay-out does not reflect business
performance or individual contribution.
Any bonus earned in excess of 100% of salary
is deferred into shares for three years.
Recovery and withholding provisions apply.
Policy maximum of 150% of salary.
Long-term incentive scheme which focuses on
generating sustained shareholder value over the
longer term and aligning the Directors’ interests
with those of the Company’s shareholders.
Maximum bonus
150% of salary 125% of salary
Chief Executive
Officer
Other Executive
Directors
Performance metrics:
• Adjusted profit before tax: 62%
• Net working capital percentage: 9%
• Adjusted operating contribution margin: 9%
• Non-financial strategic targets: 20%
• The Committee considers that the bonus targets are
commercially sensitive and therefore plans to disclose
them only on a retrospective basis in next year’s
Directors’ Remuneration Report.
• Adjusted
profit before
tax
• Net working
capital
percentage
• Adjusted
operating
contribution
margin
• Strategic
priorities
Chief Executive
Officer
Other Executive
Directors
• Adjusted
basic EPS
LTIP award
150% of salary 125% of salary
Performance metrics:
Weighting
Threshold
target
Threshold
vesting
(cid:48)aximum
target
Performance measures based on financial
metrics measured over three years.
Adjusted basic
EPS
100%
3%
25%
10%
Holding period applies for two years following
vesting (i.e. five years from grant).
Recovery and withholding provisions apply.
Fees to reflect the time commitment in preparing
for and attending meetings, the duties and
responsibilities of the role, and the contribution
expected from the Non-executive Directors.
Chair and
Non-
executive
Director
fees
• The range of adjusted basic EPS targets are set having
had regard to both internal planning and external market
expectations for the Company’s future performance.
• Fees were paid in line with the policy below:
–
Basic fees
Chair
Non-executive Director
Additional fees
Senior Independent Director
Chair of Audit & Risk or
Remuneration Committee
Chair of Good4Business
Committee
Director responsible for
employee engagement
1 Sept
(cid:21)(cid:19)1(cid:28)
1 Sept
2018
2019/20
increase
(cid:21)5(cid:19),(cid:19)(cid:19)(cid:19) 250,000
52,500
5(cid:21),5(cid:19)(cid:19)
+0%
+0%
5,(cid:19)(cid:19)(cid:19)
5,000
+0%
1(cid:19),(cid:19)(cid:19)(cid:19)
10,000
+0%
5,(cid:19)(cid:19)(cid:19)
5,000
+0%
5,(cid:19)(cid:19)(cid:19)
n/a
n/a
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REPORT ON DIRECTORS’ REMUNERATION
Directors’ Remuneration Policy
This part of the report complies with the relevant provisions of the Companies Act 2006 and Schedule 8 of the Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). It has also been prepared in
line with the recommendations of the 2016 UK Corporate Governance Code and the requirements of the UKLA Listing Rules.
This part of the report sets out a summary of the Directors’ Remuneration Policy approved by shareholders at the 2017 Annual
General Meeting. The full Directors’ Remuneration Policy approved by shareholders is available in the 2016/17 Annual Report &
Accounts at www.p(cid:93)cussons.com.
REMUNERATION FRAMEWORK
The key components of Executive Directors’ remuneration are summarised below:
Element
Purpose and link to strategy
Operation
(cid:48)aximum opportunity
Performance measures
Base salaries are normally
reviewed annually taking
into account:
•
the scope of the role
and the markets in
which PZ Cussons
operates;
the performance and
experience of the
individual;
•
• pay levels in other
organisations of a
similar size and
complexity; and
• pay increases
elsewhere in the
Group.
To avoid setting the
expectations of Executive
Directors and other
employees, there is no
overall maximum for
salary increases under
this policy.
None, although overall
performance of the
individual is considered
by the Committee when
setting and reviewing
salaries.
Salary increases are
reviewed in the context
of salary increases across
the wider Group.
Any increase in excess of
those elsewhere in the
Group would be
considered very carefully
by the Committee. The
circumstances in which
higher increases may be
awarded include but are
not limited to:
• an increase in the
scope and/or
responsibility of a role;
•
• an increase upon
promotion to
Executive Director;
• where a salary has
fallen significantly
below market
positioning; or
the transition over
time of a new
Executive Director
recruited on a below
market salary to a
more competitive
market positioning as
the Executive Director
gains experience in
the role.
Fixed remuneration
(cid:37)ase salary
To provide an appropriate
level of fixed cash income
to recruit and retain talent
through the provision of
competitively positioned
base salaries.
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Element
Benefits
Purpose and link to strategy
Operation
(cid:48)aximum opportunity
Performance measures
Recruitment and retention
of senior executive talent
through the provision of a
competitively positioned
and cost-effective benefits
package.
Benefits may also be
provided to assist in the
effective performance of
an Executive Director’s
duties.
Provision for
retirement
Designed to enable an
Executive Director to
generate an income in
retirement and to provide
an overall remuneration
package that is competitive
in the market.
Not applicable.
The maximum
opportunity will be based
on the cost of providing
the benefits. This will be
set at a level that the
Committee considers
appropriate to provide a
sufficient level of benefit
based on individual
circumstances.
Not applicable.
A Company pension
contribution of 20% of
base salary in respect of
each financial year into the
scheme on behalf of the
Executive Director, subject
to a minimum employee
contribution of 5% of base
salary; or cash allowance
of up to 20% of salary.
Future Executive Director
appointments will receive
pension benefits in line
with those generally
provided to employees in
the location in which they
are based.
Benefits that may be
provided include car
benefits, life assurance,
health insurance for the
Executive Director and
family, permanent health
cover and personal tax
advice. Executive
Directors may also
participate in any
all-employee share or
benefits plans on the
same basis as any other
employees. Where
relevant, additional
benefits may be offered
if considered appropriate
and reasonable by the
Committee, such as
assistance with the costs
of relocation.
Participation in a defined
contribution pension plan
or provision of a cash
allowance in lieu of a
pension contribution.
The defined benefit
pension schemes have
been closed to further
accrual since 2008 and any
salary linkage ceased on
31 May 2013. In respect
of their past service,
Executive Directors
remain members of
PZ Cussons Directors’
Retirement Benefits Plan,
PZ Cussons Plc Pension
Fund and Life Assurance
Scheme for Staff
Employed Outside the
UK and/or the Employer-
Financed Retirement
Benefits Schemes, and
are eligible to receive
retirement benefits in
accordance with the
terms of the schemes.
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REPORT ON DIRECTORS’ REMUNERATION
Directors’ Remuneration Policy
Element
Purpose and link to strategy
Operation
(cid:48)aximum opportunity
Performance measures
Variable
remuneration
Annual bonus scheme
and deferred annual
bonuses
Designed to motivate
Executive Directors to
focus on annual goals and
milestones that are
consistent with the Group’s
longer-term strategic aims.
The maximum annual
bonus opportunity that
may be earned for any
year is 150% of base
salary.
Measures and targets are
set annually at the
beginning of the relevant
financial year and pay-out
levels are determined by
the Committee after the
year end based on
performance against
those targets.
Awards of up to 100% of
base salary are payable
in cash.
If an annual bonus of
more than 100% of base
salary is earned for a year,
then any excess over
100% of base salary will
be deferred and awarded
in PZ Cussons shares. The
shares will normally vest
after three years.
A dividend equivalent
may be payable on
deferred shares that vest.
The Committee may,
in exceptional
circumstances only,
amend the bonus pay-out
should this not, in the
view of the Committee,
reflect overall business
performance or individual
contribution.
Recovery and
withholding provisions
may apply to deferred
shares as set out below.
The performance measures
and targets are set by the
Committee each year.
The majority of the annual
bonus is based on
challenging financial targets
that are set in line with the
Group’s KPIs (for example,
adjusted profit before tax,
net working capital
percentage and adjusted
operating contribution
margin).
In addition, a smaller
element of the annual
bonus may be subject
to achievement against
strategic and/or CSR
objectives.
For each financial objective
set, 0% of the relevant part
of the bonus becomes
payable at the threshold
performance level rising
on a graduated scale to
the maximum performance
level. The structure and
nature of the strategic
objectives vary, such that
it is not practical to specify
any pre-set percentage of
bonus that becomes
payable for threshold
performance.
Maximum annual bonus
will only be paid for
achieving significant
financial outperformance
above the budget set for
the year.
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Element
Purpose and link to strategy
Operation
(cid:48)aximum opportunity
Performance measures
Performance Share
Plan (PSP)
Designed to motivate the
Executive Directors to
focus on the generation
of sustained shareholder
value over the longer term,
and to align their interests
with those of the Group’s
shareholders.
Other aspects
Shareholding
guidelines
Alignment of the Executive
Directors’ interests with
those of the Group’s
shareholders.
Award opportunities in
respect of any financial
year are limited to rights
over shares with a market
value determined by the
Committee at grant of a
maximum of 150% of
base salary.
Awards to Executive
Directors are subject to
challenging financial targets
(for example, adjusted basic
EPS targets), measured over
the performance period.
Vesting does not take
place until the threshold
performance requirement
is met (as applicable to each
relevant metric), at which
point 25% vests.
Vesting increases on a
graduated basis from
threshold performance to
the stretching maximum
target.
Not applicable.
Not applicable.
Annual awards of rights
over shares calculated as a
percentage of base salary.
Vesting is subject to the
attainment of
predetermined
performance targets
measured over a
performance period of
at least three years. The
performance period
normally starts at the
beginning of the financial
year in which the date of
grant falls.
Dividends accrue on
shares subject to PSP
awards and are paid on
vesting in respect of those
shares that vest.
Award levels and
performance conditions
are reviewed before each
award cycle to ensure that
they remain appropriate.
As a minimum, subject to
attainment of the
performance targets,
awards will normally vest,
in respect of shares with a
market value at grant of
up to 100% of base salary,
following the end of the
performance period. Any
shares that vest in excess
of this value will normally
be subject to an additional
holding period and will be
released in equal amounts
four and five years after
the date of grant. For the
2018 and 2019 awards, all
shares that vest will be
subject to a two year
holding period.
Recovery and withholding
provisions apply to awards
granted under the PSP.
Requirement over time
to build up interests in
the Company’s shares
worth 150% of salary and
to reinvest half of any
after-tax bonus or gain
arising from the share
incentive plans until this
guideline is met. This
has been amended to
200% for the 2019/20
financial year.
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95
REPORT ON DIRECTORS’ REMUNERATION
Directors’ Remuneration Policy
RECOVERY AND WITHHOLDING PROVISIONS
The Committee may, in its discretion, apply clawback to annual bonus and PSP awards in the event of a material misstatement
of the Company’s audited financial results, an erroneous determination of a performance metric applicable to an award, an
Executive Director’s misconduct relating to the conduct or governance of any Group company or business unit, or in such other
circumstances the Committee considers to have a serious adverse effect on any Group member or business unit. Clawback can
be applied where the event occurs between the date of grant and the second anniversary of the date the award vests/is paid.
The clawback may be affected through a withholding of variable pay by reducing the size of, or imposing further conditions on,
any outstanding or future awards, or by requiring the individual to return the value of the cash or shares delivered to recover
the amount overpaid.
Element
Purpose and link to strategy Operation
(cid:48)aximum opportunity
Performance measures
Non-executive Director
fees
To reflect the time
commitment in preparing
for and attending
meetings, the duties and
responsibilities of the role
and the contribution
expected from the
Non-executive Directors.
Not applicable.
Fees are based on the
level of fees paid to
Non-executive Directors
serving on boards of
similar sized UK-listed
companies and the time
commitment and
contribution expected
for the role.
Non-executive Directors
receive a basic fee and an
additional fee for further
duties (for example,
chairship of a committee
or Senior Independent
Director responsibilities).
The maximum level of
fees payable to the
Non-executive Directors
will not exceed the limit
set out in the Company’s
Articles of Association.
Fees are normally
reviewed every two years
and amended to reflect
market positioning and
any change in
responsibilities.
The Committee
recommends the
remuneration of the
Chair to the Board.
Fees paid to Non-
executive Directors are
determined and approved
by the Board as a whole.
The Non-executive
Directors do not
participate in the annual
bonus plan or any of the
Group’s share incentive
plans. The Company
covers the costs of
attending meetings and
Non-executive Directors
may be provided with
benefits associated with
their role.
SETTING EXECUTIVE DIRECTOR REMUNERATION
When considering how to position the remuneration packages for the Executive Directors, the Committee considers market data
from UK-listed companies of a similar size and complexity.
The Committee also receives and takes into account information from the Global Human Resources Director on pay and
employment conditions applying to other Group employees, consistent with the Group’s general aim of seeking to reward all
employees fairly according to the nature of their role, their performance and market forces.
In designing an appropriate incentive structure for the Executive Directors and other senior management, the Committee seeks
to set challenging performance criteria that are aligned with the Group’s business strategy and the generation of sustained
shareholder value. The Committee is also mindful of the need to avoid inadvertently encouraging risky or irresponsible behaviour,
including behaviour that could raise environmental, social or governance issues.
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BALANCE OF FIXED VERSUS VARIABLE REMUNERATION
The Committee believes that an appropriate proportion of the executive remuneration package should be variable and
performance-related in order to encourage and reward superior corporate and individual performance. The following
charts (updated from those included in the Remuneration Policy included in the 2016/17 Annual Report to take account of
the current salary level of the Chief Executive Officer, and noting there is currently no Chief Financial Officer in post as an
Executive Director) illustrate executive remuneration in specific performance scenarios. We have also early-adopted the
new reporting requirements and illustrated the maximum performance scenario with a 50% increase in share price.
PERFORMANCE SCENARIOS £000
Total including
share price
£3,082
£2,627
34.7%
34.7%
£1,580
14%
35%
51%
30.7%
Target
Maximum
GA Kanellis
£806
100%
Below
threshold
Fixed pay
Annual bonus
Long-term incentive plans
Share price growth
• • • •
Fixed elements
of remuneration
Annual bonus (2020)
Long-term incentive plans
(2020 award)
Share price appreciation
Minimum performance
Target performance
Maximum performance
Base salary as at 31 May 2019, value of benefits as included in the 2019 single total figure of remuneration
on page 100 and pension contributions at 20% of base salary
(cid:19)(cid:8)
(cid:19)(cid:8)
(cid:25)(cid:19)(cid:8) of maximum opportunity
G A Kanellis – 60% of 150% of salary
1(cid:19)(cid:19)(cid:8) of maximum opportunity
G A Kanellis – 150% of salary
(cid:21)5(cid:8) of award
G A Kanellis – 25% of 150% of salary
1(cid:19)(cid:19)(cid:8) of award
G A Kanellis – 150% of salary
1(cid:19)(cid:19)(cid:8) of award
with a 50% increase in share price
over the vesting period
RECRUITMENT REMUNERATION ARRANGEMENTS
When hiring a new Executive Director, the Committee will set the Executive Director’s ongoing remuneration in a manner
consistent with the Policy detailed in the table above.
To facilitate the hiring of candidates of the appropriate calibre, the Committee may make an award to buy out variable
remuneration arrangements forfeited on leaving a previous employer. In doing so, the Committee will take account of relevant
factors including the form of award, the value forfeit, any performance conditions and the time over which the award would
have vested. The intention of any buy-out would be to compensate in a like-for-like manner as far as is practicable.
The maximum level of variable pay that may be awarded to new Executive Directors (excluding buy-out arrangements) in
respect of their recruitment will be in line with the maximum level of variable pay that may be awarded under the annual
bonus plan and PSP, i.e. a total face value opportunity of 300% of salary. The Committee will ensure that such awards are
linked to the achievement of appropriate and challenging performance measures and will be forfeited if performance or
continued employment conditions are not met.
Appropriate costs and support will be covered if the recruitment requires relocation of the individual.
EXECUTIVE DIRECTOR CONTRACTS AND LOSS OF OFFICE PAYMENTS
Executive Directors have one year rolling service contracts and no Executive Director has a notice period in excess of one year
or containing any provision for predetermined compensation on termination exceeding one year’s salary and benefits in kind.
Details of the current Executive Director’s service contract is shown below:
Name
G A Kanellis
Date of contract
1 June 2007
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REPORT ON DIRECTORS’ REMUNERATION
Directors’ Remuneration Policy
Upon the termination of an Executive Director’s employment, the Committee’s approach to determining any payment for loss
of office will normally be guided by the following principles:
• the Committee shall seek to apply the principle of mitigation where possible, as well as seeking to find an outcome that
is in the best interests of the Company and shareholders as a whole, taking into account the specific circumstances;
• relevant contractual obligations, as set out above, shall be observed or taken into account;
• the Committee reserves the right to make additional exit payments where such payments are made in good faith to satisfy
an existing legal obligation (or by way of damages for breach of any such obligation) or to settle or compromise any claim or
costs arising in connection with the employment of an Executive Director or its termination, or to make a modest provision
in respect of legal costs and/or outplacement fees; and
• the treatment of outstanding variable remuneration shall be as determined by the relevant plan rules, as set out below.
PERFORMANCE SHARE PLAN (PSP)
Cessation of directorship/employment within three years of date of grant:
Death
The award will normally vest as soon as practicable following death.
Injury, ill health, disability, sale of the
participant’s employing company or
business out of the Group or any
other reason if the Committee
so decides
The Committee will have sole discretion as to the extent to which the award will vest, taking into
account, if the Committee considers it appropriate, time pro-rating and the extent to which the
performance condition has been satisfied.
Awards not subject to holding period (unless the Committee determined otherwise).
The award will normally vest on the original vesting date, taking into account the extent to which the
performance conditions have been met. Alternatively, the Committee has the discretion to allow the
award to vest at the time of cessation of directorship/employment by the Group, taking into account
the extent to which the performance conditions have been met up to that date.
Unless the Committee determines otherwise, the Committee will reduce the award to reflect the
period that has elapsed at the time of cessation.
Any other reason
The award will lapse upon cessation of directorship/employment.
Cessation of directorship/employment after three years of date of grant (i.e. in respect of shares held for a compulsory
holding period):
Death
The award will vest as soon as practicable following death, taking into account the performance
conditions, if the Committee considers it appropriate.
Lawful dismissal without notice by
the Company
Any other reason
Annual bonus scheme – cash element
The award will lapse upon cessation of directorship/employment.
The award will generally be released at the end of the holding period. Alternatively, the Committee has
the discretion to allow the award to be released in part, or in full, at the time of, or following, cessation
of directorship/employment. The extent to which awards are released in these circumstances will be
determined by the Committee taking into account the performance conditions.
The extent to which any annual bonus is paid in respect of the year of departure will be determined by the Committee (in such proportion
of cash and shares as it considers appropriate) taking into account the performance metrics and whether it is appropriate to time pro-rate
the award for the time served during the year.
Annual bonus scheme – deferred share element
Death, injury, disability, redundancy,
retirement, the sale of the
participant’s employing company or
business out of the Group or any
other reason if the Committee
so decides
The award will vest immediately upon cessation of directorship/employment. Alternatively, the
Committee has the discretion to determine that awards should not vest until the end of the
deferral period.
Any other reason
The award will lapse upon cessation of directorship/employment.
Executive Share Option Scheme
Death, injury, ill health, disability,
redundancy, retirement, the sale of
the participant’s employing company
or business out the Group or any
other reason if the Committee
so decides
The award will be exercisable within the period of 12 months after cessation of directorship/
employment.
All options granted under the Executive Share Option Scheme have now been exercised. No future
awards under the Executive Share Option Scheme are anticipated.
Retirement benefits will be received by any Executive Director who is a member of any of the Group’s pension plans in accordance
with the rules of such plan.
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CHANGE IN CONTROL
The rules of the PSP provide that, in the event of a change of control or winding-up of the Company, all awards will vest early
taking into account i) the extent to which the Committee considers that the performance conditions have been satisfied at
that time and ii) the pro-rating of the awards to reflect the proportion of the performance period that has elapsed, although
the Committee can decide not to pro-rate an award if it regards it as inappropriate to do so in the particular circumstances.
Deferred bonus awards will normally vest in full on a takeover or winding-up of the Company. In the event of a special
dividend, demerger or similar event, the Committee may determine that awards vest on the same basis. In the event of an
internal corporate reorganisation, awards may be replaced by equivalent new awards over shares in a new holding company.
Similarly, in the event of a merger of equals, the Committee may invite participants to voluntarily exchange their awards that
would otherwise vest for equivalent new awards over shares in a new holding company.
The Committee may in the circumstances referred to above determine to what extent any bonus should be paid in respect of
the financial year in which the relevant event takes place, taking into account the extent to which the Committee determines
the relevant performance metrics have been (or would have been) met.
STATEMENT OF CONSIDERATION OF EMPLOYMENT CONDITIONS ELSEWHERE IN THE COMPANY
When reviewing and setting Executive Director remuneration, the Committee takes into account the pay and employment
conditions of all employees of the Group. The Group-wide pay review budget is one of the key factors when reviewing the
salaries of the Executive Directors. Although the Group has not carried out a formal employee consultation regarding Board
remuneration, it does comply with local regulations and practices regarding employee consultation more broadly.
COMMUNICATION WITH SHAREHOLDERS
The Committee is committed to an ongoing dialogue with shareholders and seeks the views of significant shareholders when
any major changes are being made to remuneration arrangements.
The Committee takes into account the views of significant shareholders when formulating and implementing the Policy.
TERMS AND CONDITIONS FOR NON-EXECUTIVE DIRECTORS
Non-executive Directors do not have service contracts but are appointed for an initial period of three years, normally
renewable on a similar basis subject to annual re-election at the Company’s Annual General Meeting. The present letters
of appointment for Mr Kucz, Mr Maiden, Mrs Minick-Scokalo, Mr Nicolson, Mrs Owers and Mrs Silver expire on 30 April 2021,
31 October 2019, 30 April 2021, 30 April 2022, 25 September 2019 and 31 March 2020 respectively and are subject to annual
election or re-election, as the case may be, as a Director at the Company’s Annual General Meeting.
The letters of appointment of Non-executive Directors and service contracts of Executive Directors are available for inspection
at the Company’s registered office during normal business hours and will be available at the Annual General Meeting.
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REPORT ON DIRECTORS’ REMUNERATION
Annual Report on Remuneration
Information contained within the Annual Report on Remuneration has not been subject to audit unless stated.
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
The table below sets out in a single figure the total amount of remuneration, including each element, received by each of the
Directors for the year ended 31 May 2019:
Salary/fees1
Benefits2
Bonus3
PSP4
Pension5
(cid:21)(cid:19)1(cid:28)
(£)
2018
(£)
(cid:21)(cid:19)1(cid:28)
(£)
2018
(£)
(cid:21)(cid:19)1(cid:28)
(£)
2018
(£)
(cid:21)(cid:19)1(cid:28)
(£)
2018
(£)
(cid:21)(cid:19)1(cid:28)
(£)
2018
(£)
Total
(cid:21)(cid:19)1(cid:28)
(£)
2018
(£)
Executive
Directors
G A Kanellis
(cid:25)(cid:19)(cid:23),(cid:19)(cid:19)(cid:23)
591,386
(cid:26)(cid:26),53(cid:19)
22,414
B H Leigh6
3(cid:25)(cid:28),(cid:27)(cid:25)1
362,559
1(cid:25),(cid:28)3(cid:28)
16,914
(cid:28)(cid:26)3,(cid:27)(cid:25)5
953,945
(cid:28)(cid:23),(cid:23)(cid:25)(cid:28)
39,328
Non-
executive
Directors
D Kucz7
J K Maiden
T Minick-
Scokalo8
5(cid:21),5(cid:19)(cid:19)
(cid:25)(cid:21),5(cid:19)(cid:19)
5(cid:21),5(cid:19)(cid:19)
J R Nicolson
(cid:25)(cid:21),5(cid:19)(cid:19)
4,375
62,500
4,375
59,583
62,500
(cid:25),(cid:28)(cid:23)5
(cid:21),(cid:19)(cid:28)1
(cid:23),5(cid:23)(cid:26)
(cid:23),(cid:27)3(cid:26)
3,(cid:23)3(cid:27)
5,(cid:21)(cid:19)3
1,744
2,816
1,357
5,709
3,991
5,283
H Owers
C Silver
(cid:25)(cid:21),5(cid:19)(cid:19)
(cid:21)5(cid:19),(cid:19)(cid:19)(cid:19)
250,000
5(cid:23)(cid:21),5(cid:19)(cid:19)
443,333
(cid:21)(cid:26),(cid:19)(cid:25)1
20,900
Total
1,51(cid:25),3(cid:25)5
1,397,278 9 1(cid:21)1,53(cid:19)
60,228
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1(cid:21)(cid:19),(cid:27)(cid:19)1
118,277
(cid:27)(cid:19)(cid:21),335
732,077
(cid:26)3,(cid:28)(cid:26)(cid:21)
72,512
(cid:23)(cid:25)(cid:19),(cid:26)(cid:26)(cid:21)
451,985
1(cid:28)(cid:23),(cid:26)(cid:26)3
190,789
1,(cid:21)(cid:25)3,1(cid:19)(cid:26)
1,184,062
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5(cid:28),(cid:23)(cid:23)5
(cid:25)(cid:23),5(cid:28)1
5(cid:26),(cid:19)(cid:23)(cid:26)
(cid:25)(cid:26),33(cid:26)
(cid:25)5,(cid:28)3(cid:27)
6,119
65,316
5,732
65,292
66,491
(cid:21)55,(cid:21)(cid:19)3
255,283
5(cid:25)(cid:28),5(cid:25)1
464,233
1(cid:28)(cid:23),(cid:26)(cid:26)3
190,789
1,(cid:27)3(cid:21),(cid:25)(cid:25)(cid:27)
1,648,295
1 The amount of salary/fees payable in the period. In addition to the above, Mr Kanellis and Mr Leigh received the following cash payments during the year
in lieu of dividends payable on deferred bonus awards which vested during the year: Mr Kanellis: £3,536 and Mr Leigh: £4,237.
2 Taxable benefits comprise life assurance, healthcare insurance, car allowance and a long-service award in recognition 25 years‘ continuous service in relation
to the Chief Executive Officer. With regard to the Chief Executive Officer, of the £77,530 benefit value above, £55,091 relates to a long-service award. The
value of the long-service benefit, in line with the approach taken for other employees, was calculated based on a pre-set multiple of weekly salary during
the relevant period of employment. In respect of the Non-executive Directors, certain travel and accommodation expenses in relation to attending Board
meetings are also treated as a taxable benefit.
3 Details of the performance measures and weightings as well as results achieved under the annual bonus arrangements in place in respect of the year are
shown on pages 101 and 102.
4 The awards made under the Performance Share Plan in 2016 will wholly lapse, such that the Executive Directors will receive no value. Details of the
performance measures as well as results achieved are shown on page 103.
5 With effect from 1 June 2008, the Executive Directors became eligible for membership of the Company’s defined contribution pension arrangement.
Mr Kanellis and Mr Leigh each receive a salary supplement equivalent to 20% of base salary; these amounts are included in the column headed ‘Pension’.
6 Mr Leigh stepped down from the Board on 13 June 2019 and ceased employment on 13 June 2019. Details of his payment for loss of office are shown on
page 106.
7 Mr Kucz was appointed to the Board on 1 May 2018.
8 Mrs Minick-Scokalo was appointed to the Board on 1 May 2018.
9 The comparative number for 2018 has been restated to exclude salary/fees paid in that year to Mr Davis and Mrs Edozien, who stepped down from the Board
in September 2017.
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INDIVIDUAL ELEMENTS OF REMUNERATION
Base salary
Base salaries for individual Executive Directors are reviewed annually, with effect from 1 September, by the Remuneration
Committee and are set with reference to the scope of the role and the markets in which PZ Cussons operates, the
performance and experience of the individual, pay levels in other organisations of a similar size and complexity and pay
increases elsewhere in the Group.
There will be no increase to the base salary of Mr Kanellis with effect from 1 September 2019. His base salary for the year
ended 31 May 2018 and the year ended 31 May 2017 is set out below:
G A Kanellis
01/09/2017
Base salary
(£)
(cid:19)1(cid:18)(cid:19)(cid:28)(cid:18)(cid:21)(cid:19)1(cid:27)
(cid:37)ase salary
(£)
(cid:19)1(cid:18)(cid:19)(cid:28)(cid:18)(cid:21)(cid:19)1(cid:28)
(cid:37)ase salary
(£)
595,012
(cid:25)(cid:19)(cid:26),(cid:19)(cid:19)(cid:19)
(cid:25)(cid:19)(cid:26),(cid:19)(cid:19)(cid:19)
Increase
%
0
Mr Leigh’s salary on departure, consistent with the disclosure in last year’s Directors’ Remuneration Report, was £371,700.
His most recent increase was 2% with effect from 1 September 2018. This percentage increase was in line with the wider UK
employee population.
NON-EXECUTIVE DIRECTOR FEES
As reported in last year’s report, following the biennial review of Non-executive Director fees on 1 June 2018, the annual fees
payable to each of the Non-executive Directors remained unchanged. No other changes were made during the year to the
fees payable to Non-executive Directors. During the year the Board introduced an additional fee to reflect the expected time
commitment of the role of the designated Non-executive Director who will be responsible for engaging with employees. The
designated Non-executive Director was excluded from discussions relating to the introduction of the additional fee.
The current fee structure is as follows:
Role
Board Chair
Non-executive Director base fee
Additional fees for Committee Chair
Audit & Risk
Remuneration
Good4Business
Additional fee for Senior Independent Director
Additional fee for Director responsible for employee engagement
Fee
£250,000
£52,500
£10,000
£10,000
£5,000
£5,000
£5,000
ANNUAL BONUS
Bonus for the year ended 31 May 2019
In respect of the year ended 31 May 2019, the Chief Executive Officer participated in the annual bonus scheme. The Chief
Financial Officer’s entitlement to participate in the annual bonus scheme ceased on his departure from the Company in
13 June 2019.
Under this scheme, the Chief Executive Officer was eligible to earn a cash bonus of up to 150% of base salary. Any bonus
awards earned in excess of 100% of base salary are deferred into Company shares vesting three years after the award is
determined, subject to recovery and withholding provisions and continued employment.
For the 2019 financial year, the bonus included challenging financial and strategic targets that were aligned with delivering
against the Board’s approved budget and planning for the year ahead.
As in prior years, and consistent with our KPIs, the performance metrics included adjusted profit before tax (including separate
target and stretch elements), net working capital percentage and adjusted operating contribution margin. Together these
financial targets comprised 80% of the overall bonus opportunity. A number of strategic objectives comprised the remaining
20% of maximum bonus opportunity.
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101
REPORT ON DIRECTORS’ REMUNERATION
Annual Report on Remuneration
FINANCIAL TARGETS
The targets and our performance against them are set out below:
Metric
Adjusted profit before tax
Net working capital percentage
Adjusted operating contribution margin
Proportion of
total bonus
Targets
Actual
performance
Target: £85.0m
Stretch target: £89.3m
Target: 16.8%
Target: 15.4%
62%
9%
9%
£69.8m
20.1%
14.9%
Proportion of
total bonus
payable
0%
0%
0%
STRATEGIC TARGETS
The 2019 strategic objectives related to completion of key strategic growth initiatives, execution of key margin improvement
projects, achievement of overhead savings and the development of plans to fulfil the Company’s Plastic Promise.
Metric
of total bonus Milestones achieved
Proportion
Proportion
of total bonus
payable
Pursue fewer, bigger, better
growth initiatives. Develop a
comprehensive digital
commerce strategy.
Drive key margin
improvement projects
incorporating end-to-end
supply chain process
efficiencies.
Achieve identified overhead
savings across all geographies
and functions.
Drive progress in the
reduction of plastics by
developing a comprehensive
plastic reduction strategy
and embed plastic reduction
principles into product
design.
6% • Launched key growth initiatives across selected brands and selected
3%
geographies, achieving growth in four out of the six targeted
categories. The relative extent of achievement was reduced in light
of the top line growth achieved across all categories.
• Developed a comprehensive digital strategy and plan to support
growth in targeted geographies and categories. Pilot projects
delivered in line with the planning milestones.
6% • The identified supply chain projects delivered savings in line with
targets across all categories and geographies, with the maximum
savings target exceeded by £800,000.
• Whilst the cost savings contributed towards achieving margin
improvements within categories, taking into account the overall
Group gross margin achieved, achievement was reduced to reflect
the Group outcome.
4.5%
6% • Group annualised cost savings were achieved at £500,000 above
6%
the target set.
• Additional savings were identified during the year contributing
a further £900,000 of annualised cost savings above the targets
originally set.
2% • The milestones set at the start of the year were achieved and included:
2%
(i) establishing a steering committee, with senior cross-functional
representation to develop a global plastic reduction strategy based
on ‘reduce, reuse and recycle’ (ii) scoping plastic reduction initiatives for
trial including new packaging formats and product types (iii) receiving
Board approval for the current Plastic Promise strategy and (iv)
commencing the Plastic Promise implementation in line with the strategy.
Notwithstanding the achievements detailed in relation to the strategic targets, the Committee concluded that the level of
profitability achieved did not justify the payment of an annual bonus and, accordingly, no bonus was awarded. The Committee’s
used its discretion to reduce the bonus that otherwise would have been payable from 15.5% of the total bonus to nil.
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102
2020 ANNUAL BONUS FRAMEWORK
Executive Directors will continue to participate in the annual bonus scheme in respect of the year ending 31 May 2020.
The operation of the bonus plan will broadly mirror the approach taken in the 2019 financial year. No change is to be made to
the maximum opportunity and 80% of maximum bonus opportunity will continue to be subject to financial performance with
the balance of 20% subject to the attainment of key strategic and CSR objectives.
The Directors consider that the Group’s future targets are matters that are commercially sensitive; they could provide our
competitors with insights into our business plans and expectations and should therefore remain confidential to the Company
at this time (although they will be retrospectively disclosed in next year’s Report on Directors’ Remuneration). There has been
no change to the level of opportunity available under the scheme and, the principal features of the scheme are as follows:
• maximum opportunity remains at 150% of salary for the CEO and 125% of salary for other Executive Directors;
• any bonus awards earned in excess of 100% of base salary will be deferred into Company shares vesting three years after
the award is determined, subject to recovery and withholding provisions (as detailed below) and continued employment;
• annual bonuses will again be based on the achievement of stretching adjusted profit before tax (62% of the total bonus),
net working capital percentage (9% of the total bonus) and adjusted operating contribution margin (9% of the total bonus)
performance targets;
• the bonus award for delivering target financial performance will remain at 60% of the overall maximum opportunity;
• 20% of maximum opportunity will be available for delivering strategic objectives, which have been set to align with the
Company’s refined strategy as detailed in the Company’s Strategic Report and which include focusing on selected brands,
business transformation and key environmental, social and governance initiatives; and
• bonuses are payable at the discretion of the Committee and subject to a broad assessment of the Company’s overall
performance before individual bonus awards are determined.
Awards made under the annual bonus scheme in respect of the year ending 31 May 2020 will, as in previous years, be subject to
recovery and withholding provisions that would enable the Committee to recover any value overpaid as a result of i) a material
misstatement of audited results, ii) employee misconduct associated with the governance or conduct of the business or iii)
an erroneous calculation of a performance condition. The ability to apply these provisions operates for a period of up to two
years for awards to Executive Directors and other senior executives.
LONG-TERM INCENTIVE PLANS
Performance Share Plan
Executive Directors and certain senior executives are generally eligible to participate in the Performance Share Plan, which
provides for the grant of conditional rights to receive nil-cost shares subject to continued employment over a three year
vesting period and the satisfaction of certain performance criteria established by the Committee. The current version of
the Plan, the 2014 Performance Share Plan, was approved and adopted at the 2014 Annual General Meeting.
Awards vesting in respect of the year ended 31 May 2019
The year ended 31 May 2019 represented the final year of the three year performance period for awards made under the
Performance Share Plan in 2016. The overall performance during the three years was such that no proportion of the awards
made to the Executive Directors will vest and they will lapse in full, as below:
EPS performance
Threshold
Maximum
Annual
compound EPS
growth
Level of vesting
Performance
achieved
Resulting
level of award
(% of maximum
opportunity)
4%
12%
25%
100%
-13.2%
0%
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103
REPORT ON DIRECTORS’ REMUNERATION
Annual Report on Remuneration
Awards granted in the year ended 31 May 2019 (audited)
As disclosed in last year’s Report on Directors’ Remuneration, and in line with the Company’s Remuneration Policy, during the
year ended 31 May 2019 awards were made to the Executive Directors under the Performance Share Plan over shares with a
value equal to 150% of base salary for the CEO and 125% for the former CFO, as set out below:
G A Kanellis
B H Leigh
Scheme
Basis of award
2014 Performance Share Plan
150% of salary
2014 Performance Share Plan
125% of salary
Number of
shares
410,135
209,290
Face value
£910,500
£464,625
Percentage
vesting for
threshold
performance
Performance
period end date
25% 31 May 2021
25% 31 May 2021
G A Kanellis was awarded 410,135 shares under the PSP on 25 July 2018 calculated using the average mid-market closing share price on 24 July 2018 of 222p,
which was the share price used to determine the number of shares subject to the award in accordance with the rules of the Performance Share Plan.
B H Leigh was awarded 205,149 shares under the PSP on 25 July 2018 calculated using the average mid-market closing share price on 24 July 2018 of 222p
and 4,141 shares on 6 August 2018 using the average mid-market closing share price on 24 July 2018 of 222p. The award on 6 August was to correct an
administrative error and resulted in the number of shares approved by the Remuneration Committee being granted in line with the Company’s Remuneration
Policy. He subsequently stepped down from the Board on 13 June 2019; the treatment of the shares under award upon cessation of his employment is set out
on page 106.
These awards are subject to adjusted basic Earnings Per Share (EPS) growth targets measured over the single three year
performance period commencing on 1 June 2018. No proportion of the awards may vest unless the Group’s adjusted basic EPS
grows by at least 3% per annum compounded over the relevant performance period. 25% of the award will vest where adjusted
basic EPS grows by 3% per annum, rising on a straight-line pro-rata basis to 100%, which vests if adjusted basic EPS grows by 10%
per annum or more, in each case compounded over the performance period.
Any shares vesting under these awards will be subject to a two-year holding period on vested shares such that all shares
(other than any shares required to be sold to meet any tax liabilities) will need to be retained for a minimum period of five
years from grant.
Awards to be granted in the year ending 31 May 2020
The Committee intends to make awards under the Performance Share Plan to Executive Directors and other senior executives
during the year ending 31 May 2020 on the same basis as the prior year and in line with the Company’s Remuneration Policy.
Award levels remain unchanged from awards made in the prior year and the Committee proposes to continue to make awards
subject to the attainment of the same growth in adjusted basic EPS targets as applied in the prior year. On that basis, the
minimum threshold compound adjusted basic EPS growth target, at which 25% of awards will vest, will be compound adjusted
basic EPS growth of 3% per annum, whilst the target for maximum vesting will be compound adjusted basic EPS growth of
10% per annum.
The range of adjusted basic EPS targets was reviewed in light of both internal plans and external expectations for the
Company’s future performance. Setting the range from 3% per annum adjusted basic EPS growth to 10% per annum adjusted
basic EPS growth from the results of the year ended 31 May 2019 was considered to provide a demanding range of targets,
particularly at the top end of the performance range. This was on the basis of the continued retail challenges in our UK and
European markets at the same time as the ongoing pressures on consumer income in Nigeria.
The Committee continues to keep under consideration the introduction of an additional performance measure but remains
of the view that this is not currently appropriate for the Company and that adjusted basic EPS remains the most meaningful
measure of long-term performance, providing a valuable line of sight for management and alignment with the interests of
shareholders. Use of adjusted basic EPS growth targets is also aligned with our long-term objective of delivering profitable
growth and sustaining a progressive dividend policy. The Committee will, however, continue to review its approach to metrics
and target setting in respect of awards in future years.
The awards to be granted in the year ending 31 May 2020 will be subject to a two-year holding period on vested shares such
that all shares (other than any shares required to be sold to meet any tax liabilities) will need to be retained for a minimum
period of five years from grant.
In line with awards made under the senior executive annual bonus scheme, awards made under the Performance Share
Plan for the year ending 31 May 2020 will continue to include recovery and withholding provisions that would enable the
Committee to recover excess value on vesting as a result of i) a material misstatement of audited results, ii) employee
misconduct associated with the governance or conduct of the business or iii) an erroneous calculation of a performance
condition. The provisions apply for a period of up to two years from vesting of awards made to Executive Directors and
other senior executives.
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104
Statement of Directors’ shareholding and share interests
The Committee has established share ownership guidelines that require Executive Directors:
• to build up and retain holdings of shares (and/or deferred shares net of tax) worth 200% of salary from time to time; and
• until this share ownership threshold is met, to invest 50% of any after-tax annual bonus into the Company’s shares.
They are also required to retain shares with a value equal to 50% of the net gain after tax arising from the acquisition of
shares pursuant to any of the Company’s share incentive plans; again until the share ownership threshold is met.
All Executive Directors have complied with the above guidelines in respect of the year ended 31 May 2019.
Interests in shares (audited)
The interests in the Company’s shares of each of the Executive Directors as at 31 May 2019 (together with interests held by
any connected persons) were:
G A Kanellis
B H Leigh4
Ordinary shares held
at 31 May 20191
717,557
156,917
Interests in share incentive
schemes that are not subject
to performance conditions
as at 31 May 20192
Interests in share incentive
schemes that are subject
to performance conditions
as at 31 May 20193
116,566
25,587
924,285
472,319
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2
Includes shares held by connected persons. In the case of Mr Kanellis this number includes 14,463 shares representing that part of the bonus payable to him
in respect of the year ended 31 May 2015 that exceeded 100% of his basic salary, which was deferred into shares vesting three years after the award was
determined and which accordingly vested during the year.
In the case of Mr Kanellis this number comprises 116,566 shares representing that part of the bonus payable to him in respect of the year ended 31 May
2017 that exceeded 100% of his basic salary, which was deferred into shares vesting three years after the award was determined. In the case of Mr Leigh this
number includes 25,587 shares representing that part of the bonus payable to him in respect of the year ended 31 May 2017 that exceeded 100% of his basic
salary, which was deferred into shares vesting three years after the award was determined.
Includes unvested awards under the Performance Share Plan that remain subject to performance (including the whole of the awards made in 2015).
3
4 Mr Leigh stepped down from the Board on 13 June 2019.
During the period, each of the Executive Directors complied with the shareholding requirements set by the Committee.
There have been no changes in Mr Kanellis’ interests between 31 May 2019 and the date of this report. The interests of
Mr Leigh were correct as at the time he stepped down from the Board.
The Non-executive Directors’ shareholdings are disclosed on page 111 within the Report of the Directors.
Performance Share Plan (audited)
The outstanding awards granted to each Director of the Company under the Performance Share Plan are as follows:
G A Kanellis
B H Leigh2
Number of
options/
awards at
1 June
2018
241,724
268,750
245,400
–
123,956
137,808
125,221
–
–
Date of
award
22-Jul-15
27-Jul-161
27-Jul-17
25-Jul-18
22-Jul-15
27-Jul-161
27-Jul-17
25-Jul-18
6-Aug-18
Granted/
allocated in
year
Exercised/
vested in
year
–
–
–
410,135
–
–
–
205,149
4,141
–
–
–
–
–
–
–
–
–
Number of
options(cid:18)
awards at
31 (cid:48)ay
(cid:21)(cid:19)1(cid:28)
–
(cid:21)(cid:25)(cid:27),(cid:26)5(cid:19)
(cid:21)(cid:23)5,(cid:23)(cid:19)(cid:19)
(cid:23)1(cid:19),135
–
13(cid:26),(cid:27)(cid:19)(cid:27)
1(cid:21)5,(cid:21)(cid:21)1
(cid:21)(cid:19)5,1(cid:23)(cid:28)
(cid:23),1(cid:23)1
Lapsed in
year
241,724
–
–
–
123,956
–
–
–
–
Share price
at date of
award
(£)
Share price
at date of
vesting
(£)
3.53
3.24
3.637
2.22
3.53
3.24
3.637
2.22
2.22
–
–
–
–
–
–
–
–
–
Vesting/
transfer
date
22-Jul-18
27-Jul-19
27-Jul-20
25-Jul-21
22-Jul-18
27-Jul-19
27-Jul-20
26-Jul-21
6-Aug-21
Gain
(£)
–
–
–
–
–
–
–
–
–
1 Awards made on 27 July 2016 wholly lapsed on 27 July 2019.
2 Mr Leigh stepped down from the Board on 13 June 2019. The treatment of the shares under award upon cessation of his employment is set out on page 106.
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105
REPORT ON DIRECTORS’ REMUNERATION
Annual Report on Remuneration
Deferred bonus awards (audited)
The outstanding awards granted to each Director of the Company as deferred bonus awards are as follows:
Date of award1
G A Kanellis
22-Jul-15
B H Leigh2
25-Aug-17
25-Aug-17
Number of
options/awards
at 1 June 2018
14,463
116,566
25,587
Granted/
allocated in year
Exercised/
vested in year
Lapsed in year
Number of
options/awards
at 31 May 2019
Market price at
date of award
(£)
–
–
–
14,463
–
–
–
–
–
–
116,566
25,587
3.51
3.49
3.49
Vesting date
22-Jul-18
25-Aug-20
25-Aug-20
1 Awards ordinarily vest on the third anniversary of grant, conditional only on continued employment.
2 Mr Leigh stepped down from the Board on 13 June 2019. 25,587 deferred bonus shares relating to the 2017 senior executive annual bonus scheme
vested on 13 June 2019. These shares related to the part-deferral of annual bonus earned based on performance in the financial year ending 31 May 2017.
The treatment of the shares under award upon cessation of his employment is set out below.
Pension benefits (audited)
The following Executive Director was a member of the defined benefit pension arrangements provided by the Company. All of
these defined benefit plans were closed to future accrual on 31 May 2008 and replaced by defined contribution arrangements
and/or the provision of cash allowances in lieu of pension. Benefits built up in the defined benefit plans continued to receive
a salary link until 31 May 2013. The pension entitlements and corresponding transfer values below relate solely to the defined
benefit arrangements:
G A Kanellis
Benefits held within both the PZ Cussons Directors’ Retirement Benefits Plan and the PZ Cussons Pension Fund and Life
Assurance Scheme for Staff Employed Outside the UK. The total entitlement across both arrangements was calculated at
31 May 2013 as 1/30th of Final Pensionable Salary at 31 May 2013 for each year of service within the Company’s defined benefit
pension arrangements (ceasing on 31 May 2008). From 31 May 2013, total benefits revalue on an annual basis in line with the
increase in the Consumer Prices Index (CPI) in the prior year to September (up to retirement age). All benefits are payable from
age 62. In total, the sum of the deferred pensions within these two arrangements at 31 May 2019 was £350,867 per annum.
Following closure of the Company’s defined benefit plans, the Executive Directors in post during the 2019 financial year became
eligible for membership of the Company’s defined contribution pension arrangements and/or the provision of cash allowances in
lieu of pension. More information on the benefits received by each in this respect is set out in Note 5 to the table on page 100.
Loss of office payments and payments to former Directors (audited)
As announced on 13 June 2019, Mr Leigh stepped down from the Company’s Board and ceased employment on 13 June 2019
by mutual agreement. In accordance with the terms of his employment contract the payments in connection with the
termination of his employment included:
1. Accrued salary up to the date he ceased employment with the Company for the month of June 2019 plus a further payment
of £33,791 in lieu of 20 days’ accrued but untaken holiday.
2. A lump sum payment totalling £480,040 in lieu of the value of 12 months’ basic salary and contractual benefits.
3. No entitlement to a payment under the Company’s annual bonus arrangements for the year ending 31 May 2019.
4. The Committee determined that the previously earned 25,587 deferred bonus shares relating to the 2017 senior executive
annual bonus scheme would vest on 13 June 2019. These shares related to the part-deferral of annual bonus earned based
on performance in the financial year ending 31 May 2017.
5. The Committee determined that in connection with Mr Leigh’s mutually agreed departure he would retain pro-rata
rights to the unvested 2016, 2017 and 2018 awards under the Company’s Performance Share Plan (PSP) (in respect of
137,808, 125,221, and 209,290 shares respectively). As a result, these share awards will continue to remain eligible to vest
on the normal vesting dates. Any vesting of these awards will only take place subject to the satisfaction of the relevant
performance conditions at the end of the relevant performance periods and the number of shares in each award will be
pro-rated to reflect the period of employment since the relevant grant date. Any vesting will also be subject to the rules
of the PSP and the terms associated with the grant of each award (including any applicable holding period). As noted on
page 103, the 2016 Awards will lapse in full as the threshold EPS target has not been met.
6. A sum of up to £10,000 will be paid as a contribution in relation to legal services, to be paid directly to a third-party
service provider.
7. A contribution will be paid towards outplacement support, to be paid directly to a third-party service provider.
106
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 Limits on shares issued to satisfy share incentive plans
The Company’s share incentive plans may operate over new issued ordinary shares, treasury shares or ordinary shares
purchased in the market. In relation to all of the Company’s share incentive plans, the Company may not, in any ten year
period, issue (or grant rights requiring the issue of) more than 10% of the issued ordinary share capital of the Company to
satisfy awards to participants, nor more than 5% of the issued ordinary share capital for executive share plans. In respect
of awards made during the year ended 31 May 2019 under the Company’s share incentive plans, no new ordinary shares
were issued.
PERFORMANCE GRAPH
The graph below illustrates the performance of PZ Cussons Plc measured by Total Shareholder Return (TSR) over the ten year
period to 31 May 2019 against the TSR of a holding of shares in the FTSE 250 index over the same period, based on an initial
investment of £100. The FTSE 250 index has been chosen as PZ Cussons Plc is a constituent of that index.
PZ CUSSONS PLC TSR VS FTSE 250 INDEX TSR
Value £
400
350
300
250
200
150
100
50
0
100.0
100.0
329.0
151.1
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
PZ Cussons Plc ordinary shares
FTSE 250 index
CHIEF EXECUTIVE OFFICER REMUNERATION FOR PREVIOUS TEN YEARS
2018/19
2017/18
2016/17
2015/16
2014/15
2013/14
2012/13
2011/12
2010/11
2009/10
Total remuneration
(£)
Annual bonus % of
maximum opportunity
LTIP % of maximum
opportunity
802,335
732,077
1,586,330
1,104,601
1,463,325
1,052,912
1,104,089
599,070
1,484,017
1,403,984
0%
0%
100.0%
47.4%
72.8%
78.0%
69.5%
0%
18.0%
67.8%
0%
0%
0%
0%
32.5%
0%
0%
0%
100.0%
n/a
107
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION
REPORT ON DIRECTORS’ REMUNERATION
Annual Report on Remuneration
RELATIVE IMPORTANCE OF SPEND ON PAY
The table below shows PZ Cussons’ distributions to shareholders and total employee pay expenditure for the financial years
ended 31 May 2018 and 31 May 2019, and the percentage change:
Total employee costs
Dividends paid
Profit before tax and exceptional items
(cid:21)(cid:19)1(cid:28)
£m
(cid:28)1.(cid:26)
3(cid:23).(cid:25)
(cid:25)(cid:28).(cid:27)
2018
£m
100.6
34.6
80.1
%
change
(8.8%)
0%
(12.9%)
CHANGE IN CEO REMUNERATION AND FOR EMPLOYEES AS A WHOLE OVER 2018
The table below shows the change in CEO annual remuneration (defined as salary, taxable benefits and annual bonus),
compared to the change in employee annual remuneration for a comparator group, from 2018 to 2019.
The PZ Cussons (International) Limited employee population was chosen as a suitable comparator group because it
is considered to be the most relevant, due to the UK employment location and the structure of total remuneration
(staff are able to earn an annual bonus as well as receiving a base salary and benefits).
Salary
Benefits1
Bonus
(cid:21)(cid:19)1(cid:28)
(£)
(cid:25)(cid:19)(cid:23),(cid:19)(cid:19)(cid:23)
(cid:26)(cid:26),53(cid:19)
–
CEO
2018
(£)
591,386
22,414
–
Average %
change
for other
employees
2%
0%
0%
%
change
2%
345%
–
1 Benefits include the provision of a long service award as reported on page 100.
CONSIDERATION BY THE DIRECTORS OF MATTERS RELATING TO DIRECTORS’ REMUNERATION
The following Directors were members of the Remuneration Committee when matters relating to the Directors’ remuneration
for the year were being considered:
• Mrs Owers (Chair)
• Mr Maiden
• Mr Kucz
The Committee was advised in relation to Directors’ remuneration during the year by Korn Ferry. Korn Ferry is a founder
member of the Remuneration Consultants Group and has signed the voluntary Code of Practice for remuneration consultants.
During the year, it has advised the Committee in relation to market data and evolving market practice and with regard to
the Remuneration Policy. The fees paid to Korn Ferry in respect of this work were charged on a time and materials basis and
totalled £43,862 for the year. The Committee is satisfied that the advice it has received from Korn Ferry has been objective
and independent.
During the year, the Committee consulted Mrs Silver (in her capacity as Non-executive Chair) on issues where it felt her
experience and knowledge could benefit its deliberations and she attended meetings by invitation. The Committee also
consulted Mr Kanellis (Chief Executive Officer) on proposals relating to the remuneration of members of the Group’s senior
management team and he too attended meetings by invitation. The Global Human Resources Director also attended meetings
by invitation. The Committee is supported by Mr Plant (Company Secretary) who acts as Secretary to the Committee. Invitees
are not involved in any decisions or discussions regarding their own remuneration.
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108
STATEMENT OF SHAREHOLDER VOTING
The Committee is directly accountable to shareholders and, in this context, is committed to an open and transparent dialogue
with shareholders on the issue of executive remuneration. During the year, the Committee actively engaged widely with key
shareholders and shareholder representative bodies in respect of the approach to executive remuneration, including the
performance conditions to be applied to awards under the Performance Share Plan, and their comments were considered
when agreeing the proposed approach. The Remuneration Committee Chair will be available to answer questions from
shareholders regarding remuneration at the 2019 Annual General Meeting.
The votes cast by proxy at the Annual General Meeting held on 28 September 2018 in respect of resolutions relating to
Directors’ remuneration are shown below:
Advisory vote on the 2018 Report on Directors’ Remuneration (2018 Annual General Meeting):
Votes for
Votes against
Number
329,591,160
% Number
98.74% 4,214,455
%
1.26%
Votes cast
Votes withheld
333,805,615
82,275
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Binding vote on the Directors’ Remuneration Policy (2017 Annual General Meeting):
Votes for
Votes against
Number
345,938,029
% Number
99.84% 570,645
%
0.16%
Votes cast
Votes withheld
346,508,674
3,872,099
By order of the Board of Directors
H Owers
Chair of the Remuneration Committee
26 July 2019
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109
REPORT OF THE DIRECTORS
The Directors of the Company are listed on pages 60 and 61.
PRINCIPAL ACTIVITIES
The principal activities of the Group are the manufacture and distribution of soaps, detergents, toiletries, beauty products,
pharmaceuticals, electrical goods, edible oils, fats and spreads and nutritional products. The subsidiary undertakings and
joint ventures principally affecting the profits, liabilities and assets of the Group are listed in Note 30 of the Consolidated
Financial Statements.
RESULTS AND DIVIDENDS
A summary of the Group’s results for the year is set out in the Financial Review on pages 32 to 35 of the Strategic Report.
The Directors recommend a final dividend of 5.61p (2018: 5.61p) per ordinary share to be paid on 3 October 2019 to ordinary
shareholders on the register at the close of business on 9 August 2019, which, together with the interim dividend of 2.67p
(2018: 2.67p) paid on 8 April 2019, makes a total of 8.28p for the year (2018: 8.28p).
SCOPE OF THE REPORTING IN THIS ANNUAL REPORT & ACCOUNTS
The Group’s statement on corporate governance can be found on pages 64 to 77 which is incorporated by reference and forms
part of this Report of the Directors. For the purposes of compliance with DTR 4.1.5 R(2) and DTR 4.1.8 R, the required content
of the Management Report can be found in the Strategic Report and this Report of the Directors, including the sections of the
Annual Report & Accounts incorporated by reference.
For the purposes of LR 9.8.4C R, the information required to be disclosed by LR 9.8.4 R can be found in the following locations:
Section
Topic
Interest capitalised
Publication of unaudited financial information
Location
Not applicable
Not applicable
Details of long-term incentive schemes
Report on Directors’ Remuneration – pages 100 to 109
Waiver of emoluments by a Director
Waiver of future emoluments by a Director
Non pre-emptive issues of equity for cash
Item (7) in relation to major subsidiary undertakings
Not applicable
Not applicable
Not applicable
Not applicable
Parent participation in a placing by a listed subsidiary
Not applicable
Contracts of significance
Provision of services by a controlling shareholder
Not applicable
Not applicable
Shareholder waivers of dividends
ESOT: see Note 25 of the Consolidated Financial Statements
Shareholder waivers of future dividends
ESOT: see Note 25 of the Consolidated Financial Statements
Agreements with controlling shareholders
Report of the Directors pages 111 and 112
1
2
4
5
6
7
8
9
10
11
12
13
14
All the information referenced above is hereby incorporated by reference into this Report of the Directors.
DIRECTORS’ INTERESTS
The Directors’ and connected persons’ interests in the share capital of the Company at 31 May 2019, together with their
interests at 1 June 2018, are detailed below:
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110
ORDINARY SHARES
Beneficial
Mrs C Silver
Mr G A Kanellis
Mr D Kucz
Mrs T Minick-Scokalo
Mr B H Leigh
Mr J K Maiden
Mr J Nicolson
Mrs H Owers
Total
(cid:21)(cid:19)1(cid:28)
Number
2018
Number
3(cid:19),(cid:19)(cid:19)(cid:19)
20,000
(cid:26)1(cid:26),55(cid:26)
709,891
(cid:26),5(cid:19)(cid:19)
–
–
–
15(cid:25),(cid:28)1(cid:26)
145,917
1,(cid:19)(cid:19)(cid:19)
1,000
–
–
1,(cid:19)(cid:19)(cid:19)
1,000
(cid:28)13,(cid:28)(cid:26)(cid:23)
877,808
1 The figures in the tables do not include 10,384,591 (2018: 10,415,400) ordinary shares purchased and held by the Employee Share Option Trust (ESOT) as at
31 May 2019. The ESOT is a discretionary trust under which the class of beneficiaries who may benefit comprises certain employees and former employees
of the Company and its subsidiaries including members of such employees’ and former employees’ immediate families. Some or all of the shares held in the
ESOT may be the subject of awards to Executive Directors of the Company under the PZ Cussons Plc Performance Share Plan, details of which are given in
the Report on Directors’ Remuneration. Accordingly, those Executive Directors are included in the class of beneficiaries and are deemed to have a beneficial
interest in all the shares acquired by the ESOT.
2 The figures in the tables do not include conditional shares granted under the PZ Cussons Plc Performance Share Plan or deferred share awards under the
senior executive annual bonus scheme.
Between 31 May 2019 and the date of this report Mr Leigh stepped down from the Board and his employment ceased,
following which he sold his shares. No Director had any beneficial interest during the year in shares or debentures of any
subsidiary company. Save for their service contracts or letters of appointment, there were no contracts of significance
subsisting during, or at the end of, the financial year with the Company or any of its subsidiaries in which a Director of the
Company was materially interested.
During the year and up to the date of this report, the Company maintained liability insurance for its Directors and officers and
pension fund trustee liability insurance for Mr Kanellis in his capacity as trustee of certain of the Group’s pension schemes.
OTHER SUBSTANTIAL INTERESTS
The Company had been notified of the following interests amounting to 3% or more of its issued share capital as at the end
of the financial year and at 26 July 2019:
As at (cid:21)(cid:25) (cid:45)uly (cid:21)(cid:19)1(cid:28)
As at 31 May 2019
Zochonis Charitable Trust
Sir J B Zochonis Will Trust
Heronbridge Investment Mgt
Mrs C M Green Settlement
J B Zochonis Settlement
Number
of shares
5(cid:25),(cid:21)(cid:28)(cid:27),(cid:21)(cid:19)3
(cid:23)(cid:28),3(cid:21)(cid:19),(cid:26)1(cid:21)
3(cid:23),1(cid:23)(cid:28),(cid:21)(cid:27)3
(cid:21)(cid:19),3(cid:21)(cid:27),(cid:21)(cid:27)(cid:19)
1(cid:28),(cid:28)(cid:21)(cid:26),13(cid:19)
(cid:8)
13.13
11.5(cid:19)
(cid:26).(cid:28)(cid:26)
(cid:23).(cid:26)(cid:23)
(cid:23).(cid:25)5
Number
of shares
56,298,203
49,320,712
34,149,283
20,328,280
19,927,130
%
13.13
11.50
7.97
4.74
4.65
No shares were issued during the year. Further information about the Company’s share capital is given in Note 24 of the
Consolidated Financial Statements.
The Financial Conduct Authority’s Listing Rules require a premium listed company with a controlling shareholder (being a
shareholder who exercises or controls, on their own or together with any person with whom they are acting in concert, 30%
or more of the votes able to be cast on all or substantially all matters at a general meeting) to enter into a written and legally
binding agreement that is intended to ensure that the controlling shareholder complies with certain independence provisions.
These independence provisions are undertakings that transactions and arrangements with the controlling shareholder and/
or any of their associates will be conducted at arm’s length and on normal commercial terms; that neither the controlling
shareholder nor any of its associates will take any action that would have the effect of preventing the listed company from
complying with its obligations under the Listing Rules; and that neither the controlling shareholder nor any of its associates
will propose or procure the proposal of a shareholder resolution that is intended or appears to be intended to circumvent the
proper application of the Listing Rules (together, ‘Independence Provisions’).
For the purposes of the Listing Rules, certain shareholders in the Company (principally comprising the founding Zochonis
family or certain wider family groups, certain Company trusts, the Executive Directors of the Company and current or former
employees) are deemed to be controlling shareholders of the Company (together, the ‘Concert Party’). As at 26 July 2019, the
Concert Party held 226,986,506 shares, representing approximately 53% of the Company’s issued share capital.
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REPORT OF THE DIRECTORS
As required by the Listing Rules, the Board confirms that the Company entered into a written relationship agreement with the
Concert Party on 17 November 2014 containing the Independence Provisions and a procurement obligation (the ‘Relationship
Agreement’). The Board also confirms that, during the period from 17 November 2014 to 31 May 2019 (being the end of the
financial year under review):
• the Company complied with the Independence Provisions in the Relationship Agreement;
• so far as the Company is aware, the Independence Provisions in the Relationship Agreement were complied with by the
Concert Party and its associates; and
• so far as the Company is aware, the procurement obligation included in the Relationship Agreement was complied with
by the Concert Party.
POLITICAL AND CHARITABLE CONTRIBUTIONS
Charitable contributions in the UK during the year amounted to £1,106,000 (2018: £620,000). No political contributions were
made (2018: £nil).
RESEARCH AND DEVELOPMENT
The Group maintains in-house facilities for research and development in the UK, Greece, Indonesia, Thailand, Nigeria and
Australia. In addition, research and development is subcontracted to approved external organisations. Currently all such
expenditure is charged against profit in the year in which it is incurred, as it does not meet the criteria for capitalisation
under IAS 38 ‘Intangible Assets’.
GREENHOUSE GAS EMISSIONS REPORT
Global greenhouse gas (GHG) emissions data for the year:
Financial year
2018/19
2017/18
Scope 1 – Combustion of fuel to operate our factories, facilities and offices.
Scope 2 – Electricity purchased to operate our factories, facilities and offices.
Scope 1
(absolute
tonnes of CO2)
(cid:23)5,51(cid:25)
Scope 2
(absolute
tonnes of CO2)
15,(cid:28)1(cid:25)
Total
(absolute
tonnes of CO2)
(cid:25)1,(cid:23)3(cid:21)
52,509
18,287
70,796
From 1 June 2018 to 31 May 2019 GHG emissions were recorded at 170kg of carbon dioxide per tonne of production.
Further details on the Group’s environmental performance is contained within the Good4Business report on pages 51 to 57.
EMPLOYMENT OF DISABLED PERSONS
During the year the Group has maintained its policy of providing equal opportunities for the appropriate employment, training
and development of disabled persons. If any employees should become disabled during the course of their employment our
policy is to oversee the continuation of their employment and to arrange training for these employees.
EMPLOYEE INFORMATION
The Group recognises the benefits of keeping employees informed of the progress of the business and of involving them in
their Company’s performance. The methods of achieving such involvement are different in each company and country and
have been developed over the years by local management working with local employees in ways that suit their particular
needs and environment, with the active encouragement of the parent organisation.
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DIVERSITY AND INCLUSION
PZ Cussons is an extremely diverse organisation in terms of its ethnic and cultural make-up and this is something that we
continue to promote. We employ many different nationalities including Indian, Chinese, Polish, Indonesian, Singaporean,
Thai, Greek, Australian, Nigerian, Ghanaian, Kenyan, American and British. We are clear that we want our leadership team
to reflect the diversity of the markets in which we function and for that reason we are focused on developing local talent
who understand different cultures. We do not employ any person below the local legal working age and we will not, in any
circumstances, employ anyone below the age of 16.
Further details on the composition of our global employee population are set out in the table below:
Women employees
Men employees
Women senior managers
Men senior managers
Women Group Board Directors
Men Group Board Directors
Employees with over 15 years’ service
Employees over 50
(cid:21)(cid:19)1(cid:28)
2018
2017
2016
No.
1,(cid:19)(cid:25)(cid:23)
(cid:21),(cid:26)1(cid:26)
77
15(cid:19)
3
5
1,(cid:21)11
(cid:23)(cid:21)(cid:23)
(cid:8)
(cid:21)(cid:27)
(cid:26)(cid:21)
3(cid:23)
66
3(cid:27)
(cid:25)(cid:21)
3(cid:21)
11
No.
1,183
3,003
80
147
3
5
1,297
411
%
28
72
35
65
38
62
31
10
No.
1,252
3,523
87
167
3
5
1,289
401
%
26
74
34
66
38
62
27
8
No.
1,354
3,824
86
173
3
6
1,277
428
%
26
74
33
67
33
67
25
8
EXTERNAL AUDITOR
Deloitte LLP has signified its willingness to continue in office as External Auditor to the Company and, in accordance with
section 485 of the Companies Act 2006, a resolution for its reappointment will be proposed at the forthcoming Annual
General Meeting. A statement on the independence of the External Auditor is included in the Report of the Audit & Risk
Committee on page 78.
PRINCIPAL RISKS AND UNCERTAINTIES FACING THE GROUP
The Group’s business activities, financial condition and results of operations could be affected by a variety of risks or
uncertainties. These are summarised in the Principal Risks and Uncertainties section on pages 44 to 49 of the Strategic Report.
ANNUAL GENERAL MEETING
The Company’s 2019 Annual General Meeting will be held at the Company’s registered office, Manchester Business Park,
3500 Aviator Way, Manchester, M22 5TG at 10.30am on 25 September 2019. The resolutions that will be proposed at the 2019
Annual General Meeting are set out in the separate Notice of Annual General Meeting, which accompanies these Governance
and Financial Statements.
SHARE CAPITAL
As at 31 May 2019, the Company’s issued share capital consisted of 428,724,960 ordinary shares of 1p each.
RIGHTS AND OBLIGATIONS ATTACHING TO SHARES
Subject to applicable statutes and other shareholders’ rights, shares may be issued with such rights and restrictions as the
Company may by ordinary resolution decide, or, if there is no such resolution or so far as it does not make specific provision,
as the Board may decide.
RESTRICTIONS ON VOTING
Unless the Board decides otherwise, no member shall be entitled to vote at any meeting in respect of any shares held by that
member if any call or other sum that is then payable by that member in respect of that share remains unpaid.
POWERS OF DIRECTORS
Subject to the Company’s Memorandum and Articles of Association, the Companies Acts and any directions given by special
resolution, the business of the Company will be managed by the Board, which may exercise all the powers of the Company.
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REPORT OF THE DIRECTORS
PURCHASE OF OWN SHARES
Pursuant to shareholder approval given at the 2018 Annual General Meeting, the Company is authorised to make market
purchases of its own ordinary shares. The Directors intend to seek renewal of this authority at future Annual General Meetings
including the 2019 Annual General Meeting. No shares were purchased from 1 June 2018 to 26 July 2019 (2018: nil) other than
the acquisitions undertaken by the ESOT (see Note 25 of the Consolidated Financial Statements).
RESTRICTIONS ON THE TRANSFER OF SECURITIES
There are no restrictions on the transfer of securities in the Company except:
• that certain restrictions may from time to time be imposed by laws and regulations (for example, relating to insider trading);
and
• pursuant to the Listing Rules of the Financial Conduct Authority whereby certain employees of the Company require the
approval of the Company to deal in the Company’s ordinary shares.
GOING CONCERN
The Group’s business activities, together with the factors likely to affect its future development, performance and position
are set out in the Strategic Report. The financial position of the Group and liquidity position are described within the Financial
Review. In addition, Note 18 of the Consolidated Financial Statements includes policies in relation to the Group’s financial
instruments and risk management and policies for managing credit risk, liquidity risk, market risk, foreign exchange risk,
price risk, cash flow and interest rate risk and capital risk.
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate
resources to continue in operational existence for a period of at least 12 months from the date of approving the Financial
Statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report & Accounts.
A viability statement has been prepared and approved by the Board and this is set out on page 44.
EVENTS AFTER THE BALANCE SHEET DATE
There are no post balance sheet events.
ADDITIONAL DISCLOSURES
Other information that is relevant to the Report of the Directors, and which is incorporated by reference into this report,
can be located as follows:
• proposed future developments for the business are set out on pages 14 to 21.
• details of Group subsidiaries including overseas branches are set out in Note 30 on pages 185 to 187.
• financial instruments and risk management are set out in Note 18 on pages 167 to 175.
• trade payables under vendor financing arrangements are set out in Note 1 on page 146.
DIRECTORS’ STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE EXTERNAL AUDITOR
In the case of each of the persons who were Directors of the Company at the date when this report was approved:
• so far as each of the Directors is aware, there is no relevant audit information (as defined by the Companies Act 2006)
of which the Company’s External Auditor is unaware; and
• each of the Directors has taken all the steps that he or she ought to have taken as Director to make himself or herself aware
of any relevant audit information and to establish that the Company’s External Auditor is aware of that information.
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STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report, the Report on Directors’ Remuneration and the Group and
Parent Company Financial Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have
elected to prepare the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union, and the Parent Company Financial Statements, comprising FRS 101 ‘Reduced Disclosure
Framework’ and applicable law). Under company law, the Directors must not approve the Financial Statements unless they are
satisfied that they give a true and fair view of the state of affairs of the Group and the Parent Company and of the profit or
loss of the Group and Parent Company for that period.
In preparing these Financial Statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates which are reasonable and prudent;
• state whether applicable IFRSs as adopted by the European Union have been followed for the Group Financial Statements
and United Kingdom Accounting Standards, comprising FRS101, have been followed for the Parent Company Financial
Statements, subject to any material departures disclosed and explained in the Group and Parent Company Financial
Statements respectively; and
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Group and
Parent Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company
and enable them to ensure that the Financial Statements and the Report on Directors’ Remuneration comply with the
Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Company and the Group 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 Company’s website, www.p(cid:93)cussons.com. Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report & Accounts, taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group and Parent Company’s performance and position, business
model and strategy.
Each of the Directors, whose names and functions are listed on pages 60 and 61 confirm that, to the best of their knowledge:
• the Company Financial Statements, which have been prepared in accordance with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’ and
applicable law), give a true and fair view of the assets, liabilities, financial position and result of the Company;
• the Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the Report of the Directors includes a fair review of the development and performance of the business and the position
of the Group and Company, together with a description of the principal risks and uncertainties which it faces.
This information is given and should be interpreted in accordance with the provision of section 418(2) of the Companies
Act 2006.
By order of the Board of Directors
S P Plant
Company (cid:54)ecretary
26 July 2019
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Financial
Statements
Independent Auditor’s Report
to the Members of PZ Cussons Plc
Consolidated Income Statement
Consolidated Statement
(cid:82)(cid:73) C(cid:82)(cid:80)(cid:83)(cid:85)(cid:72)(cid:75)(cid:72)(cid:81)(cid:86)(cid:76)(cid:89)(cid:72) I(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)
Consolidated Balance Sheet
Consolidated Statement
of Changes in Equity
Consolidated Cash Flow Statement
Notes to the Consolidated
Financial Statements
Company Balance Sheet
Company Statement of
Changes in Equity
Notes to the Company
Financial Statements
118
128
129
130
132
133
134
188
189
190
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117
INDEPENDENT AUDITOR’S REPORT
to the Members of PZ Cussons Plc
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion:
• the financial statements of PZ Cussons Plc (the ‘parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view
of the state of the Group’s and of the parent Company’s affairs as at 31 May 2019 and of the Group’s profit for the year then
ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union;
• the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements which comprise:
• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated and parent Company Balance Sheets;
• the Consolidated and parent Company Statements of Changes in Equity;
• the Consolidated Cash Flow Statement;
• the Statement of Accounting Policies; and
• the related Notes 1 to 31.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable
law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation
of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101
‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
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 Group and the parent Company in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Carrying value of Nutricima, five:am and Rafferty’s Garden assets; and
• Uncertain tax positions.
Materiality
Scoping
Significant changes
in our approach
Within this report, any new key audit matters are identified with
are the same as the prior year are identified with
.
and any key audit matters which
The materiality that we used for the Group financial statements was £3.4m which was determined on
the basis of adjusted profit before tax.
The scope of our audit covered 84% of revenue, 72% of adjusted profit before tax and 86% of net assets.
In the prior year we included defined benefit obligations and foreign exchange as key audit matters.
The judgements related to those matters have reduced significantly since the prior year and therefore
these do not form key audit matters in the current year.
In agreement with the Audit & Risk Committee, we reduced our scope from the prior year. As part of our
first year audit, we included all components within our audit scope where Deloitte performed statutory
audits. This was with the expectation that in subsequent years, the scoping of components would be
driven by our assessment of the risks of misstatement in the Group financial statements.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the Directors’ statement in the Report of the Directors on page 114 about whether
they considered it appropriate to adopt the going concern basis of accounting in preparing them and
their identification of any material uncertainties to the Group’s and Company’s ability to continue to do
so over a period of at least twelve months from the date of approval of the financial statements.
We confirm that we have
nothing material to report, add
or draw attention to in respect
of these matters.
We considered as part of our risk assessment the nature of the Group, its business model and related
risks including where relevant the impact of Brexit, the requirements of the applicable financial
reporting framework and the system of internal control. We evaluated the Directors’ assessment of
the Group’s ability to continue as a going concern, including challenging the underlying data and key
assumptions used to make the assessment, and evaluated the Directors’ plans for future actions in
relation to their going concern assessment.
We are required to state whether we have anything material to add or draw attention to in relation to
that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially inconsistent
with our knowledge obtained in the audit.
Principal risks and viability statement
Based solely on reading the Directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in
the evaluation of the Directors’ assessment of the Group’s and the Company’s ability to continue as
a going concern, we are required to state whether we have anything material to add or draw attention
to in relation to:
We confirm that we have
nothing material to report, add
or draw attention to in respect
of these matters.
•
•
•
the disclosures on pages 45 to 49 that describe the principal risks and explain how they are being
managed or mitigated;
the Directors’ confirmation on page 44 that they have carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its business model, future
performance, solvency or liquidity; or
the Directors’ explanation on page 44 as to how they have assessed the prospects of the Group,
over what period they have done so and why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the period of their assessment including any
related disclosures drawing attention to any necessary qualifications or assumptions.
We are also required to report whether the Directors’ statement relating to the prospects of the Group
required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION INDEPENDENT AUDITOR’S REPORT
to the Members of PZ Cussons Plc
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) that we identified. These matters included 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.
CARRYING VALUE OF NUTRICIMA, FIVE:AM AND RAFFERTY’S GARDEN ASSETS
Key audit matter description
At 31 May 2019, the Group recognised goodwill of £51.0m (FY18: £63.6m) as per Note 10, software of
£44.6m (FY18: £47.5m), as per Note 10, property, plant and equipment (‘PPE’) of £148.8m (FY18: £156.6m)
as per Note 11 and brands/patents of £273.6m (FY18: £289.1m) as per Note 10.
The Group has recognised an impairment charge before tax of £26.2m, which has been charged against
exceptional items as disclosed in Note 3 to the accounts. £12.0m of this charge has been charged against
goodwill, £12.8m against brands/patents (both included in Note 10) and £1.4m against fixed assets. £3.9m
of this charge was attributable to the Nutricima brand and £22.3m was attributable to five:am. Also,
management’s impairment review of the Rafferty’s Garden CGU identified only marginal headroom.
There were a number of events, in particular in the second half of the financial year, that management
identified as indicators of a heightened risk of impairment in the Nutricima CGU’s assets. These include
the continued underperformance of the CGU during the year against budget, a continuing depressed
market in Nigeria with inflation outstripping wage rises, the general uncertainty that surrounded the
economy during the general election in early 2019 and the infrastructure challenges that resulted in
significant delays in processing goods through the port of Lagos during the second half of the year.
The performance of the five:am CGU has been marginally lower in the year than that anticipated by
management, with wider economic conditions and forecasted growth rates hardening in the year.
During the second half of the year, management reviewed its strategy for the five:am brand and as
a result revised the longer term cash flows expected to result from the CGU.
Management has prepared a discounted cash flow model to assess the recoverable value of the
assets attributable to the Nutricima, five:am and Rafferty’s Garden CGUs. The key inputs that require
judgement are:
• The identification of the relevant CGU(s);
• The discount rate applied to the cashflows;
• The period of cashflows over which reliable forecasts can be derived;
• The growth rates assumed in the cash flows in relation to each of Nutricima, five:am and Rafferty’s
Garden’s key brands, including in particular for Nutricima and five:am the assumption as to when the
current decline in demand is arrested and the pace at which profitability subsequently improves;
• The gross margins, and resultant net cash flows, which will be achieved; and
• Consideration of the estimate of the fair value less costs of disposal of the CGU.
Management concluded that in all three cases, value-in-use exceeded fair value less costs of disposal and
hence the value-in-use model formed the basis of the impairment conclusions. Management’s base case
models showed an impairment of £3.9m for Nutricima and £22.3m for five:am. Management’s base case
model for Rafferty’s Garden identified headroom of £2.1m. Reasonably possible downside sensitivities
assessed by management show further potential impairments of up to £5.6m and £3.5m for Nutricima
and five:am respectively. Reasonably possible downsides assessed by management show an impairment
of £6.9m for Rafferty’s Garden.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019
Further detail in relation to management’s impairment considerations has been provided in Note 10.
The key inputs noted above have been identified as a key source of estimation uncertainty on page 148.
This area has also been a key matter for discussion during the year at the Audit & Risk Committee, as
detailed in its report on page 82.
During the audit it was identified that the accounting for certain elements of goodwill and intangible
assets was not in line with the Group’s accounting policies, nor was it consistent with the requirements of
IFRS 3, IAS 21 and IAS 12, resulting in a misstatement in prior years to the carrying values of goodwill and
other intangible assets, and thus requiring a reassessment of previous years’ impairment conclusions.
The resultant misstatements have been corrected by management in the current period via prior period
adjustments, as required by IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’. The
adjustments include the recognition of a cumulative impairment charge of £7.4m as at 31 May 2018. Refer
to Note 1c) for further details.
We understood management’s process for identifying indicators of impairment and for performing the
impairment assessment. We assessed the design and implementation of key relevant controls relating to
asset impairment models, the underlying forecasting processes and the impairment reviews performed.
We evaluated and challenged the key assumptions and inputs into the impairment models, which
included performing sensitivity analyses, to evaluate the impact of selecting alternative assumptions.
In challenging the assumptions, we have:
• Considered the appropriateness of the judgement that the Nutricima business constitutes a single
CGU;
• Assessed the discount rate applied. In doing so, we involved our internal valuation specialists to
evaluate management’s discount rates, which involved benchmarking against available market
views and analysis;
• Understood the extent to which forecasts can be reliably derived by the Company;
• Confirmed that forecast cash flows were consistent with Board-approved forecasts and analysed
reasonably possible downside sensitivities. We have also discussed the base case forecasts with our
component teams in Nigeria and Australia to understand whether there are any additional matters
that should be factored in to the sensitivity analysis and to understand the reasonableness of the base
case forecasts relative to our knowledge of the respective businesses and of local macro-economic
factors.
We audited the integrity of the impairment models and cash flow forecasts to test arithmetical accuracy.
We recalculated the impairments charged and agreed the balances to the underlying financial records.
We considered the compliance of management’s impairment models with the requirements of IAS 36
‘Impairment of Assets’. We also reviewed the impairment disclosures against the requirements of IAS 36.
We reviewed the presentation and disclosure of management’s impairment assessment in the Financial
Statements to assess whether the disclosure is consistent with management’s methodology and
assumptions and relevant accounting standards.
In respect of the prior year adjustments recorded, we evaluated the nature of the misstatements noted
and considered whether correction through a prior year adjustment was appropriate. We independently
recalculated the adjustments and compared the outcome of our calculation to the entity’s records.
We have obtained suitable audit evidence to support the base case assumptions adopted by
management, and therefore concur with the conclusions of management that the impairments
recognised for Nutricima and five:am are within a reasonable range and that the related disclosures
for both those CGUs and Rafferty’s Garden are appropriate.
For Nutricima, five:am and Rafferty’s Garden, the pre-tax discount rates and growth rates used in
management’s base case models were outside of our expected ranges but the net effect of the
differences when applied to management’s base cases were not material.
We concurred with management’s judgement regarding the correction of prior year errors and consider
the related disclosures appropriate.
How the scope of our audit
responded to the key audit
matter
Key observations
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION INDEPENDENT AUDITOR’S REPORT
to the Members of PZ Cussons Plc
PROVISION FOR UNCERTAIN TAX POSITIONS
Key audit matter description
How the scope of our audit
responded to the key audit
matter
The Group operates in a number of overseas territories, including some with rapidly developing or
ambiguous tax legislation, and therefore the Group can be subject to unexpected or unsubstantiated tax
assessments, which have the potential to be material in nature. In this context, there is a risk around the
completeness and valuation of the potential exposures and, therefore, the tax provisions and disclosures
required by the Group.
The accounting policy applied by the Group in relation to the uncertain tax positions is described on
page 148 and the current material current tax estimates of £15.4m, £5.5m and £3.6m are noted in Note 1
to the Consolidated Financial Statements.
We have evaluated the design and implementation of the key control relating to the tax provisions.
Our audit team included taxation specialists across corporation tax, transfer pricing and local tax laws.
In carrying out our audit, we have understood and challenged the judgements made by management,
which are based on discussions and correspondence with local authorities, third-party advice obtained
and in-house, local tax knowledge. We have reviewed the disclosures made by management in Notes 1
and 7 around the uncertain tax provisions.
Key observations
We have concluded that the provisions held and the related disclosures overall are reasonable.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
GROUP FINANCIAL STATEMENTS
PARENT COMPANY FINANCIAL STATEMENTS
Materiality
£3.4m (2018: £4.0m)
£1.4m (2018: £1.6m)
Basis for determining
materiality
5% of adjusted pre-tax profit. The pre-tax profit
figure has been adjusted for exceptional items
only. This has been reconciled on page 128.
Parent Company materiality equates to 1%
of net assets, which is capped at 40% of Group
materiality.
Rationale for the benchmark
applied
We consider an adjusted pre-tax profit measure
to be the most relevant measure of performance
for the primary users of the accounts, being the
shareholders. This is on the basis that the adjusted
profit before tax better reflects the underlying
nature and trading of the Group and therefore is
considered to be a more representative basis upon
which to determine materiality.
We consider the users of the accounts to be most
interested in the net assets of the Company, on the
basis that it is these assets which will determine
the extent to which dividends can be paid.
Adjusted Profit
before tax £69.8m
Adjusted Profit before tax
Group materiality
Group materiality £3.4m
Component materiality
range £2.28m to £0.7m
Audit & Risk
Committee reporting
threshold £170,000
We agreed with the Audit & Risk Committee that we would report to the Committee all audit differences in excess of £170,000
(2018: £200,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We also report to the Audit & Risk Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION INDEPENDENT AUDITOR’S REPORT
to the Members of PZ Cussons Plc
An overview of the scope of our audit
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 audit work relating to 11 components, ten of
which were subjected to full scope audits. Our full scope audits covered components in the UK, Nigeria, Australia, Indonesia,
Greece and Ghana, with specific procedures undertaken in respect of a component in Singapore. The parent Company is
located in the UK and audited directly by the Group audit team.
In agreement with the Audit & Risk Committee, we reduced our scope from the prior year. As part of our first year audit,
we included all components where statutory audits were required within our audit scope. This was with the expectation that
in subsequent years the scoping of components would be driven by our assessment of the risks of misstatement in the Group
financial statements.
As a consequence of the audit scope determined, we achieved coverage of approximately 84% (2018: 99%) of revenue,
72% (2018: 100%) of adjusted profit before tax and 86% (2018: 100%) of net assets. Our audit work at each component
was executed at levels of materiality applicable to each individual component, which were lower than Group materiality.
Component materiality, excluding the parent Company, ranged from £2.28m to £0.70m (2018: £1.92m to £0.48m).
The Group audit team designed the audit procedures for all relevant significant risks to be addressed by the component
auditors and issued Group referral instructions detailing the nature and form of the reporting required. The Group audit
team continued to follow a programme of planned visits that has been designed so that a senior member of the Group audit
team visits each of the significant finance function locations included as full scope for the Group audit on a rotational basis.
During the year, senior members of the Group audit team visited Nigeria three times and each of Greece, Indonesia and
Singapore once.
We included all component audit teams in our team briefings, discussed their risk assessment, attended close meetings by
conference call and reviewed documentation of the findings from their work.
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.
16%
28%
1%
14%
Revenue
Adjusted profit
before tax
Net assets
84%
72%
85%
Full audit scope
Review at Group level
Full audit scope
Review at Group level
Full audit scope
Review at Group level
Specific audit procedures
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 Other information
The Directors are responsible for the other information. The other information comprises the
information included in the annual report other than the financial statements and our auditor’s
report thereon.
We have nothing to report
in respect of these matters.
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.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
• Fair, balanced and understandable – the statement given by the Directors that they consider the Annual
Report & Accounts taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and performance, business model and
strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit & Risk Committee reporting – the section describing the work of the Audit & Risk Committee does
not appropriately address matters communicated by us to the Audit & Risk Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the Directors’
statement required under the Listing Rules relating to the Company’s compliance with the UK
Corporate Governance Code containing provisions specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK
Corporate Governance Code.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, 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.
Details of the extent to which the audit was considered capable of detecting irregularities, including fraud are set out below.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and
then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient
and appropriate to provide a basis for our opinion.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION INDEPENDENT AUDITOR’S REPORT
to the Members of PZ Cussons Plc
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance
with laws and regulations, our procedures included the following:
• enquiring of management, internal audit, and the Audit & Risk Committee, including obtaining and reviewing supporting
documentation, concerning the Group’s policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of
non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged
fraud; and
– the internal controls established to mitigate risks related to fraud or non-compliance with laws;
• discussing among the engagement team, including significant component audit teams and involving relevant internal
specialists, including tax, pensions and IT specialists, regarding how and where fraud might occur in the financial statements
and any potential indicators of fraud. As part of this discussion, we identified potential for fraud in the areas of promotional
trade spend and classification of exceptional items; and
• obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and
regulations that had a direct effect on the financial statements or that had a fundamental effect on the operations of the
Group. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions
legislation and tax legislation across a number of jurisdictions.
Audit response to risks identified
As a result of performing the above, we did not identify any key audit matters related to the potential risk of fraud or non-
compliance with laws and regulations.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial disclosures and testing to supporting documentation to assess compliance with relevant laws and
regulations discussed above;
• enquiring of management, the Audit & Risk Committee and in-house legal counsel concerning actual and potential litigation
and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing
•
•
•
correspondence with relevant tax authorities;
in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries
and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of
a potential bias;
in addressing the risk of fraud in exceptional items, performing detailed testing over the items classified as exceptional
items including the appropriateness of the accounting policy and consistency with the policy, and adequacy of disclosures,
and challenging the completeness of items identified as exceptional;
in addressing the risk of fraud in promotional trade spend, we have obtained a sample of open deals at the year end and
agreed back to supporting documentation the validity and accuracy of these balances. In a number of cases, the deals
have been settled post year end and therefore we have been able to agree these directly. Where this is not the case, we
have agreed the calculation to sales volume data and challenged management as to why the provisions are appropriate
to recognise at the year end; and
• evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
including internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019 Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
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.
In light of the knowledge and understanding of the Group and the parent Company and their environment obtained
in the course of the audit, we have not identified any material misstatements in the Strategic Report or the Report of
the Directors.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
We have nothing to report
in respect of these matters.
• we have not received all the information and explanations we require for our audit; or
• 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.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of
Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be
audited is not in agreement with the accounting records and returns.
We have nothing to report
in respect of these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit & Risk Committee, we were appointed by the shareholders at the Annual General
Meeting on 27 September 2017 to audit the financial statements for the year ending 31 May 2018 and subsequent financial
periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is two
years, covering the years ended 2018 and 2019.
Consistency of the audit report with the additional report to the Audit & Risk Committee
Our audit opinion is consistent with the additional report to the Audit & Risk Committee we are required to provide in
accordance with ISAs (UK).
Use of our 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.
Jane Boardman BSc FCA (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Manchester, UK
26 July 2019
127
PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION CONSOLIDATED INCOME STATEMENT
Year ended 31 May 2019
Continuing operations
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Share of results of joint ventures
Operating profit/(loss)
Finance income
Finance costs
Net finance costs
Profit/(loss) before taxation
Taxation
Profit/(loss) for the year
Attributable to:
Owners of the Parent
Non-controlling interests
Basic Earnings Per Share (p)
Diluted Earnings Per Share (p)
Year ended 31 May 2019
(Restated)*
Year ended 31 May 2018
Before
exceptional
items
£m
Exceptional
items
(Note 3)
£m
Before
exceptional
items
£m
Exceptional
items
(Note 3)
£m
Total
£m
Total
£m
689.4
(437.5)
251.9
(102.0)
(75.7)
2.3
76.5
0.5
(7.2)
(6.7)
–
–
689.4
(437.5)
739.8
(477.5)
–
–
739.8
(477.5)
–
–
(32.8)
–
(32.8)
–
–
–
251.9
(102.0)
(108.5)
2.3
43.7
0.5
(7.2)
(6.7)
262.3
(101.1)
(76.9)
1.4
85.7
0.9
(6.5)
(5.6)
–
–
(21.2)
0.3
(20.9)
–
–
–
262.3
(101.1)
(98.1)
1.7
64.8
0.9
(6.5)
(5.6)
69.8
(15.8)
(32.8)
4.6
37.0
(11.2)
80.1
(22.1)
(20.9)
4.3
59.2
(17.8)
54.0
(28.2)
25.8
58.0
(16.6)
41.4
54.4
(0.4)
54.0
(28.3)
0.1
(28.2)
26.1
(0.3)
25.8
56.0
2.0
58.0
(15.7)
(0.9)
(16.6)
40.3
1.1
41.4
13.01
(6.77)
6.24
13.39
(3.76)
9.63
13.01
(6.77)
6.24
13.39
(3.76)
9.63
Notes
2
12
2
6
7
4
9
9
9
(cid:13)
The results for the year ended 31 May 2018 have been restated to reflect the application of IFRS 15 and prior year adjustments. Further details are set out
in Note 1.
P
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U
S
S
O
N
S
P
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A
N
N
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&
A
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1
9
128
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 May 2019
Profit for the year
Other comprehensive income/(expense)
Items that will not be reclassified to profit or loss
Remeasurement of post-employment benefit obligations
Deferred tax gain/(loss) on remeasurement of post-employment benefit obligations
Tax on items that will not be subsequently reclassified to profit or loss
Total items that will not be reclassified to profit or loss
Items that may be subsequently reclassified to profit or loss
Exchange differences on translation of foreign operations
Cash flow hedges – fair value gain/(loss) in year net of taxation
Cost of hedging reserve
Changes in the fair value during the year in relation to time-period-related hedged items
Total items that may be subsequently reclassified to profit or loss
Other comprehensive expense for the year net of taxation
Total comprehensive income for the year
Attributable to:
Owners of the Parent
Non-controlling interests
Notes
23
21
18
18
(Restated)*
2018
£m
41.4
2019
£m
25.8
(2.4)
0.4
(0.6)
(2.6)
(0.9)
0.6
(0.3)
–
(0.6)
26.7
(4.5)
0.2
22.4
(29.0)
(1.8)
–
–
(30.8)
(3.2)
(8.4)
22.6
33.0
23.1
(0.5)
36.5
(3.5)
(cid:13) The results for the year ended 31 May 2018 have been restated to reflect prior year adjustments. Further details are set out in Note 1.
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A
N
C
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I
F
I
N
A
N
C
A
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A
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E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
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S
O
N
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P
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129
CONSOLIDATED BALANCE SHEET
At 31 May 2019
Assets
Non-current assets
Goodwill and other intangible assets
Property, plant and equipment
Other investments
Net investment in joint ventures
Trade and other receivables
Deferred taxation assets
Retirement benefit surplus
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Current tax receivable
Current asset investments
Cash and short-term deposits
Assets held for sale
Total assets
Equity
Share capital
Capital redemption reserve
Hedging reserve
Currency translation reserve
Other reserve
Retained earnings
Attributable to owners of the Parent
Non-controlling interests
Total equity
Liabilities
Non-current liabilities
Borrowings
Trade and other payables
Deferred taxation liabilities
Retirement benefit obligations
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
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&
A
C
C
O
U
N
T
S
2
0
1
9
130
31 May
2019
£m
(Restated)*
31 May
2018
£m
(Restated)*
1 June
2017
£m
Notes
10
11
13
12
15
21
23
14
15
18
16
17
24
18
20
21
23
369.2
148.8
–
35.6
–
10.4
36.3
600.3
131.9
157.5
1.6
2.1
0.3
53.5
346.9
–
346.9
947.2
4.3
0.7
0.3
(86.7)
(39.0)
543.8
423.4
28.2
451.6
204.0
0.6
72.1
11.3
288.0
400.2
156.6
0.3
22.9
0.4
–
33.3
613.7
132.6
163.9
–
–
0.3
102.7
399.5
–
399.5
408.4
177.0
0.3
23.1
1.6
–
4.1
614.5
163.3
190.3
1.5
–
0.3
150.6
506.0
2.2
508.2
1,013.2
1,122.7
4.3
0.7
–
(85.4)
(39.0)
554.3
434.9
29.0
463.9
–
1.0
65.6
12.0
78.6
4.3
0.7
1.8
(67.7)
(38.9)
533.2
433.4
33.8
467.2
–
0.6
61.1
17.9
79.6
Current liabilities
Overdrafts
Borrowings
Trade and other payables
Derivative financial liabilities
Current taxation payable
Provisions
Total liabilities
Total equity and liabilities
Notes
18
18
19
18
22
31 May
2019
£m
(Restated)*
31 May
2018
£m
(Restated)*
1 June
2017
£m
–
2.0
170.6
1.0
32.4
1.6
207.6
495.6
947.2
16.5
251.9
174.4
1.1
25.6
1.2
470.7
549.3
–
294.7
248.9
–
28.4
3.9
575.9
655.5
1,013.2
1,122.7
(cid:13) The balance sheets for the year to 31 May 2018 and as at 1 June 2017 have been restated to reflect prior year adjustments. Further details are set out in Note 1.
The Financial Statements from pages 128 to 187 were approved by the Board of Directors and authorised for issue.
They were signed on its behalf by:
C Silver
26 July 2019
G A Kanellis
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A
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E
I
F
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A
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A
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O
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A
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A
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N
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A
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P
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&
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2
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1
9
131
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to owners of the Parent
Share
capital
£m
Currency
translation
reserve
£m
Capital
redemption
reserve
£m
Notes
Retained
earnings
£m
Other
reserve
£m
Hedging
reserve
£m
Non-
controlling
interests
£m
–
(38.9)
(38.9)
2.4
(0.6)
1.8
At 1 June 2017 (as previously reported)
Effect of prior year adjustment
At 1 June 2017 (restated)*
Profit for the year
Other comprehensive income/(expense)
Remeasurement of post-employment
obligations
Exchange differences on translation
of foreign operations (restated)*
Cash flow hedges – fair value gains
in year net of taxation
Deferred tax on remeasurement
of post-employment obligations
Tax on other equity-related items
Reclassification between reserves (restated)*
Total comprehensive (expense)/income
for the year
Transactions with owners:
Ordinary dividends
Acquisition of shares by ESOT
Non-controlling interests dividend paid
Total transactions with owners
recognised directly in equity
At 31 May 2018 (restated)*
23
21
8
25
4.3
–
4.3
(58.6)
(9.1)
(67.7)
0.7
–
0.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24.4)
–
–
–
6.7
(17.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
501.3
31.9
533.2
40.3
26.7
–
–
(4.5)
0.2
(6.7)
56.0
(34.6)
(0.3)
–
–
–
–
–
–
–
–
–
–
(0.1)
–
4.3
(85.4)
0.7
554.3
(39.0)
(34.9)
(0.1)
At 1 June 2018 (restated)*
4.3
(85.4)
0.7
554.3
(39.0)
Profit for the year
Other comprehensive income/(expense)
Remeasurement of post-employment
obligations
Exchange differences on translation
of foreign operations
Cash flow hedges – fair value gains
in year net of taxation
Cost of hedging reserve
Changes in the fair value during the
period in relation to time-period-related
hedged items
Deferred tax on remeasurement
of post-employment obligations
Tax on other equity-related items
Total comprehensive (expense)/income
for the year
Transactions with owners:
Ordinary dividends
Non-controlling interests dividend paid
Total transactions with owners
recognised directly in equity
23
18
18
21
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.7)
–
–
–
–
(0.6)
(1.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26.1
(2.4)
–
–
–
–
0.4
–
24.1
(34.6)
–
(34.6)
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
483.9
(16.7)
467.2
41.4
33.8
–
33.8
1.1
–
26.7
(4.6)
(29.0)
–
–
–
–
(1.8)
(4.5)
0.2
–
–
–
–
(1.8)
–
–
–
(1.8)
(3.5)
33.0
–
–
–
–
–
–
–
–
–
0.6
(0.3)
–
–
–
–
–
(1.3)
(34.6)
(0.4)
(1.3)
(1.3)
(36.3)
29.0
463.9
29.0
463.9
(0.3)
25.8
–
(2.4)
(0.2)
(0.9)
–
–
–
–
–
0.6
(0.3)
–
0.4
(0.6)
(0.3)
(0.5)
22.6
–
–
–
–
(0.3)
(34.6)
(0.3)
(0.3)
(34.9)
At 31 May 2019
4.3
(86.7)
0.7
543.8
(39.0)
0.3
28.2
451.6
(cid:13) The results for the year ended 31 May 2018 and at 1 June 2017 have been restated to reflect prior year adjustments. Further details are set out in Note 1.
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S
O
N
S
P
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A
N
N
U
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&
A
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2
0
1
9
132
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 May 2019
Cash flows from operating activities
Cash generated from operations
Taxation paid
Interest paid
Net cash generated from operating activities
Cash flows from investing activities
Interest income
Purchase of property, plant and equipment and software
Proceeds from sale of assets
Funding to joint ventures
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to non-controlling interests
Purchase of shares for ESOT
Dividends paid to Company shareholders
Increase in borrowings
Repayment of loan facility
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rates
Cash and cash equivalents at the end of the year
Notes
26
6
6
10,11
12
25
8
17
17
17
17
2019
£m
82.9
(10.3)
(7.2)
65.4
0.5
(14.1)
4.1
(6.8)
(16.3)
(0.3)
–
(34.6)
204.0
(250.0)
(80.9)
(31.8)
86.2
(0.9)
53.5
2018
£m
59.1
(18.0)
(6.5)
34.6
0.9
(22.2)
10.6
–
(10.7)
(1.3)
(0.4)
(34.6)
–
(7.9)
(44.2)
(20.3)
116.1
(9.6)
86.2
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O
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N
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A
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E
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I
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A
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133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
GENERAL INFORMATION
PZ Cussons Plc is a public limited company registered in England and Wales which is listed on the London Stock Exchange
and is domiciled and incorporated in the UK under the Companies Act 2006. The address of the registered office is given
on page 200.
These Financial Statements are presented in Pounds Sterling and have been presented in £m. Foreign operations are included
in accordance with the policies set out in Note 1.
For the year ending 31 May 2019 the following subsidiaries of the Company were entitled to exemption from audit under
section 479A of the Companies Act 2006 relating to subsidiary companies:
Subsidiary name
Beauty Source Ltd
St. Tropez Holdings Ltd
PZ Cussons (International Finance) Ltd
The Sanctuary at Covent Garden Ltd
Thermocool Engineering Company Ltd
Bronson Holdings Ltd
Companies House registration number
03927341
05706646
08589433
02480670
09266188
09771991
1. ACCOUNTING POLICIES
The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as
adopted for use in the European Union (EU), including International Accounting Standards (IAS) and interpretations issued by
the International Financial Reporting Standards Interpretations Committee (IFRS IC) and the Companies Act 2006 applicable to
companies reporting under IFRS. Further standards may be issued by the International Accounting Standards Board (IASB) and
standards currently in issue and endorsed by the EU may be subject to interpretations issued by the IFRS IC.
The preparation of financial statements in conformity with IFRSs requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting year. Although these estimates are based on management’s best knowledge of
the amount, event or actions, actual results ultimately may differ from those estimates. Key sources of estimation uncertainty
can be found on page 148.
The Financial Statements have been prepared on a going concern basis and on a historical cost basis except for the revaluation
of certain financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
The Financial Statements have been prepared using consistent accounting policies except as stated below.
a) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for the first time for the annual reporting year commencing
1 June 2018:
•
•
IFRS 15 ‘Revenue from Contracts with Customers’; and
IFRS 9 ‘Financial Instruments’.
a) i) IFRS 15 ‘Revenue from Contracts with Customers’ (including Restatement of Income Statement)
During the year, the Group revised its accounting policy in relation to the recognition of revenue as a result of implementing
IFRS 15 ‘Revenue from Contracts with Customers’ from 1 June 2018.
The primary impact on the Group is a change in presentation of certain elements of trade spend that do not relate to the
Group paying for a separate distinct good or service, but do relate to some form of payment or reduction in transaction price
to a customer. These elements were previously recognised within selling and distribution costs; however under IFRS 15 these
costs are now recognised as part of the transaction price and therefore as a reduction to revenue.
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134
The Group has elected to restate comparative results under the full retrospective approach. The impacts of restatement due
to the change in accounting policy are shown in the table below:
Revenue
Selling and distribution costs
31 May 2018
£m
Under
previous
policy
762.6
(123.9)
Adjustment
As
published
(22.8)
22.8
739.8
(101.1)
The changes described above have not impacted the Group’s operating profit, profit before tax or balance sheet for the
comparative year.
a) ii) IFRS 9 ‘Financial Instruments’
IFRS 9 ‘Financial Instruments’ replaced the classification and measurement models for financial instruments in IAS 39 with
three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive
income. IFRS 9 impacts the Group in three key areas:
1) Impairment of financial assets
The Group has assessed the impact of IFRS 9 based on a forward-looking expected credit loss model, using the existing
impairment provision matrix whilst also incorporating forward-looking information into historical customer default rates.
The impact of IFRS 9 is not material and as such no adjustment has been recognised in opening equity at the date of initial
application. The Group has amended its accounting policy for the establishment of provisions against trade receivables to
reflect the lifetime expected loss model (consistent with the simplified approach permitted under IFRS 9).
In addition to trade receivables the Group has loan balances receivable from joint ventures. The Group has assessed the impact
of IFRS 9 on these loans and concluded that no adjustment is required to the opening equity at the date of application, nor at
the balance sheet date.
2) Changes to hedge accounting
Consistent with the non-complex nature of the Group’s financial instruments, there has been no adjustment to the financial
statements as a result of the implementation of IFRS 9. The Group has undertaken an assessment of its hedge relationships
and has concluded that the Group’s current hedge relationships continue to qualify for hedge accounting upon the adoption
of IFRS 9. The Group has amended its accounting policy to reflect the requirements of IFRS 9.
3) Classification and measurement
The Group has assessed all financial assets within the scope of IFRS 9 and has concluded that there is no impact on the financial
statements since all assets meet the criteria to be recognised at amortised cost, as they were previously measured under IAS 39.
b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been
early-adopted by the Group
Certain new accounting standards and interpretations have been published that are not mandatory for the 31 May 2019
reporting year and have not been early-adopted by the Group. With the exception of IFRS 16 ‘Leases’ for which an impact
assessment has been presented below, and IFRIC 23 which will not have a material impact on the Group, the Group will
undertake an assessment of the impact of the following new standards and interpretations in due course:
• Amendments to IFRS 9 ‘Financial Instruments’;
• Amendments to IFRS 10 ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’;
• Amendments to IAS 28 ‘Long-term Interests in Associates and Joint Ventures’;
• Amendments to IAS 19 ‘Employee Benefits’; and
• Annual improvements to the IFRS Standards 2015–2017 cycle.
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N
A
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1
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135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
b) i) IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ is effective from 1 January 2019 and replaces IAS 17 ‘Leases’ and related interpretations. It will result in
almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases
is removed. Under the new standard, a right-of-use asset and a financial liability for future lease payments are recognised.
The only exceptions are short-term leases, low-value leases and leases of intangible assets.
As at the balance sheet date, the Group has not yet applied the standard; it will be applied from 1 June 2019. The Group
has completed an IFRS 16 assessment and confirmed that the new standard will have a material impact on the Group’s
consolidated balance sheet, but with no material net impact on profit.
The Group has elected to apply the modified retrospective transition approach and will not restate comparative amounts for
the year ended 31 May 2019. The Group has elected to measure the right-of-use asset as if IFRS 16 had been applied since the
start of the lease, but using the incremental borrowing rate at 1 June 2019, with the difference between the right-of-use asset
and the lease liability taken to retained earnings.
The Group has elected to adopt the following practical expedients on transition:
• not to reassess contracts to determine if the contract contains a lease and not to separate lease and non-lease elements;
and
• to apply the portfolio approach where a group of leases has similar characteristics.
Estimated impact of adoption of IFRS 16 ‘Leases’
Balance sheet
On initial application at 1 June 2019, it is estimated that the Group will recognise a right-of-use lease asset of approximately
£14m and lease liabilities of approximately £16m based on calculations to date.
A transition adjustment of approximately £2m will be recognised as a debit to retained earnings. The Group will not capitalise
low-value leases on transition, or those which expire before 31 May 2020, and has opted not to apply IFRS 16 to leases relating
to intangible assets.
Income statement
Under IFRS 16 the Group will see a different pattern of expense within the income statement, as the IAS 17 operating lease
expense is replaced by depreciation and interest charges. In 2020, the Group’s EBITDA metric will improve by an estimated
£0.1m under IFRS 16 as the new depreciation expense is expected to be lower than the IAS 17 operating lease charge; however
the new finance costs are expected to broadly offset this, such that net profit after tax and the underlying earnings metric are
not expected to be materially different compared to the previous IAS 17 reporting basis.
c) Restatement due to prior year adjustments
In preparing these financial statements, management have identified a number of errors relating to prior periods. Accordingly,
prior year adjustments have been made. Certain of the prior year adjustments reflect historical errors relating to the recognition
of goodwill and other intangible assets (i.e. brand values). These errors resulted from incorrect application of the requirements
of IFRS 3, IAS 21 and IAS 12 to historic purchase price accounting and are as follows:
• certain goodwill and other intangible assets in foreign operations were recognised in the presentational currency of the
Group (GBP), rather than in the functional currency of the cash-generating unit that the goodwill and other intangible
assets are attributed to;
• certain deferred tax liabilities had not been recorded in relation to other intangible assets acquired in two foreign business
combinations. The correction to record the deferred tax liabilities leads to a corresponding increase to goodwill arising
on these acquisitions; and
• certain impairments of goodwill would have been recognised in prior years had the goodwill and other intangible assets
been stated at the correct values following recognition of the deferred tax liabilities and foreign exchange remeasurements
described above.
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The net impact of these three adjustments is to increase goodwill and other intangible assets at 1 June 2017 by £5.0m
(31 May 2018: reduce goodwill and other intangible assets by £5.9m) and to increase deferred tax liabilities at 1 June 2017 by
£21.7m (31 May 2018: £4.5m). The impact of the adjustments on the income statement for the year ending 31 May 2018 is to
increase exceptional items by £7.4m which represents the impairment of an Australian brand.
In addition, a presentational adjustment was made in respect of the classification of reserves in relation to the parent
Company’s Executive Share Option Trust (ESOT) and certain overseas restricted reserves. These reserves have now been
included in the Consolidated Statement of Changes In Equity and Consolidated Balance Sheet as ‘Other reserve’ given their
non-distributable nature. The net impact of this adjustment is to recognise an ‘Other reserve’ balance at 1 June 2017 of
£38.9m (31 May 2018: £39.0m) and to increase the retained earnings balance at 1 June 2017 by £38.9m (31 May 2018: £39.0m).
Further, as a result of incorrect mapping of balances within the consolidation system there have been items recorded
erroneously in the currency translation reserve and hedging reserve that should have been reflected in retained earnings.
The net impact of this adjustment is to decrease the currency translation reserve at 1 June 2017 by £3.6m (31 May 2018: £nil),
decrease the hedging reserve at 1 June 2017 by £0.6m (31 May 2018: £nil) and increase retained earnings by £4.2m.
These adjustments have been recognised as prior year errors in accordance with IAS 8 ‘Accounting policies, changes in accounting
estimates and errors’ with the Financial Statements restated accordingly. The impact of the prior year adjustments on the
affected primary statement line items is shown in the tables below:
Consolidated Income Statement
Exceptional items
Operating profit
Profit before taxation
Profit attributable to owners of the Parent
Consolidated Statement
of Other Comprehensive Income
Profit for the year
Exchange differences on translation
of foreign operations
Other comprehensive income for the year
net of taxation
Total comprehensive income for the year
Consolidated Balance Sheet
Goodwill and other intangible assets
Deferred taxation liability
Retained earnings
Other reserve
Currency translation reserve
Hedging reserve
Equity attributable to owners of the Parent
31 May 2018
£m
As
previously
reported
Adjustment
to brought
forward
reserves
Adjustment
(in-year
impact) As restated
As
previously
reported
1 June 2017
£m
Adjustment
to brought
forward
reserves As restated
(13.5)
72.2
66.6
47.7
48.8
(25.8)
(5.2)
43.6
406.1
(44.2)
(536.4)
–
79.8
(0.6)
(462.2)
–
–
–
–
–
–
–
–
5.0
(21.7)
(31.9)
38.9
9.1
0.6
16.7
(7.4)
(7.4)
(7.4)
(7.4)
(7.4)
(3.2)
(3.2)
(10.6)
(10.9)
0.3
14.0
0.1
(3.5)
–
10.6
(20.9)
64.8
59.2
40.3
(15.5)
89.3
86.5
62.4
41.4
65.1
(29.0)
(53.4)
(8.4)
33.0
(55.6)
9.5
–
–
–
–
–
–
–
–
400.2
(65.6)
(554.3)
39.0
85.4
–
(434.9)
403.4
(39.4)
(501.3)
–
58.6
(2.4)
(450.1)
5.0
(21.7)
(31.9)
38.9
9.1
0.6
16.7
(15.5)
89.3
86.5
62.4
65.1
(53.4)
(55.6)
9.5
408.4
(61.1)
(533.2)
38.9
67.7
(1.8)
(433.4)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
Consolidated Statement of Changes in Equity
Currency Translation Reserve
At 1 June
Exchange differences on translation
of foreign operations
Reclassification of reserves
At 31 May
Retained Earnings
At 1 June
Profit for the year
Reclassification of reserves
Acquisition of shares by ESOT
At 31 May
31 May 2018
£m
As
previously
reported
Adjustment
to brought
forward
reserves
Adjustment
(in-year
impact) As restated
As
previously
reported
1 June 2017
£m
Adjustment
to brought
forward
reserves As restated
58.6
21.2
–
79.8
(501.3)
(47.7)
–
0.4
(536.4)
9.1
–
–
9.1
(31.9)
–
–
–
(31.9)
–
67.7
3.2
(6.7)
(3.5)
–
7.4
6.7
(0.1)
14.0
24.4
(6.7)
85.4
(533.2)
(40.3)
6.7
0.3
(554.3)
19.1
39.5
–
58.6
(477.4)
(62.4)
–
1.2
(501.3)
–
–
–
–
–
–
–
–
–
19.1
39.5
–
58.6
(477.4)
(62.4)
–
1.2
(501.3)
Basis of consolidation
The Consolidated Financial Statements incorporate the Financial Statements of PZ Cussons Plc and entities controlled by
PZ Cussons Plc (its subsidiaries) made up to 31 May each year. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its
power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date
of acquisition. Any excess of the fair value of consideration over the fair values of the identifiable net assets acquired is
recognised as goodwill. Any deficit below the fair values of the identifiable net assets acquired (i.e. discount on acquisition)
is credited to the income statement in the period of acquisition.
The total profits or losses of subsidiaries are included in the Consolidated Income Statement and the interest of
non-controlling interests is stated as the non-controlling interest’s proportion of the fair values of the assets and liabilities
recognised. Comprehensive income attributable to the non-controlling interests is attributed to the non-controlling interests
even if this results in the non-controlling interests recognising a deficit balance.
The interest of non-controlling interests in the acquiree is initially measured at the non-controlling interest’s proportion of
the net fair value of the assets, liabilities and contingent liabilities recognised. Where non-controlling interests are acquired,
the excess of cost over the value of the non-controlling interest acquired is recorded in equity.
Where necessary, the accounts of subsidiaries are adjusted to conform to the Group’s accounting policies. All intra-group
transactions, balances, income and expenses are eliminated on consolidation.
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Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The fair value of consideration of the acquisition
is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued by the Group in exchange for control of the acquiree. The acquiree’s identifiable assets, liabilities
and contingent liabilities that meet the conditions for recognition under IFRS 3 ‘Business Combinations’ are recognised at
their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in
accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’, which are recognised and measured
at the lower of the assets’ previous carrying value and fair value less costs of disposal. All acquisition costs are expensed as
incurred as exceptional items.
Where acquisitions are achieved in stages, commonly referred to as ‘stepped acquisitions’, and result in control being obtained
by the Group as part of a transaction, the Group reassesses the fair value of its existing interest in joint ventures as part of
determining the fair value of consideration. In determining the fair value of the Group’s existing interest, reference is made to
the fair value of consideration paid to increase the Group’s interest in joint ventures as well as the specific fair values of assets
and liabilities transferred to gain control. Any increase or impairment of the Group’s existing interest will be credited/charged
to the income statement as an exceptional item.
Goodwill
Goodwill arising on the acquisition of a subsidiary or a jointly controlled entity represents the excess of the cost of acquisition
over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the subsidiary or
jointly controlled entity recognised at the date of acquisition. If, after reassessment, the Group’s interest in the net fair value of
the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess
is recognised immediately in the income statement.
Goodwill also includes amounts to reflect deferred tax liabilities established in relation to acquisitions in accordance with
IFRS 3 ‘Business Combinations’. Goodwill is initially recognised as an asset and is subsequently measured at cost less any
accumulated impairment losses. Goodwill is reviewed for impairment at least annually.
For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit
from the synergies of the combination. 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 amount 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 in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On
disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
Interests in joint ventures
Under IFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures depending on
the contractual rights and obligations of each investor. PZ Cussons Plc has assessed the nature of its joint arrangements and
determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interests in joint ventures are initially recognised at cost and adjusted thereafter to
recognise the Group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When
the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term
interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise
further losses, unless it has incurred obligations or made payments on behalf of the joint ventures.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods
provided in the normal course of business, net of discounts, trade spend, rebates and sales-related taxes but including interest
receivable on sales on extended credit. Sales of goods are recognised when title has passed and the significant risks and
rewards of ownership have been transferred, which is generally on receipt or collection by customers. Should management
consider that the criteria for recognition are not met, revenue is deferred until such time as the consideration has been
fully earned.
Trade spend, which consists primarily of customer pricing allowances, placement/listing fees and promotional allowances,
are governed by agreements with our trade customers (retailers and distributors). Accruals are recognised under the terms
of these agreements, to reflect the expected promotional activity and our historical experience. These accruals are reported
within trade and other payables.
Trade promotions
The Group provides for amounts payable to trade customers for promotional activity. Where a promotional activity spans
across the year end, an accrual is reflected in the Group accounts based on our expectation of customer and consumer uptake
during the promotional period and the extent to which temporary promotional activity has occurred.
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 under operating leases are charged to the income statement on a straight-line basis over the term of the
relevant lease even when payments are not made on such a basis. Benefits received and receivable as an incentive to enter
into an operating lease are also spread on a straight-line basis over the lease term.
Foreign currencies
The individual Financial Statements of each Group entity are presented in the currency of the primary economic environment
in which the entity operates (its functional currency). For the purpose of the Consolidated Financial Statements, the results
and financial position of each entity are presented in Sterling, which is the functional currency of the Company, and the
presentational currency for the Consolidated Financial Statements.
In preparing the Financial Statements of the individual entities, transactions in currencies other than the entity’s functional
currency are recorded at the actual rate of exchange prevailing on the dates of the transactions, or at average rates of
exchange if they represent a suitable approximation to the actual rate. At each balance sheet date, monetary assets and
liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities
of the foreign entity and translated at the closing balance sheet rate. Exchange differences are recognised in other
comprehensive income.
Foreign exchange gains and losses arising from the settlement of foreign currency transactions and from the translation
of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
In order to hedge its exposure to certain foreign exchange risks, the Group enters into forward contracts.
On consolidation, the assets and liabilities of the Group’s overseas 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 year. Cumulative
foreign currency translation differences arising on the translation and consolidation of foreign operations’ income statements
and balance sheets denominated in foreign currencies are recorded as a separate component of equity. On disposal of a
foreign operation the cumulative translation differences will be transferred to the income statement in the period of the
disposal as part of the gain or loss on disposal.
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Finance income and costs
Finance income is earned on bank deposits and finance costs are incurred on bank borrowings. Both are recognised in the
income statement in the period in which they are incurred.
Government grants
Government grants related to property, plant and equipment are reflected in the balance sheet as deferred income and
credited to the income statement over the useful lives of the assets concerned. Government grants relating to income
are reflected in the balance sheet as deferred income and credited to the income statement over the period to which
the grant relates.
Research and development
Research and development expenditure is charged against profits in the year in which it is incurred, unless it meets the criteria
for capitalisation set out in IAS 38 ‘Intangible Assets’.
Operating profit
Operating profit is the profit of the Group (including share of joint venture profit) before finance income, finance costs
and taxation.
Retirement benefit obligations
The Group operates retirement benefit schemes in the UK and for most overseas countries in which it carries out business.
Those in the UK are defined benefit schemes and defined contribution schemes; overseas schemes vary in detail depending
on local practice. The UK defined benefit schemes were closed to future accrual on 31 May 2008.
The Group accounts for the defined benefit scheme under IAS 19 ‘Employee Benefits’.
The deficit/surplus of the defined benefit pension schemes is recognised on the balance sheet (with surpluses only recognised
to the extent that the Group has an unconditional right to a refund) and represents the difference between the fair value of
the plan assets and the present value of the defined benefit obligation at the balance sheet date. A full actuarial valuation is
carried out at least every three years and the defined benefit obligation/surplus is updated on an annual basis, by independent
actuaries, using the projected unit credit method. The present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated
in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related
pension obligation. In countries where there is no deep market in such bonds, the market rates on government bonds are used.
Pension charges/income recognised in the income statement consists of administration charges of the scheme and a cost
based on the interest/income on net pension scheme liabilities/surpluses calculated in accordance with IAS 19.
Differences between the actual return on assets and interest income, experience gains and losses and changes in actuarial
assumptions are included directly in the Group’s Statement of Comprehensive Income.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Exceptional items
The Group adopts a columnar income statement format to highlight significant items within the Group’s results for the
year. Such items are considered by the Directors to be exceptional in nature rather than being representative of the
underlying trading of the Group, and may include, but are not limited to, items such as certain foreign exchange losses,
restructuring costs, acquisition-related costs, material impairments of non-current assets or receivables, material profits
and losses on disposal of property, plant, equipment and brands, material pension settlements and amendments and profit
or loss on disposal or termination of operations. The Directors apply judgement in assessing the particular items which by
virtue of their magnitude and nature should be disclosed in a separate column of the income statement and notes to the
Financial Statements as ‘Exceptional items’. The Directors believe that the separate disclosure of these items is relevant to
an understanding of the Group’s financial performance.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
The Directors believe that the adjusted presentation assists shareholders by providing a more meaningful basis upon which to
analyse underlying business performance and make year-on-year comparisons. The same measures are used by management
for planning, budgeting and reporting purposes and for the internal assessment of operating performance across the Group.
The adjusted presentation is adopted on a consistent basis for each of the half year and full year results.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
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 in
effect throughout the year.
The Group makes provision for current tax payable based on the Directors’ best estimate of likely tax liabilities that may
arise based on interpretations of current and expected tax legislation. Where tax legislation is not clear or is ambiguous
the Directors make estimates of potential tax exposures that are reviewed and revised as additional information
becomes available.
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 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 accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests in
joint ventures, 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. Deferred
tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity or
other comprehensive income, in which case the deferred tax is also dealt with in equity or other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset 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 liabilities on a net basis.
The Group continues to believe that it has made adequate provision for the liabilities likely to arise from periods which
are open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts
provided and is dependent upon the outcome of agreements with relevant tax authorities. In assessing these income tax
uncertainties, management is required to make judgements on: the determination of the unit of account; the evaluation
of the circumstances, facts and other relevant information in respect of the tax position taken; and estimates of amounts
that may be required to be paid in ultimate settlement with the tax authorities. As the Group operates in a multinational tax
environment, the nature of the uncertain tax positions is often complex and subject to change. Original estimates are always
refined as additional information becomes known.
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Property, plant and equipment
Land and buildings held at the date of transition to IFRS for use in the production or supply of goods or services, or for
administration purposes, are stated in the balance sheet at deemed cost at the date of transition to IFRS less accumulated
depreciation and any accumulated impairment losses. All other assets are stated at historical cost less accumulated
depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the
acquisition of the item.
Depreciation is charged so as to write off the cost or valuation of assets, other than land, over their estimated useful lives,
using the straight-line method, on the following basis:
Freehold buildings at rates not less than
Leasehold buildings at rates which will reduce the book value to nil on or before the termination of the leases, with a minimum of
Plant and machinery not less than
Fixtures, fittings and vehicles not less than
2%
2%
8%
20%
In the case of major projects depreciation is provided from the date the project in question is brought into use. Land and
assets in the course of construction are not depreciated.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in the income statement for the year.
The assets’ residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date.
Property, plant and equipment that are subject to depreciation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
which the asset’s carrying amount exceeds its recoverable amount. Property, plant and equipment that suffer impairment are
reviewed for possible reversal of the impairment at each balance sheet date.
Other intangible assets
An acquired brand is only recognised on the balance sheet where it is supported by a registered trademark, where brand
earnings are separately identifiable and the brand could be sold separately from the rest of the business. Brands acquired as
part of a business combination are recorded in the balance sheet at fair value at the date of acquisition. Trademarks, patents
and purchased brands are recorded at purchase cost. In accordance with IAS 36 ‘Impairment of Assets’, the brands are tested
for impairment annually, and more frequently where there is an indication that the asset may be impaired. Any impairment is
recognised immediately in the income statement.
The Directors believe that the acquired brands have indefinite lives because, having considered all relevant factors, there is
no foreseeable limit to the period over which the brands are expected to generate net cash inflows for the Group. Further,
the Directors have the intention and the ability to maintain the brands. In forming this conclusion they have not taken into
consideration planned future expenditure in excess of that required to maintain the asset at that standard of performance.
Indefinite life brands are allocated to the cash-generating units to which they relate and are tested annually for impairment.
Where an impairment loss subsequently reverses, the carrying amount of the asset 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 in prior years. A reversal of an impairment loss is recognised
immediately as income. Profit or losses on disposal of brands are included within operating profit within exceptional items.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
Software development
Expenditure on research activities is recognised in the income statement as an expense as incurred. Expenditure on
development activities directly attributable to the design and testing of identifiable software products and systems
is capitalised if the product or systems meet the following criteria:
• the completion of the development is technically and commercially feasible to complete;
• adequate technical resources are sufficiently available to complete development;
•
it can be demonstrated that future economic benefits are probable; and
• the expenditure attributable to the development can be measured reliably.
Development activities involve a plan or design for the production of new or substantially improved products or systems.
Directly attributable costs that are capitalised as part of the software product or system include employee costs. Other
development expenditures that do not meet these criteria as well as ongoing maintenance are recognised as an expense
as incurred. Development costs for software are carried at cost less accumulated amortisation and are amortised over their
useful lives (not exceeding ten years) at the point in which they come into use.
Inventories
Inventories are stated at the lower of cost and estimated 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 based on standard costs, with material price and usage variances apportioned
using the periodic unit pricing 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.
Where net realisable value is lower than cost, provision for impairment is made which is charged to cost of sales in the
income statement.
Trade receivables
Trade receivables are initially recognised at fair value, normally being the invoiced amount, and subsequently carried at
invoiced amount less allowance for expected credit losses, which equals amortised cost since the terms are generally 30 days
and the recognition of interest would be immaterial. An estimate of the amount of allowance for expected credit losses is
recognised and reduces the carrying amount of the trade receivables. An impairment loss on trade receivables is calculated as
the difference between the carrying amount and the present value of the estimated future cash flow. Bad debts are written
off when identified and charged to administrative expenses.
Cash, cash equivalents and bank overdrafts
Cash, cash equivalents and bank overdrafts includes cash at bank and in hand plus short-term deposits less overdrafts. Short-
term deposits have a maturity of less than three months from the date of deposit. Bank overdrafts are repayable on demand
and form an integral part of the Group’s cash management.
Where the Group has the legally enforceable right, and has settled balances on a net basis at the reporting date, bank
overdrafts and cash balances are offset and presented on a net basis within the Financial Statements.
Financial instruments
Financial assets and financial liabilities are recognised on the Group’s Balance Sheet when the Group becomes a party to the
contractual provisions of the instrument.
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Derivative financial instruments
The Group’s activities expose it primarily to the financial risks of changes in foreign exchange rates and to fluctuations in
interest rates. The Group uses derivative financial instruments (primarily foreign currency forward contracts) to hedge its
risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted transactions.
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged
items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The Group
designates gross positions and hedge documentation is prepared in accordance with IFRS 9.
The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written
principles for the use of financial derivatives consistent with the Group’s risk management strategy. The Group does not use
derivative financial instruments for speculative purposes.
Derivative financial instruments are initially measured at fair value at the contract date, and are remeasured to fair value at
subsequent reporting dates. Changes in the fair value of derivative financial instruments that are designated and effective as
hedges of future cash flows are recognised directly in other comprehensive income, and any ineffective portion is recognised
immediately in the income statement.
Financial assets
The Group classifies its financial assets in the following categories; at fair value through profit or loss, loans and receivables,
and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
(a) Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for
trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be
settled within 12 months, otherwise they are classified as non-current.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for those with maturities greater than 12 months after the end of
the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise ‘Trade and other
receivables’ and ‘Cash and cash equivalents’ in the balance sheet.
(c) Available-for-sale financial assets
Available-for-sale financial assets include current asset investments, which relate to unlisted equity investments. These are
held at cost because their fair value cannot be reliably measured.
Borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of direct issue costs, and are subsequently
measured at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue
costs, are accounted for on an accruals basis through the income statement using the effective interest method and are
added to the carrying amount of the instrument to the extent they are not settled in the year in which they arise.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
Trade payables
Trade payables are initially recognised at fair value, normally being the invoiced amounts, and subsequently measured at
invoiced amounts, which equals amortised cost, using the effective interest rate method, since generally the payments’
terms are such that the impact of discounting would be immaterial.
(a) Trade payables under vendor financing arrangements
Accounts payable under vendor financing arrangements are closely related to operating purchase activities and the financing
arrangement does not lead to any significant change in the nature or function of the liabilities. These liabilities are therefore
classified as accounts payables, but are specified in the disclosures. The credit period does not exceed 12 months and the
accounts payables are therefore not discounted.
The Group has an arrangement with a bank under which the bank offers vendors the option to receive earlier payment of
accounts payables. Vendors utilising the financing arrangement pay a credit fee to the bank. The Group does not pay any credit
fees and does not provide any additional collateral or guarantee to the bank. Based on the Group’s assessment the liabilities
under the vendor financing arrangement are closely related to operating purchase activities and the financing arrangement
does not lead to any significant change in the nature or function of the liabilities. These liabilities are therefore classified as
accounts payables with separate disclosures in the notes. The credit period does not exceed 12 months and the accounts
payables are therefore not discounted. Accounts payables under vendor financing arrangements were £6.0m (2018: £7.9m);
see Note 19.
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 the Group after deducting all of
its liabilities.
Investments
Investments (other than interests in joint ventures) are recognised and derecognised on a trade date when a purchase or sale
of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the
market concerned, and are initially measured at fair value.
Investments are classified as available for sale. Subsequently, investments are measured at cost because they are investments
in unquoted equities for which a fair value cannot be reliably measured. Loans to joint ventures, presented in the balance sheet
as ‘investments’, are classified as loans and receivables and measured at amortised cost.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including
any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity
holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration
received, net of any directly attributable incremental transaction costs and the related income tax effects, are included in
equity attributable to the Company’s equity holders.
Hedging reserve
The hedging reserve represents the accumulated movements in the Group’s derivative financial instruments that have been
designated as hedging instruments. Amounts are transferred in and out of the reserve on the revaluation, or realisation, of
identified hedging instruments.
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Capital redemption reserve
Amounts in respect of the redemption of certain of the Company’s ordinary shares are recognised in the capital
redemption reserve.
Currency translation reserve
On translation of the Group’s overseas operations and related balances from their local functional currency to the Group’s
presentational currency, foreign exchange differences arise, the cumulative effect of which is recognised in the currency
translation reserve.
Segmental reporting
Operating segments are identified in a manner consistent with the internal reporting provided to the Chief Operating Decision
Maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the Executive Board. For reporting purposes, in accordance with IFRS 8 ‘Operating Segments’, the Board
aggregates operating segments with similar economic characteristics and conditions into reporting segments, which form
the basis of the reporting in the Annual Report, with the CODM identifying three reporting segments – Africa, Asia Pacific and
Europe & the Americas.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group
will be required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required
to settle the obligation at the balance sheet date. Provisions for restructuring costs are recognised when the Group has a
detailed formal plan for the restructuring that has been communicated to affected parties.
Share-based payments
The Group operates a Performance Share Plan and an Executive Share Option Scheme for senior executives, both of which
involve equity-settled share-based payments.
Equity-settled share-based payments under the Executive Share Option Scheme were measured at fair value (excluding the
effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date was expensed
on a straight-line basis over the vesting period. Fair value is measured using the Black-Scholes pricing model. The expected life
used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The awards under the Performance Share Plan are measured at the fair value at the date of grant and are expensed over the
vesting period based on the expected outcome of the performance and service conditions. At each balance sheet date, the
entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to
original estimates, if any, in the income statement, with a corresponding adjustment to equity.
Dividend distribution
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial Statements in
the period in which the dividends are approved by the Company’s shareholders. In respect of interim dividends these are
recognised once paid.
Accounting estimates and judgements
The Group’s significant accounting policies under IFRS have been set by management with the approval of the Audit & Risk
Committee. The application of these policies requires management to make assumptions and estimates about future events.
The resulting accounting estimates will, by definition, differ from the actual results. Estimates and judgements are continually
evaluated and are based on historical experience and other factors, including expectations of future events that are believed
to be reasonable under the circumstances.
Under IFRS an estimate or judgement may be considered critical if it involves matters that are highly uncertain or where
different estimation methods could reasonably have been used, or if changes in the estimate that would have a material
impact on the Group’s results are likely to occur from period to period.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
Key sources of estimation uncertainty
Pensions
The Group’s UK defined benefit pension schemes are closed to new members and future accruals. Year end recognition of
the liabilities under this scheme and the return on assets held to fund these liabilities require a number of significant actuarial
assumptions to be made including inflation, discount rate and mortality rates. Small changes in assumptions can have a
significant impact on the expense recorded in the income statement and on the pension liability/asset in the balance sheet.
See Note 23 for details of key estimates and assumptions applied in valuing the pension schemes.
Fair value of goodwill, intangible assets and tangible fixed assets
The Group records all intangible assets acquired as part of a business combination at fair value. Intangible assets are
deemed to have indefinite lives and as such are not amortised but are subject, as a minimum, to annual tests for impairment.
Determining whether intangible assets are impaired requires an estimation of the recoverable amount through value-in-use
of the cash-generating units (CGUs) to which the intangible asset has been allocated. The value-in-use calculation requires
management to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to
calculate present value. The key estimates made by the Group include the discount rate, growth rates in revenue and gross
margin and terminal growth rates, details of which are discussed in Note 10. Currently the most sensitive estimates relate to
the Nutricima, Rafferty’s Garden and five:am CGUs. The sensitivity analysis in respect of the recoverable amount of these CGUs
is also presented in Note 10.
Current tax
The current tax liabilities/assets directly relate to the actual tax payables/receivables on the Group’s profits and are
determined based on tax laws and regulations that differ across the numerous jurisdictions in which the Group operates.
Assumptions and judgements are made in applying these laws to the taxable profits in any given period in order to calculate
the tax charge for that period. Where the eventual tax paid or reclaimed is different to the amounts originally estimated, the
difference will be charged or credited to the income statement in the period in which it is determined.
Included within the current tax liability of the Group are three material current tax estimates with carrying values as at 31 May
2019 of £15.4m (2018: £13.5m), £5.5m (2018: £6.2m) and £3.6m (2018: £3.7m).
The tax estimate of £15.4m has arisen due to a difference in technical standpoint between PZ Cussons Plc and a tax authority
on a subjective and complex piece of legislation. This difference of opinion has led to an audit of the associated tax returns.
This potential tax liability has been provided for in full due to the subjectivity of the legislation. It is expected that the range
of possible outcomes could be a liability between £nil and £15.4m. A material movement to this current tax estimate is not
expected within the next 12 months.
The tax estimate of £5.5m has arisen due to the risk of non-tax deductibility of a specific category of expense where it has
come to light that formal government approval in the relevant jurisdiction may be required. It is expected that the range of
possible outcomes could be a liability between £nil and £5.5m. This potential tax liability has been provided for in full due to
the subjectivity of the guidance around the requirement for the government approval. A material movement to this current
tax estimate is not expected within the next 12 months.
The tax estimate of £3.6m has arisen due to the risk that a tax authority may challenge the tax residency of a company not
incorporated in that jurisdiction. This risk is based on the argument that the past functions of this entity could suggest tax
residency outside of the incorporation jurisdiction. While the functions of this entity have been altered to address this risk
going forward, the risks associated with past years remain until such time that the tax status of this entity has been audited by
the relevant authorities. The potential tax liability has been provided in full due to the subjectivity of the legislation around the
tax residency of the entity based on previous functions. It is expected that the range of possible outcomes could be a liability
between £nil and £3.6m. A material movement to this current tax liability is not expected within the next 12 months.
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Critical areas of judgement
Foreign exchange rates in Nigeria
The Nigerian foreign exchange regime is such that there are currently two official rates of exchange; the Central Bank of
Nigeria spot rate (CBN), and NAFE(cid:59). An unofficial parallel market rate and the NIFE(cid:59) rate are also legally available, although
not consistently publicly quoted. Judgement is required in selecting the rate at which to translate US Dollar-denominated
balances held in the Group’s Nigerian entities into Naira, and the results of the Nigerian businesses into Sterling for
consolidation purposes. At 31 May 2018, the rate used by management was the NIFE(cid:59) rate. At this time, this was an official
rate of exchange and was publicly quoted. However in December 2018, the NIFE(cid:59) rate ceased to be publicly quoted, and as
such the Group changed the rate of translation to NAFE(cid:59) from 1 January 2019.
After closely monitoring the profile of exchange rates accessed by the Group for settlement of transactions throughout
the year, and observing a trend towards the majority of the Group’s transactions now being settled at NAFEX rates, which is
anticipated to continue, the Group concluded that NAFE(cid:59) is the most appropriate rate to translate US Dollar-denominated
balances in Nigeria and the results of Nigerian operations as at 31 May 2019. The impact of moving the rate of translation
from NIFE(cid:59) to NAFE(cid:59) is not material to the Financial Statements.
Basis of recognition of pension scheme surplus
Judgement is applied in the consideration of trustees’ rights in relation to pension scheme surpluses. The trust deeds for the
Directors’ and Main staff plan provides the Group with an unconditional right to a refund of surplus assets assuming the full
settlement of plan liabilities in the event of a plan wind-up. Furthermore, in the ordinary course of business the trustee has no
rights to unilaterally wind up the scheme, or otherwise augment the benefits due to members of the scheme. Based on these
rights, any net surplus in these two UK schemes are recognised in full. Where it is deemed that there is no such unconditional
right to refund, such as in the case of the expatriate plan, where the trustees have unilateral rights to wind up the scheme and
distribute the surplus to members, no surplus is recognised.
Assessment of useful lives of acquired brands
The Directors are required to assess whether the useful lives of acquired brands are finite or indefinite. Under IAS 38
‘Intangible Assets’, an intangible asset should be regarded as having an indefinite useful life when, based on all of the relevant
factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
In forming their judgement that the acquired brands have indefinite lives, the Directors give consideration to such factors as
their expected usage of the brands, typical product life cycles, the stability of the markets in which the brands are sold, the
competitive positioning of the brands and the level of marketing and other expenditure required to maintain the brands.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SEGMENTAL ANALYSIS
The Chief Operating Decision Maker (CODM) has been identified as the Executive Board, which comprises the Chief Executive
Officer at the date of this report. The CODM reviews the Group’s internal reporting in order to assess performance and
allocate resources. The CODM has determined the operating segments based on these reports, which include an allocation of
central revenue and costs as appropriate. For reporting purposes, in accordance with IFRS 8 ‘Operating Segments’, the Board
aggregates operating segments with similar economic characteristics and conditions into reporting segments, which form the
basis of the reporting in the Annual Report.
The CODM considers the business from a geographic perspective, with Europe & the Americas, Asia Pacific and Africa
being the operating segments. The CODM assesses the performance based on operating profit before any exceptional
items. Other information provided, except as noted below, to the CODM is measured in a manner consistent with that of
the Financial Statements.
Revenues and operating profit of the Europe & the Americas and Asia Pacific segments arise from the sale of Personal Care,
Home Care and Food & Nutrition products. Revenue and operating profit from the Africa segment arise from the sale of
Personal Care, Home Care, Food & Nutrition and Electricals products. Sales between segments are carried out on an arm’s
length basis.
Reporting segments
2019
Gross segment revenue
Inter-segment revenue
Revenue
Segmental operating profit before exceptional items
and share of results of joint ventures
Share of results of joint ventures
Segmental operating profit before exceptional items
Exceptional items
Segmental operating profit
Finance income
Finance cost
Profit before taxation
Depreciation and amortisation
Impairment of intangible assets
Impairment of tangible assets
Europe
& the
Americas
£m
383.1
(119.1)
264.0
57.1
–
57.1
(7.5)
49.6
Asia
Pacific
£m
204.7
(11.7)
193.0
20.4
–
20.4
(23.7)
(3.3)
Africa
£m
232.4
–
232.4
(3.3)
2.3
(1.0)
(1.6)
(2.6)
12.0
–
–
3.6
21.3
1.0
7.5
3.5
0.4
Eliminations
£m
(130.8)
130.8
–
–
–
–
–
–
–
–
–
Total
£m
689.4
–
689.4
74.2
2.3
76.5
(32.8)
43.7
0.5
(7.2)
37.0
23.1
24.8
1.4
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2018 (restated)*
Gross segment revenue
Inter-segment revenue
Revenue
Segmental operating profit before exceptional items
and share of results of joint ventures
Share of results of joint ventures
Segmental operating profit before exceptional items
Exceptional items
Segmental operating profit
Finance income
Finance cost
Profit before taxation
Depreciation and amortisation
Impairment of intangible assets
Impairment of tangible assets
(cid:13) See Note 1a) and 1c) for details.
Europe
& the
Americas
£m
386.0
(121.6)
264.4
60.8
–
60.8
(12.6)
48.2
Asia
Pacific
£m
214.8
(13.5)
201.3
18.6
–
18.6
(3.6)
15.0
Africa
£m
274.1
–
274.1
4.9
1.4
6.3
(4.7)
1.6
12.7
–
2.8
3.9
7.4
–
7.9
–
–
Eliminations
£m
(135.1)
135.1
–
–
–
–
–
–
–
–
–
Total
£m
739.8
–
739.8
84.3
1.4
85.7
(20.9)
64.8
0.9
(6.5)
59.2
24.5
7.4
2.8
The Group’s Parent Company is domiciled in the UK. The split of revenue from external customers and non-current assets
between the UK, Nigeria and the rest of the world (Other) is:
2019
Revenue
Goodwill and other intangible assets
Property, plant and equipment
Pension surplus
Financial instruments
2018 (restated)*
Revenue
Goodwill and other intangible assets
Property, plant and equipment
Pension surplus
Financial instruments
(cid:13) See Note 1a) and 1c) for details.
The Group analyses its net revenue by the following categories:
Personal Care
Home Care
Food & Nutrition
Electricals
Other
(cid:13) See Note 1a) for details.
UK
£m
Nigeria
£m
177.0
279.6
32.8
36.3
17.0
UK
£m
176.6
282.1
35.8
33.3
8.0
197.3
14.1
71.6
–
7.7
Nigeria
£m
237.6
17.9
74.5
–
8.0
Other
£m
315.1
75.5
44.5
–
11.0
Other
£m
325.6
100.2
46.3
–
7.6
Total
£m
689.4
369.2
148.9
36.3
35.7
Total
£m
739.8
400.2
156.6
33.3
23.6
(Restated)*
2018
£m
2019
£m
403.5
93.9
109.8
76.8
5.4
689.4
420.1
116.3
125.5
72.1
5.8
739.8
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. EXCEPTIONAL ITEMS
Year to 31 May 2019
Exceptional items included within operating profit:
Group structure and systems project
Group strategy project
Sale of Norpalm investment in Ghana
Guaranteed Minimum Pension (GMP) past service cost
Impairment of Australian and Nigerian assets
Year to 31 May 2018 (restated)(cid:13)
Exceptional items included within operating profit:
Group structure and systems project
Impairment of non-operational European fixed asset
Sale of land relating to redundant manufacturing site in Australia
Change in Naira exchange rate for translation purposes
Sale of Australian brand
Impairment of Australian intangible assets
(cid:13) See Note 1c) for details.
Explanation of exceptional items
Exceptional
items before
taxation
£m
Exceptional
items after
taxation
£m
Taxation
£m
5.0
4.2
(3.3)
0.7
26.2
32.8
(1.1)
–
0.8
(0.1)
(4.2)
(4.6)
3.9
4.2
(2.5)
0.6
22.0
28.2
Exceptional
items before
taxation
£m
Exceptional
items after
taxation
£m
Taxation
£m
11.6
3.7
(8.1)
6.3
–
7.4
20.9
(2.3)
–
2.1
(1.8)
(2.3)
–
(4.3)
9.3
3.7
(6.0)
4.5
(2.3)
7.4
16.6
Year to May 2019
Group structure and systems project
The Group incurred exceptional costs of £5.0m relating to the project to realign the organisation design to create a more
effective operating model. These represent a continuation of the same project on which exceptional costs were recognised
in previous years and mainly consist of restructuring costs.
Group strategy project
The Group incurred exceptional costs of £4.2m relating to the strategic review of the Group’s operating units. These costs
largely represent professional services fees.
Sale of Norpalm investment in Ghana
In April 2019, the Group sold the Norpalm investment that was held in Ghana. Net proceeds of £3.6m were received against
a book value of £0.3m resulting in exceptional income of £3.3m.
Guaranteed Minimum Pension (GMP) past service cost
This relates to the provision required for GMP equalisation following a UK High Court judgment confirming companies
are required to equalise male and female members’ benefits. As at the half year to 30 November 2018, this provision was
estimated at £2.0m; however the provision as at 31 May 2019 has been revised to £0.7m following a detailed analysis by the
Group’s third-party independent actuary.
Impairment of Australian and Nigerian assets
The Group performed a review of future growth assumptions in relation to five:am in Australia and Nutricima in Nigeria and
concluded that the value-in-use of these cash-generating units was lower than the carrying value, and therefore booked an
aggregate impairment charge of £26.2m (£12.0m goodwill, £12.8m other intangible assets and £1.4m property, plant and
equipment) as per IAS 36. More detail is provided in Note 10.
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
152
Year to May 2018
Group structure and systems project
The Group incurred exceptional costs of £11.6m relating to the project to realign the organisation design to create a more
effective operating model. These represent a continuation of the same project on which exceptional costs were recognised
in previous years and mainly consisted of restructuring, advisory and IT system-related costs.
Impairment of a non-operational European fixed asset
A decision was made to impair a non-operational European fixed asset to its latest market value, resulting in a £3.7m
impairment loss being recognised.
Sale of land relating to redundant manufacturing site in Australia
In November 2017, the Group sold land relating to a redundant manufacturing site in Australia. Net proceeds of £10.3m were
received against a net book value of £2.2m, resulting in exceptional income before tax of £8.1m.
Change in Naira exchange rate for translation purposes
As a result of the evolution of the foreign exchange market in Nigeria, the Group shifted over the course of the financial year
to a position where it was predominantly accessing US Dollars at the NIFEX rate, which is one of the three official rates of
exchange in existence in Nigeria. As a result of this shift, in May 2018 the Directors reassessed the likely rate of settlement of
the Group’s Nigerian US Dollar monetary assets and liabilities and concluded that it was appropriate for the Group to move
from translating both the Nigerian businesses’ US Dollar-denominated monetary assets and liabilities, and the balance sheets
of its Nigerian operations, at the Central Bank of Nigeria (CBN) rate to the NIFE(cid:59) exchange rate from May 2018 onwards. This
change of accounting estimate resulted in an exceptional charge of £6.3m before tax as a result of translating the year end
balances at the NIFE(cid:59) rate rather than the CBN rate.
Sale of Australian brand
In May 2018, the Group sold a non-core Australian brand, resulting in a £2.3m tax credit. The pre-tax profit on disposal was £nil.
Impairment of Australian asset
The Group has recognised an impairment charge of £7.4m on a restated goodwill balance within an Australian cash-generating
unit as a result of a prior year restatement. See Note 1c) for further details.
(cid:23). PROFIT FOR THE YEAR – ANALYSIS BY NATURE
Profit for the year before exceptional items has been arrived at after charging/(crediting):
Net foreign exchange losses
Research and development costs
Amortisation of government grants
Impairment of property, plant and equipment (Note 11)
Depreciation of property, plant and equipment (Note 11)
Impairment of intangible assets (Note 10)
Amortisation of intangible assets (Note 10)
Gain on disposal of assets
Raw and packaging materials and goods purchased for resale (Note 14)
Inventory provisions (Note 14)
Accounts receivable provisions (Note 15)
Operating lease rentals
Employee costs (Note 5)
Auditor’s remuneration (see below)
(cid:13) See Note 1c) for details.
2019
£m
1.5
2.5
–
1.4
16.9
24.8
6.2
(3.5)
418.0
5.1
1.4
2.0
91.7
0.8
(Restated)*
2018
£m
12.8
3.5
0.1
2.8
18.1
7.4
6.4
(7.7)
444.0
5.3
1.7
1.7
100.6
0.8
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
153
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(cid:23). PROFIT FOR THE YEAR – ANALYSIS BY NATURE CONTINUED
Auditor’s remuneration
A more detailed analysis of the External Auditor’s remuneration on a worldwide basis is provided below:
Fees payable to the Company’s External Auditor for the audit of the Company’s annual Financial Statements
and Consolidation
Fees payable to the Company’s External Auditor and their associates for other services to the Group:
– The audit of the Company’s subsidiaries
Total audit fees
Fees payable to the Company’s External Auditor and its associates for other services:
– Tax services
– Other services
Total fees
2019
£m
2018
£m
0.2
0.6
0.8
–
–
0.8
0.2
0.6
0.8
–
–
0.8
Fees for permitted non-audit services paid to the Company’s External Auditor totalled £42,000 (2018: £41,000).
5. DIRECTORS AND EMPLOYEES
Employee costs
The average monthly number of employees (including Executive Directors) was as follows:
2019
Number
2018
Number
Production
Selling and distribution
Administration
The costs incurred in respect of the above were as follows:
Wages and salaries
Social security costs
Other pension costs
The other pension costs consist of:
Defined benefit schemes (Note 23)
Defined contribution schemes (Note 23)
Overseas minor defined benefit schemes and Nigerian gratuity scheme (Note 23)
2,476
991
519
3,986
2019
£m
81.1
5.3
5.3
91.7
2019
£m
0.7
3.9
0.7
5.3
Directors’ remuneration
The costs incurred in respect of the Directors, who are regarded as the key management personnel, were as follows:
Short-term employee benefits
Post-employment benefits
Total
Additional details are within the Report on Directors’ Remuneration on pages 91 to 109.
2019
£m
1.6
0.2
1.8
2,696
1,205
575
4,476
2018
£m
89.9
5.6
5.1
100.6
2018
£m
0.2
3.9
1.0
5.1
2018
£m
1.8
0.2
2.0
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
154
6. NET FINANCE COSTS
Interest receivable on cash deposits
Interest income
Interest payable on bank loans and overdrafts
Interest payable to external third parties
Finance costs incurred on Revolving Credit Facility renewal
Net finance costs
7. TAXATION
Current tax
UK corporation tax charge for the year
Adjustments in respect of prior years
Double tax relief
Overseas corporation tax charge for the year
Adjustments in respect of prior years
Total current tax charge
Deferred tax
Origination and reversal of temporary timing differences
Adjustments in respect of prior years
Effect of rate change adjustments
Total deferred tax charge
Total tax charge
2019
£m
0.5
0.5
(5.6)
(0.5)
(1.1)
(6.7)
2019
£m
4.3
0.6
(1.5)
3.4
10.4
(0.5)
9.9
13.3
(0.4)
(0.7)
(1.0)
(2.1)
11.2
2018
£m
0.9
0.9
(6.5)
–
–
(5.6)
2018
£m
5.7
0.1
(2.1)
3.7
13.0
–
13.0
16.7
0.6
(0.1)
0.6
1.1
17.8
UK corporation tax is calculated at 19.0% (2018: 19.0%) of the estimated assessable profit for the year. Taxation for other
jurisdictions is calculated at the rates prevailing in the respective jurisdictions.
The Group has chosen to use a weighted average tax rate rather than the UK rate for the reconciliation of the charge for
the year to the profit before taxation per the Consolidated Income Statement. The Group operates in a number of overseas
jurisdictions which have tax rates in excess of the UK rate. As such, a weighted average tax rate is believed to provide more
meaningful information to users of the Financial Statements. The approximate tax rate for this comparison is 17.02% (2018: 23.05%).
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
Profit before tax
Tax at the weighted average tax rate of 17.02% (2018: 23.05%)
Adjusted for:
Tax effect of expenses that are not deductible
Tax effect of non-taxable income
Effect of rate change on deferred taxation
Tax effect of share of results of joint ventures
Overseas withholding tax suffered on dividends
Net adjustment to amount carried in respect of unresolved tax matters
Creation/(utilisation) of deferred tax assets not recognised
Research and development relief
Adjustments in respect of prior years
Tax charge for the year
(cid:13) See Note 1c) for details.
(Restated)*
2018
£m
59.2
13.6
5.0
(7.4)
0.6
(0.5)
1.8
5.7
(0.8)
(0.2)
–
2019
£m
37.0
6.3
8.7
(3.0)
(1.0)
(0.6)
2.3
(1.1)
0.2
–
(0.6)
11.2
17.8
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. TAXATION CONTINUED
The weighted average tax rate (based on where the Group has made profits and the tax rates applicable in those countries)
has reduced when compared to the prior year. This reduction is primarily driven by the exceptional impairment charge of
£26.2m which relates to cash-generating units in higher tax jurisdictions.
The main movements in the tax reconciliation from the tax at the weighted average rate and the actual tax charge for the year
are explained as follows:
• The effect of items being treated as non-tax-deductible has increased the tax charge for the year by £8.7m. Of this amount,
the largest impact is due to the impairment of non-deductible goodwill which has increased the tax charge by £3.3m.
In addition, non-deductible expenses in Nigeria and professional service costs relating to the Group’s strategy project
increase the tax charge by £2.5m and £0.8m respectively.
• The effect of items being treated as non-taxable has reduced the tax charge for the year by £3.0m. The largest impact
is due to non-taxable foreign exchange movements, predominantly in Nigeria, which reduced the tax charge by £1.6m.
• The impact of future changes to corporation tax rates has reduced the tax charge by £0.9m. The largest impact relates
to the prospective reductions to the corporation tax rate in Greece, reducing the tax charge by £0.5m.
• Under UK tax law any local withholding taxes on dividend income received are an irrecoverable cost. The impact of the
withholding taxes suffered increases the tax charge by £2.3m.
• PZ Cussons Plc is subject to taxation in all of the countries in which it operates. The tax legislation applicable in these
countries is often complex and subject to interpretation both by management and government authorities. These
judgemental interpretations give rise to quantifiable risks which are provided for on the balance sheet. The adjustment
this year decreases the tax charge by £1.1m.
The resulting income statement tax charge for the year represents a post-exceptional effective tax rate of 30.27%
(2018: 26.73%).
The Group continues to believe that it has made adequate provision for the liabilities likely to arise from periods which are
open and not yet agreed by tax authorities. The ultimate liability for such matters may vary from the amounts provided and
is dependent upon the outcome of agreements with relevant tax authorities. In assessing these income tax uncertainties,
management is required to make judgements in the determination of the unit of account, the evaluation of the circumstances,
facts and other relevant information in respect of the tax position taken, together with estimates of amounts that may be
required to be paid in ultimate settlement with the tax authorities. As the Group operates in a multinational tax environment,
the nature of the uncertain tax positions is often complex and subject to change. Original estimates are always refined as
additional information becomes known.
Taxation on items taken directly to equity and other comprehensive income was a charge of £0.2m (2018: charge of £4.3m)
and mainly relates to deferred tax on pensions (as described in Note 21).
8. DIVIDENDS
Amounts recognised as distributions to ordinary shareholders in the year comprise:
Final dividend for the year ended 31 May 2018 of 5.61p (2017: 5.61p) per ordinary share
Interim dividend for the year ended 31 May 2019 of 2.67p (2018: 2.67p) per ordinary share
Proposed final dividend for the year ended 31 May 2019 of 5.61p (2018: 5.61p) per ordinary share
2019
£m
23.5
11.1
34.6
23.5
2018
£m
23.5
11.1
34.6
23.5
The proposed final dividends for the years ended 31 May 2018 and 31 May 2019 were/are subject to approval by shareholders
at the Annual General Meeting and hence have not been included as liabilities in the Financial Statements at 31 May 2018 and
31 May 2019 respectively.
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
156
9. EARNINGS PER SHARE
Basic earnings per share and diluted earnings per share are calculated by dividing profit for the year attributable to owners
of the Parent by the weighted average number of shares in issue:
Basic weighted average
Diluted weighted average
2019
Number
000
2018
Number
000
418,332
418,313
418,332
418,313
The difference between the average number of ordinary shares and the basic weighted average number of ordinary shares
represents the shares held by the Employee Share Option Trust, whilst any difference between the basic and diluted
weighted average number of shares represents the potentially dilutive effect of the Executive Share Option Schemes and
the Performance Share Plan. The average number of shares is reconciled to the basic and diluted weighted average number
of shares below:
Average number of ordinary shares in issue during the year
Less: weighted average number of shares held by Employee Share Option Trust
Basic weighted average number of shares in issue during the year
Dilutive effect of share incentive plans
Diluted weighted average number of shares in issue during the year
2019
Number
000
2018
Number
000
428,725
(10,393)
428,725
(10,412)
418,332
–
418,313
–
418,332
418,313
At 31 May 2019, the Employee Share Option Trust held 10,384,591 ordinary shares (2018: 10,415,400 ordinary shares).
Adjusted earnings per share
Basic earnings per share
Exceptional items
Adjusted basic earnings per share
Diluted earnings per share
Exceptional items
Adjusted diluted earnings per share
(cid:13) See Note 1c) for details.
2019
6.24p
6.77p
(Restated)*
2018
9.63p
3.76p
13.01p
13.39p
6.24p
6.77p
9.63p
3.76p
13.01p
13.39p
Adjusted basic and diluted earnings per share figures are calculated by dividing adjusted profit after tax for the year by the
weighted average number of shares in issue (as above). The adjusted profit after tax for the year is as follows:
Profit attributable to owners of the Parent
Exceptional items (net of taxation effect)
Adjusted profit after tax
(cid:13) See Note 1c) for details.
(Restated)*
2018
£m
40.3
15.7
56.0
2019
£m
26.1
28.3
54.4
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. GOODWILL AND OTHER INTANGIBLE ASSETS
Cost
At 1 June 2017 (as previously reported)
Effect of prior year adjustment
At 1 June 2017 (restated)(cid:13)
Currency retranslation (restated)*
Additions
Reclassifications from property, plant and equipment
Revised analysis between cost and amortisation of intangible assets between categories
At 31 May 2018
Currency retranslation
Additions
Reclassifications from property, plant and equipment
Revised analysis between cost and amortisation of intangible assets between categories
At 31 May 2019
Accumulated amortisation
At 1 June 2017
Charge for the year
Reclassifications from property, plant and equipment
Revised analysis between cost and amortisation of intangible assets between categories
Impairment loss*
At 31 May 2018
Currency retranslation
Charge for the year
Reclassifications from property, plant and equipment
Revised analysis between cost and amortisation of intangible assets between categories
Impairment loss
At 31 May 2019
Net book values
At 31 May 2019
At 31 May 2018
(cid:13) See Note 1c) for details.
Goodwill
£m
Software
£m
Other
£m
Total
£m
63.1
9.0
72.1
(1.1)
–
–
–
71.0
(0.6)
–
–
–
70.4
–
–
–
–
7.4
7.4
–
–
–
–
12.0
19.4
51.0
63.6
45.7
–
45.7
(0.3)
6.8
2.8
0.2
55.2
0.1
0.6
3.1
1.0
60.0
0.9
6.4
0.2
0.2
–
7.7
0.1
6.2
0.4
1.0
–
15.4
44.6
47.5
295.5
(4.0)
291.5
(2.4)
–
–
–
289.1
(2.7)
–
–
–
286.4
–
–
–
–
–
–
–
–
–
–
12.8
12.8
404.3
5.0
409.3
(3.8)
6.8
2.8
0.2
415.3
(3.2)
0.6
3.1
1.0
416.8
0.9
6.4
0.2
0.2
7.4
15.1
0.1
6.2
0.4
1.0
24.8
47.6
273.6
289.1
369.2
400.2
Transfers from property, plant and equipment mainly represent the capitalised element of software costs relating to the
completion of the Business Planning and Consolidation tool project. Amortisation is charged to administrative expenses in
the income statement.
Software includes the ERP system (SAP), the implementation and embedding of which was completed during the year
ended 31 May 2019. The carrying value of this asset as at 31 May 2019 is £41.5m, with eight years of amortisation remaining.
The carrying amounts of software are reviewed at each reporting date to determine whether there is any indication
of impairment.
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
158
Goodwill and other intangible assets (excluding software), which include the Group’s acquired brands, all have indefinite useful
lives and are subject to annual impairment testing, or more frequent testing if there are indicators of impairment. The method
used is as follows:
•
intangible assets (including goodwill) are allocated to appropriate cash-generating units (CGUs) based on the smallest
identifiable group of assets that generate cash inflows independently in relation to the specific intangible/goodwill.
• the recoverable amounts of the CGUs are determined through value-in-use calculations that use cash flow projections
from approved budgets and plans over a period of five years, which are then extrapolated beyond the five year period
based on estimated long-term growth rates.
As the Group’s other intangible assets, which represent brand values, and goodwill have all arisen from previous business
combinations, CGUs have been identified as the business units acquired, as they represent the smallest group of assets which
independently generate cash flows. This is the case for all intangible assets and goodwill other than the Beauty business unit
and Greek acquired brands where the CGU has been identified as the overall operating unit.
The table below summarises the allocation of goodwill and other intangible assets to each CGU.
Original Source
Beauty business unit brands
Rafferty’s Garden
Nutricima
five:am
Other1
Total
(cid:13) See Note 1c) for details.
Goodwill
2019
£m
(Restated)*
Goodwill
2018
£m
Other
intangible
assets
2019
£m
(Restated)*
Other
intangible
assets
2018
£m
–
40.4
6.8
–
–
3.8
51.0
–
40.4
7.1
3.0
9.2
3.9
63.6
9.8
188.2
35.6
9.6
20.7
9.7
273.6
9.8
188.2
36.9
10.2
34.5
9.5
289.1
1 Other includes two brands acquired by the Group’s Greek business in previous years and goodwill arising on the purchase of shares in PZ Cussons Nigeria Plc.
The carrying value of each CGU as used in the value-in-use model may differ from the values disclosed above due to the
inclusion of any non-current assets directly related to driving economic benefit from the brand.
Key assumptions in the budgets and plans include future revenue volume/price growth rates, associated future levels of
marketing support, cost base of manufacture and supply and directly associated overheads. These assumptions are based
on historical trends and future market expectations specific to each CGU and the markets and geographies in which each
CGU operates.
Other key assumptions applied in determining value-in-use are:
• growth rates – short-term growth rates are based on the latest approved management forecasts. Cash flows beyond the
five year period are extrapolated using the estimated long-term growth rate applicable for the geographies in which the
CGUs operate;
• terminal growth rates; and
• discount rate – based on a pre-tax Weighted Average Cost of Capital (WACC) for comparable companies operating in similar
markets and geographies as the Group, adjusted for risks specific to each CGU.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
159
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. GOODWILL AND OTHER INTANGIBLE ASSETS CONTINUED
The long-term growth rates and discount rates applied in the value-in-use calculations have been set out below:
Original Source
Beauty business unit brands
Rafferty’s Garden
Nutricima
five:am
Greece
Pre-tax
discount
rate
FY19
Pre-tax
discount
rate
FY18
Long-term
growth
rate
FY19
Long-term
growth
rate
FY18
9.3%
9.3%
10.0%
17.9%
9.3%
19.8%
8.1%
8.1%
8.7%
15.0%
8.5%
20.9%
1.8%
1.8%
2.3%
2.4%
2.3%
2.0%
2.5%
2.5%
3.3%
4.5%
3.3%
1.0%
The discount rates disclosed above are the pre-tax discount rates applied in the FY19 value-in-use calculations. Discount rates
have been used which reflect the similar geographic and product diversification within each CGU’s market and the similar risks
associated with each CGU.
Long-term growth rates have been set for each CGU based on estimated long-term growth rates for the territories in which
the CGUs operate. All CGUs, other than Nutricima, operate in geographies which include the UK, Australia, the US and
central Europe.
Long-term growth rates have been set with reference to estimated long-term GDP growth forecasts, which have been
deemed an appropriate proxy for long-term growth. The long-term growth rate for the Nutricima CGU reflects the estimated
long-term growth rate in the key geography of Nigeria in which the CGU operates.
Having performed the annual impairment tests, impairments on intangible assets of two CGUs totalling £24.8m have been
recognised for the year ended 31 May 2019 (31 May 2018 restated: one CGU totalling £7.4m). In forming this conclusion the
Directors reviewed a sensitivity analysis performed by management, which focused on the reasonably possible downsides
of key assumptions, both individually and in reasonably possible combinations, and considered whether these reasonably
possible downsides give rise to an impairment, with the conclusion that no reasonably possible changes in key assumptions
would cause the recoverable amount of the CGU to be less than the carrying value, other than for three CGUs: Nutricima,
five:am and Rafferty’s Garden.
For the Nutricima CGU, the recoverable amount determined by the Directors was £19.2m. As the CGU had a carrying value
of £23.1m, the Directors concluded that an impairment of £3.9m was necessary in order to reflect the CGU at the higher of
its value-in-use or fair value less costs of disposal as per IAS 36. The key drivers behind the decrease in value-in-use when
compared to prior year include worsening macroeconomic factors such as long-term growth rate and discount rate as well
as a change in the future cash flows expected from the business.
The impairment charge of £3.9m has been recognised as an exceptional item in line with the Group’s accounting policy and
is split across the relative classes of assets as follows: goodwill £3.0m, other intangible assets £0.5m and property, plant and
equipment £0.4m, in accordance with IAS 36 ‘Impairment of Assets’.
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
160
Given that this CGU is located in Nigeria where the macroeconomic environment is volatile, management has had to carefully
consider the range of reasonably possible changes in assumptions when performing sensitivity analysis. Whilst it is not
management’s current expectation, should Nutricima trading results in FY20 be in line with those achieved in FY19, which is
considered by the Directors to be reasonably possible given the inherent market uncertainty, this would result in a further
impairment of £5.6m.
For the five:am CGU, the recoverable amount determined by the Directors was £22.5m. As the CGU had a carrying value of
£44.8m, the Directors concluded that an impairment of £22.3m was necessary in order to reflect the CGU at the higher of
its value-in-use or fair value less costs of disposal as per IAS 36. The key drivers behind the decrease in value-in-use when
compared to prior year include worsening macroeconomic factors such as long-term growth rate and discount rate as well
as a change in the future cash flows expected from the business. Whilst the FY19 performance has been broadly in line with
previous expectations, management has revisited the forecasts for this CGU in the outer years i.e. FY20 to FY24 and revised
the forecasts accordingly based on the latest view of the market in which five:am operates, which is extremely fragmented
and has high levels of competition.
The impairment charge of £22.3m has been recognised as an exceptional item in line with the Group’s accounting policy and
is split across the relative classes of assets as follows: goodwill £9.0m, other intangible assets £12.3m and property, plant and
equipment £1.0m, in accordance with IAS 36 ‘Impairment of Assets’.
The key assumptions considered by the Directors, where a reasonably possible change could give rise to impairment, were the
discount factor and terminal growth rate applied to the value-in-use model. If the discount rate were to increase by 0.5% and
the terminal growth rate were to decrease by 0.5%, which whilst not management’s current expectation is considered by the
Directors to be reasonably possible, this would lead to a further impairment charge of £3.5m.
For the Rafferty’s Garden CGU, the recoverable amount determined by the Directors was £44.6m. As the CGU had a
carrying value of £42.5m, the Directors concluded that no impairment was required; however, they recognise that this
gives limited headroom. The key drivers behind the decrease in value-in-use when compared to prior year include worsening
macroeconomic factors such as long-term growth rate and discount rate as well as a change in the future cash flows expected
from the business. In addition, due to the recognition of goodwill in relation to the deferred tax liability, the carrying value
of this cash-generating unit has increased by circa £9m compared to the amount previously reported at 31 May 2018. See
Note 1c) for details.
The key assumptions considered by the Directors, where a reasonably possible change could give rise to impairment, were the
discount factor and terminal growth rate applied to the value-in-use model. If the discount rate were to increase by 0.5% and
the terminal growth rate were to decrease by 0.5%, which whilst not management’s current expectation is considered by the
Directors to be reasonably possible, this would lead to an impairment charge of £6.9m.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 June 2017
Currency retranslation
Additions
Disposals
Reclassification
Reclassification to software within intangible assets
Revised analysis between cost and depreciation of fixed assets
within and between categories
At 31 May 2018
Currency retranslation
Additions
Disposals
Reclassification
Reclassification to software within intangible assets
Revised analysis between cost and depreciation of fixed assets
within and between categories
At 31 May 2019
Accumulated depreciation and amounts written off
At 1 June 2017
Currency retranslation
Charge for the year
Disposals
Reclassification
Reclassification to software within intangible assets
Revised analysis between cost and depreciation of fixed assets
within and between categories
Impairment loss
At 31 May 2018
Currency retranslation
Charge for the year
Disposals
Reclassification
Reclassification to software within intangible assets
Revised analysis between cost and depreciation of fixed assets
within and between categories
Impairment loss
At 31 May 2019
Net book values
At 31 May 2019
At 31 May 2018
Land and
buildings
£m
Plant and
machinery
£m
Fixtures,
fittings and
vehicles
£m
Assets
in the
course of
construction
£m
133.4
(7.7)
0.9
(9.7)
3.1
–
1.8
121.8
0.7
0.1
(0.7)
0.2
–
204.5
(9.9)
1.4
(37.8)
11.5
–
8.7
178.4
1.3
0.7
(0.7)
7.9
–
(1.5)
3.9
120.6
191.5
42.8
(1.6)
2.2
(9.7)
(0.4)
–
1.1
2.7
37.1
0.4
2.1
(0.4)
–
–
(0.4)
–
152.7
(6.1)
11.6
(37.4)
–
–
9.7
–
130.5
1.4
10.7
(0.7)
–
–
0.1
1.4
38.8
143.4
81.8
84.7
48.1
47.9
53.6
(1.6)
2.5
(5.2)
18.8
(2.8)
(1.3)
64.0
0.2
0.3
(0.8)
0.2
–
(9.2)
54.7
53.6
(1.3)
4.3
(5.2)
0.4
(0.2)
1.2
0.1
52.9
0.3
4.1
(0.8)
–
(0.4)
(9.1)
–
47.0
7.7
11.1
34.6
(1.4)
10.6
(0.3)
(33.4)
–
2.8
12.9
(0.1)
12.4
–
(8.3)
(3.1)
(2.6)
11.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
11.2
12.9
Total
£m
426.1
(20.6)
15.4
(53.0)
–
(2.8)
12.0
377.1
2.1
13.5
(2.2)
–
(3.1)
(9.4)
378.0
249.1
(9.0)
18.1
(52.3)
–
(0.2)
12.0
2.8
220.5
2.1
16.9
(1.9)
–
(0.4)
(9.4)
1.4
229.2
148.8
156.6
Depreciation is charged to administrative expenses in the income statement. At 31 May 2019, the Group had entered into
commitments for the acquisition of property, plant and equipment amounting to £0.4m (2018: £1.6m). At 31 May 2019, the
Group’s share of the capital commitments of the joint ventures was £nil (2018: £nil).
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
162
12. NET INVESTMENTS IN JOINT VENTURES
Joint ventures are contractual arrangements over which the Group exercises joint control with partners and where the parties
have rights to the net assets of the arrangement, irrespective of the Group’s shareholding in the entity.
Net investments in joint ventures include the Group’s equity investment in joint ventures, long-term loans issued to joint
ventures and the Group’s share of the joint ventures’ net assets.
The table below reconciles the movement in the Group’s net investment in joint ventures in the year:
Carrying value
At 1 June 2017
Exchange differences on translation of overseas net liabilities recognised in equity
Exchange differences on translation of foreign currency loans classified as ‘permanent as equity’
recognised in equity
Share of result for the year taken to the income statement
At 31 May 2018
Increased funding to joint ventures in year
Increased equity investment
Exchange differences on translation of overseas net liabilities recognised in equity
Exchange differences on translation of foreign currency loans classified as ‘permanent as equity’
recognised in equity
Share of result for the year taken to the income statement
At 31 May 2019
Long-term
loans
issued to
joint
ventures
Group’s
share of net
assets/
(liabilities)
of joint
ventures
Net
investments
in joint
ventures
34.1
–
(0.8)
–
33.3
6.8
–
–
2.0
–
42.1
(11.0)
(1.1)
–
1.7
(10.4)
–
2.1
(0.5)
–
2.3
(6.5)
23.1
(1.1)
(0.8)
1.7
22.9
6.8
2.1
(0.5)
2.0
2.3
35.6
Set out below is the summarised financial information for the consolidated PZ Wilmar joint ventures, including PZ Wilmar
Limited, PZ Wilmar Food Limited and Wilmar PZ International Pte Limited, which are accounted for using the equity method.
Aggregated amounts relating to joint ventures
Assets
Non-current assets
Assets
Current assets
Cash and cash equivalents
Other current assets
Total assets
Liabilities
Non-current liabilities
Current liabilities
Total liabilities
Net liabilities
2019
£m
2018
£m
62.0
3.7
57.3
61.0
73.8
15.8
32.5
48.3
123.0
122.1
(98.8)
(41.3)
(80.0)
(62.8)
(140.1)
(142.8)
(17.1)
(20.7)
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
163
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. NET INVESTMENTS IN JOINT VENTURES CONTINUED
Aggregated amounts relating to joint ventures
Revenues
Profit before tax for the year
Total comprehensive income/(expense)
2019
£m
2018
£m
124.2
141.6
5.4
(0.6)
5.5
1.3
The above information reflects the amounts presented in the Financial Statements of the joint venture adjusted for
differences in accounting policies between the Group and the joint venture, and before Wilmar International Limited’s
share of those amounts.
A list of the investments in joint ventures, including the name, country of incorporation and proportion of ownership interest
is given in Note 30.
The Directors review the carrying value of the net investments in joint ventures annually and consider that the financial
position of the companies and the recurring annual profits support the carrying value at 31 May 2019.
13. OTHER INVESTMENTS
Previously held non-current other investments of £0.3m comprising a 28% investment in Norpalm Ghana Limited, a palm
oil plantation in Ghana, was sold during the year. The profit on the sale of this investment totalled £3.3m, which is further
discussed in Note 3.
14. INVENTORIES
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2019
£m
30.2
19.1
82.6
2018
£m
48.5
9.6
74.5
131.9
132.6
During the year ended 31 May 2019, £5.1m (2018: £5.3m) was charged to the income statement for slow-moving and
obsolete inventories. The cost of the inventories recognised as an expense and included in cost of sales amounted to
£418.0m (2018: £444.0m). Inventories are stated after provisions for impairment of £2.1m (2018: £2.7m).
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
164
15. TRADE AND OTHER RECEIVABLES
Receivables due within one year
Trade receivables
Less: provision for impairment of trade receivables
Net trade receivables
Amounts owed by joint ventures
Other receivables
Prepayments and accrued income
2019
£m
140.1
(8.4)
131.7
2.5
15.4
7.9
157.5
The Directors consider the carrying amount of trade and other receivables approximates to their fair value due to their
short-term nature.
Receivables due after more than one year
Prepayments and accrued income
Other receivables
Movements in the Group provision for impairment of trade receivables are as follows:
At 1 June
Provision for receivables impairment
Receivables written off during the year
Receivables recovered during the year
Currency translation
At 31 May
2019
£m
–
–
–
2019
£m
(7.0)
(1.4)
(0.4)
0.4
–
(8.4)
2019
£m
140.0
(7.0)
133.0
8.9
16.8
5.2
163.9
2018
£m
0.2
0.2
0.4
2018
£m
(6.2)
(1.7)
(0.2)
0.5
0.6
(7.0)
Provisions are estimated by management based on the expected credit loss model. The creation and release of provisions
for receivables is charged to administrative expenses in the income statement. Receivables are written off when all possible
routes through which amounts can be recovered have been exhausted.
Trade receivables consist of a broad cross-section of the international customer base for which there is no significant history
of default. The credit risk of customers is assessed at a subsidiary and Group level, taking into account the customers’ financial
positions, past experiences and other relevant factors. Individual customer credit limits are imposed based on these factors.
The credit period given on sales is mainly 30 days, but ranges from 14 to 90 days (2018: 14 to 90 days) due to the differing
nature of trade receivables in the Group’s geographical segments.
No other receivables have been deemed to be impaired.
The carrying amount of the Group’s net trade receivables are denominated in the following currencies:
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
Sterling
US Dollar
Nigerian Naira
Euro
Polish Zloty
Indonesian Rupiah
Ghana Cedi
Australian Dollar
Other currencies
2019
£m
37.6
10.1
29.4
12.9
2.5
18.0
–
15.4
5.8
2018
£m
39.8
13.1
24.4
13.6
2.3
15.8
2.2
16.0
5.8
131.7
133.0
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
165
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. TRADE AND OTHER RECEIVABLES CONTINUED
The following table shows the age of net trade receivables at the reporting date:
Not past due
Past due 0–90 days
Past due 90–180 days
Past due >180 days
16. CURRENT ASSET INVESTMENTS
Unlisted
17. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term deposits
Cash and short-term deposits
Overdrafts
Cash and cash equivalents
Loans due within one year
Loans due in greater than one year
Financing liabilities
Current asset investments
Net debt
Cash at bank and in hand
Short-term deposits
Cash and short-term deposits
Overdrafts
Cash and cash equivalents
Loans due within one year
Loans due in greater than one year
Financing liabilities
Current asset investments
Net debt
1 June
2017
£m
134.5
16.1
150.6
(34.5)
116.1
(260.2)
–
(260.2)
0.3
(143.8)
1 June
2018
£m
97.8
4.9
102.7
(16.5)
86.2
(251.9)
–
(251.9)
0.3
(165.4)
2019
£m
103.7
25.8
1.6
0.6
131.7
2019
£m
0.3
0.3
Net cash
flow
£m
Foreign
exchange
movements
£m
(28.0)
(10.4)
(38.4)
18.1
(20.3)
7.9
–
7.9
–
(8.7)
(0.8)
(9.5)
(0.1)
(9.6)
0.4
–
0.4
–
2018
£m
102.3
25.8
2.0
2.9
133.0
2018
£m
0.3
0.3
31 May
2019
£m
97.8
4.9
102.7
(16.5)
86.2
(251.9)
–
(251.9)
0.3
(12.4)
(9.2)
(165.4)
Net cash
flow
£m
Foreign
exchange
movements
£m
31 May
2019
£m
50.6
2.9
53.5
–
53.5
(2.0)
(204.0)
(206.0)
0.3
(0.8)
–
(0.8)
(0.1)
(0.9)
–
–
–
–
(0.9)
(152.2)
(46.4)
(2.0)
(48.4)
16.6
(31.8)
249.9
(204.0)
45.9
–
14.1
The effective interest rate on cash and cash equivalents during the year ended 31 May 2019 was 2.7% (2018: 3.5%).
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
166
18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks, including market risk (which includes foreign currency risk,
interest rate risk and price risk), counterparty and credit risk and liquidity risk.
The Group’s Treasury function seeks to manage potential adverse effects on the Group’s financial performance, by coordinating
access to domestic and international financial markets, and monitoring and managing the financial risks relating to the operations
of the Group.
The Group uses derivative financial instruments to hedge certain risk exposures. The use of financial derivatives is governed
by the Group’s policies approved by the Board of Directors, which provide written principles on foreign exchange risk, interest
rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess
liquidity. Compliance with policies and exposure limits is reviewed by the Internal Audit function on a continuous basis. The
Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
(a) Classification of financial instruments
The following table combines information about:
• classes of financial instruments based on their nature and characteristics;
• the carrying amounts of financial instruments; and
• fair values of financial instruments (except financial instruments whose carrying amount approximates their fair value).
Financial assets
£m
Total financial assets at fair value
Derivatives designated as hedging instruments
Debt instruments at amortised cost
Trade and other receivables
Loans to joint venture
Total current
Total non-current
Total
Financial liabilities
£m
Current interest-bearing loans and borrowings
Unsecured borrowings/overdrafts
Senior Revolving Credit Facility
Non-current interest-bearing loans and borrowings
Senior Revolving Credit Facility
Other financial liabilities
Derivatives designated as hedging instruments
Other financial liabilities at amortised cost, other than
interest-bearing loans and borrowings
Trade and other payables
Total current
Total non-current
Total
2019
2018
1.6
–
147.1
2.5
149.6
–
151.2
155.0
8.9
163.9
–
163.9
Interest
rate (%)
Maturity
2019
2018
2.0–5.0
1.86
2020
2018
2.0
–
16.5
251.9
1.82
2023
204.0
1.0
103.6
106.6
204.0
310.6
–
1.1
90.9
360.4
–
360.4
I
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T
R
A
T
E
G
C
R
E
P
O
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G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
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C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
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2
0
1
9
167
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT CONTINUED
(b) Hedging activities and derivatives
The Group is exposed to certain risks relating to its ongoing business operations. The primary risks managed using derivative
instruments are foreign currency risk and interest rate risk.
The Group’s risk management strategy and how it is applied to manage risk are explained in Note 18 (d).
Derivatives designated as hedging instruments
The Group only applies cash flow hedge accounting with the following risks:
Foreign currency risk
Exchange rate exposures are managed within approved policy parameters utilising forward foreign exchange contracts.
The foreign currency risk associated with anticipated sales and purchase transactions is hedged out to 24 months. Basis
adjustments are made to the initial carrying amounts of inventories when the inventories are initially recorded.
For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount, life and
underlying amount) of the foreign exchange forward contracts and their corresponding hedged items are the same, the Group
performs a qualitative assessment of effectiveness and it is expected that the value of the forward contracts and the value of
the corresponding hedged items will systematically change in opposite directions in response to movements in the underlying
exchange rates. This means that there is an economic relationship between the hedging instrument (the foreign exchange
forward derivatives) and the hedged item (highly probable forecast sales and purchases in foreign currency).
The notional of the hedging instrument (the derivative) is consistent with the designated amount of the underlying exposure;
therefore hedge ratio is 1:1 in all cases. However, potential future rebalancing can be performed if needed.
The main source of hedge ineffectiveness in these hedging relationships is the effect of the counterparty and the Group’s own
credit risk on the fair value of the forward contracts, which is not reflected in the fair value of the hedged item attributable to
changes in foreign exchange rates. Other potential sources of ineffectiveness in these hedging relationships are changes in
the settlement date or amount. However, the Group reviews each hedge on every reporting date to ensure its effectiveness.
The following tables detail the foreign currency forward contracts outstanding at the end of the reporting year.
£m
As at 31 May 2019
Assets
Liabilities
As at 31 May 2018
Assets
Liabilities
Notional
amount
Carrying
amount
51.2
25.6
52.8
29.2
1.6
1.0
0.3
1.1
Change in fair
value used for
measuring
ineffectiveness
for the year
1.4
1.0
0.3
1.1
As at 31 May 2019, the aggregate gains under foreign exchange forward contracts deferred in the cash flow hedge reserve
relating to anticipated future purchase transactions amount to a loss of £0.5m (2018: loss of £0.8m). It is anticipated that the
purchases will take place during the first 12 months of the next financial year, at which time the amount deferred in equity will
be removed from equity and included in the carrying amount of the raw materials. It is anticipated that the raw materials will
be converted into inventory and sold within 12 months of purchase.
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C
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S
S
O
N
S
P
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C
A
N
N
U
A
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A
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2
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Impact of hedging on equity
Set out below is the reconciliation of each component of equity and the analysis of other comprehensive income:
£m
As at 1 June 2017 (restated)*
Effective portion of changes in fair value arising from:
Sa les and purchases
Amount reclassified to profit or loss
Tax effect
As at 1 June 2018
Effective portion of changes in fair value arising from:
Sa les and purchases
Amount reclassified to profit or loss
Amount transferred to inventories
Tax effect
As at 31 May 2019
(cid:13) See Note 1 for details.
Cash flow
reserve
Cost of
hedging
reserve
1.8
(0.6)
(1.2)
–
–
0.7
(0.1)
–
–
0.6
–
–
–
–
–
(0.3)
–
–
–
(0.3)
Interest rate risk
The Group has exposure to interest rate risk, principally in relation to cash and cash equivalents and fixed and floating
rate debt facilities. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate
borrowings, and by the use of an interest rate derivative: namely, a cap option.
In December 2018, the Group bought an interest rate cap ((cid:14)1.25%) and designated it as a hedging instrument in a cash flow
hedge of the GBP debt facility. The main terms of this financial option are £75m Notional on 3-month LIBOR floating to fixed,
maturing 21 December 2021.
As at 31 May 2019, the change in fair value since the inception of the derivative has been £0.01m. This change in fair value can
be split between intrinsic value (£nil) and time value (£0.01m).
(c) Fair values
Set out below is a comparison, by class, of the carrying amounts and fair values of the Group’s financial instruments for those
groups of financial instruments accounted at amortised cost rather than at fair value, other than those with carrying amounts
that are reasonable approximations of fair values:
£m
Financial assets
Non-listed equity investments
Total
Financial liabilities
Interest-bearing loans and borrowings
Fl oating rate borrowings
Total
2019
2018
Carrying
amount
Fair value
Carrying
amount
Fair value
0.3
0.3
0.3
0.3
0.3
0.3
0.3
0.3
(206.0)
(206.0)
(206.0)
(206.0)
(251.9)
(251.9)
(251.9)
(251.9)
Management has assessed that the fair values of cash and short-term deposits, trade receivables, trade payables, bank
overdrafts and other current liabilities approximate their carrying amounts, largely due to the short-term maturities of
these instruments.
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G
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P
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G
O
V
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N
A
N
C
E
I
F
I
N
A
N
C
A
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S
T
A
T
E
M
E
N
T
S
O
T
H
E
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I
N
F
O
R
M
A
T
O
N
I
P
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C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
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&
A
C
C
O
U
N
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2
0
1
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169
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT CONTINUED
The following methods and assumptions were used to estimate the fair values:
• Foreign currency forward contracts: Future cash flows are estimated based on forward exchange rates (from observable
•
forward exchange rates at the end of the reporting year) and contract forward rates, discounted at a rate that reflects the
credit risk of various counterparties.
Interest rate cap: the Black-Scholes method is used when estimating fair value for this type of financial option.
Subsequently, the fair value is split between intrinsic value and time value in order to properly allocate the changes in fair
value between other comprehensive income and income statement, in compliance with IFRS 9.
• Non-listed equity investments: income approach using the discounted cash flow method to capture the present value
•
of the expected future economic benefits to be derived from the ownership of these investees.
Interest-bearing loans and borrowings: future cash flows are estimated based on the agreement’s fixed/forward
(from observable forward interest rates at the end of the reporting period) rates, discounted at the rate that reflects
the Group’s credit risk.
Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets
or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable inputs).
£m
Financial assets
Non-listed equity investments
Derivatives designated as hedging instruments
Total
Financial liabilities
Derivatives designated as hedging instruments
Total
£m
Financial assets
Non-listed equity investments
Derivatives designated as hedging instruments
Total
Financial liabilities
Derivatives designated as hedging instruments
Total
As at 31 May 2019
Fair value
Level 1
Level 2
Level 3
0.3
1.6
1.9
(1.0)
0.9
–
–
–
–
–
–
1.6
1.6
(1.0)
0.6
0.3
–
0.3
–
0.3
As at 31 May 2018
Fair value
Level 1
Level 2
Level 3
0.3
0.3
0.6
(1.1)
(0.5)
–
–
–
–
–
–
0.3
0.3
(1.1)
(0.8)
0.3
–
0.3
–
0.3
There were no transfers between Levels 1, 2 and 3 during the current or prior year.
(d) Financial instruments risk management objectives and policies
The Group is exposed to market risk, credit risk and liquidity risk. The Group’s Finance function provides assurance to the
Group’s senior management that the Group’s financial risk activities are governed by appropriate policies and procedures
and that financial risks are identified, measured and managed in accordance with the Group’s policies and risk objectives.
All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills,
experience and supervision. It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.
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S
O
N
S
P
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A
N
N
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A. Market risk
Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and
commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, debt and equity
investments and derivative financial instruments.
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates:
• forward foreign exchange contracts to hedge the exchange rate risk arising on the import and export of goods;
• forward foreign exchange contracts to hedge the exchange rate risk arising on translation of the Group’s investment in
foreign operations; and
interest rate instruments (cap option) to mitigate the risk of rising interest rates.
•
The sensitivity analyses in the following sections relate to the position as at 31 May in 2019 and 2018. The sensitivity analyses
have been prepared on the basis that the amount of net debt, the ratio of fixed to floating interest rates of the debt and
derivatives and the proportion of financial instruments in foreign currencies are all constant, and on the basis of the hedge
designations in place at 31 May 2019.
The analyses exclude the impact of movements in market variables on: the carrying values of pension and other post-
retirement obligations; provisions; and the non-financial assets and liabilities of foreign operations. Market risk exposures are
measured using sensitivity analysis. There has been no change to the Group’s exposure to market risks or the manner in which
these risks are managed and measured.
(a)(i) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in
foreign exchange rates. The Group is exposed to the fluctuations in foreign currency rates resulting from committed and
forecast transactions in foreign currencies, principally in relation to purchases of raw materials. These purchases are typically
denominated in US Dollars or Euros.
When a derivative is entered into for the purpose of creating a hedge, the Group negotiates the terms of the derivative to
match the terms of the hedged exposure. For hedges of forecast transactions, the derivative covers the period of exposure
from the point the cash flows of the transactions are forecasted up to the point of settlement of the resulting receivable or
payable that is denominated in the foreign currency.
The carrying amounts of the Group’s foreign-currency-denominated monetary assets and monetary liabilities at the reporting
date are as follows:
£m
Nigerian Naira
US Dollar
Euro
Indonesian Rupiah
Australian Dollar
2019
2018
Equity
108.8
13.2
36.8
29.1
25.5
Income
statement
(11.9)
6.9
1.7
8.0
5.8
Equity
128.5
13.2
34.9
35.3
29.8
Income
statement
3.4
0.5
5.5
12.2
1.6
(a)(ii) Foreign currency sensitivity
The table below details the Group’s sensitivity to a 5% increase or decrease in currency units against the relevant foreign
currencies. 5% is the sensitivity rate used when reporting foreign currency risk internally and represents management’s
assessment of a 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 5% change in foreign
currency rates. A positive number indicates an increase in profit and other equity where currency units strengthen 5%
against the relevant currency. For a 5% weakening of currency units against the relevant currency, there would be a
comparable impact on the profit and other equity, and the balances below would be negative.
I
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T
R
A
T
E
G
C
R
E
P
O
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G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
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C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
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&
A
C
C
O
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N
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2
0
1
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171
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT CONTINUED
£m
Nigerian Naira
US Dollar
Indonesian Rupiah
Australian Dollar
2019
2018
Effect on
profit
before tax
Effect on
pre-tax
equity
Effect on
profit
before tax
Effect on
pre-tax
equity
Change
(cid:14)5%
-5%
(cid:14)5%
-5%
(cid:14)5%
-5%
(cid:14)5%
-5%
(0.6)
0.6
0.3
(0.3)
0.4
(0.4)
0.3
(0.3)
5.4
(5.4)
0.7
(0.7)
1.5
(1.5)
1.3
(1.3)
0.1
(0.1)
0.2
(0.2)
(0.5)
0.5
1.2
(1.2)
2.1
(2.1)
0.7
(0.7)
(3.5)
3.5
3.1
(3.1)
(b)(i) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s
long-term debt obligations with floating interest rates and their related hedging derivatives.
The Group manages cash balances to protect against adverse changes in rates whilst retaining liquidity. Hedging activities
are evaluated regularly to align with interest rate views and defined risk appetite; this ensures that the most cost-effective
hedging strategies are applied.
The Group has entered into an interest rate cap (financial option), in which it agrees to receive, at specified intervals, the
difference between fixed and floating rate interest amounts calculated by reference to an agreed notional principal amount,
when the floating rate is above a certain level (strike 1.25%). The Group has designated this cap as a hedging instrument in a
cash flow hedge, specifying that the time value of the option is a cost of hedging.
(b)(ii) Interest rate sensitivity
The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-
derivative instruments at the reporting date. For floating rate liabilities, the analysis is prepared assuming the amount of
liability outstanding at reporting date to have been outstanding for the whole year.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and
borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before
tax is affected through the impact on floating rate borrowings, as follows:
£m
2019
Sterling
Total
2018
Sterling
Total
Increase/
decrease in
basis points
Effect on
profit
before tax
Effect on
pre-tax
equity
+10
-10
+10
-10
(0.2)
0.2
–
(0.3)
0.3
–
–
–
–
–
–
–
The Group’s sensitivity to interest rates has decreased during the current year, mainly due to the reduction in variable rate debt
instruments.
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
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R
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A
C
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B. Credit risk
The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities,
including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
The Group has dedicated standards, policies and procedures to control and monitor credit risks. Although the Group is
potentially exposed to credit loss in the event of non-performance by counterparties, such credit risk is controlled through
credit rating and equity price reviews of the counterparties and by limiting the total amount of exposure to any one party.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables.
The Group does not believe it is exposed to any material concentrations of credit risk. An analysis of the international long-
term credit ratings of counterparties where cash and cash equivalents (including overdrafts) are held is as follows:
£m
AA-
A(cid:14) to A-
BBB(cid:14) to BBB-
B(cid:14) to B-
CCC+
Not rated
Total
31 May 2019
Cash and cash
equivalents and
financial
derivatives
31 May 2018
Cash and cash
equivalents and
financial
derivatives
42.2
71.1
3.0
11.7
–
2.3
34.7
86.9
2.1
40.0
1.1
3.4
130.3
168.2
Trade receivables and contract assets
The adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets,
by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. IFRS 9 requires
the Group to recognise an allowance for ECLs for all debt instruments not held at fair value through profit or loss and
contract assets.
As permitted by IFRS 9, the Group used the simplified approach in calculating ECL for trade receivables and contract assets
that did not contain a significant financing component. The Group applied the practical expedient to calculate ECL using
a provision matrix. The Group has concluded that current and forward-looking information does not affect its customers’
historical default rates and, consequently, the expectation and estimation of the ECL has not changed.
As stated above, in light of the credit ratings of its counterparties, the Group has applied the optional low credit risk
operational simplification in assessing whether there is a significant increase in credit risk of its debt instruments at fair
value through other comprehensive income.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
173
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT CONTINUED
C. Liquidity risk
The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank
overdrafts, bank loans, finance leases and hire purchase contracts. Ultimate responsibility for liquidity risk management rests
with the Board of Directors, which has established 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 cash and cash equivalents, banking facilities and reserve borrowing facilities, by continuously
monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities. Details of
additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk are set out below.
The following table details the Group’s remaining contractual maturities for its non-derivative financial liabilities based on
the undiscounted cash flows of financial liabilities at the earliest date on which the Group can be required to pay. The table
includes both interest and principal cash flows. Where interest flows are floating rate, the undiscounted amount is derived
from interest rate curves at the reporting date.
The amounts included for financial guarantee contracts are the maximum amounts the Group could be forced to settle under
the arrangement for the full guaranteed amount if that amount were claimed by the counterparty to the guarantee. Based on
expectations at the end of the reporting year, the Group considers that it is more likely than not that no amount will be payable
under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming
under the guarantee. The contractual maturity is based on the earliest date on which the Group could be required to pay.
£m
Non-interest-bearing
Floating interest rate instruments
Trade and other payables
Derivatives
£m
Non-interest-bearing
Floating interest rate instruments
Trade and other payables
Derivatives
31 May 2019
< 3 months
3 to 12
months
1–2 years
2–5 years
Total
2.0
103.2
0.5
–
–
0.5
–
–
–
204.0
–
–
206.0
103.2
1.0
< 3 months
16.5
90.9
0.6
3 to 12
months
251.9
–
0.5
31 May 2018
> 1 year
2–5 years
Total
–
–
–
–
–
–
268.4
90.9
1.1
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
174
Financing facilities
The Group has access to financing facilities as described below. The Group expects to meet its other obligations from
operating cash flows and proceeds of maturing financial assets.
£m
Unsecured bank overdraft facilities, reviewed annually and payable at call:
– Amount used
– Amount unused
Unsecured bill acceptance facilities, reviewed annually:
– Amount used
– Amount unused
Secured bank loan facilities with maturity dates listed on page 167:
– Amount used
– Amount unused
31 May
2019
31 May
2018
(2.0)
171.4
(12.7)
248.6
(16.5)
197.9
(13.8)
181.9
(204.0)
121.0
(251.9)
33.1
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while
maximising returns to shareholders through the optimisation of the debt and equity balance. The Group’s overall
strategy remains unchanged from May 2018. The capital structure of the Group consists of net debt and equity of the
Group (comprising issued capital, reserves and retained earnings). The Group is not subject to any externally imposed
capital requirements.
The Group had net debt positions as at 31 May 2019 and 31 May 2018, respectively, as shown below:
£m
Cash at bank and in hand (see Note 17)
Short-term deposits (see Note 17)
Bank overdrafts
Cash and cash equivalents (see Note 17)
Current asset investments
Current interest-bearing loans and borrowings
Non-current interest-bearing loans and borrowings
Net debt
19. TRADE AND OTHER PAYABLES
Trade payables
of which trade payables under vendor financing arrangements
Other taxation and social security
Other payables
Accruals and deferred income
31 May
2019
31 May
2018
50.6
2.9
–
53.5
0.3
(2.0)
(204.0)
(152.2)
2019
£m
93.8
6.0
2.1
9.8
64.9
97.8
4.9
(16.5)
86.2
0.3
(251.9)
–
(165.4)
2018
£m
89.9
7.9
8.3
1.0
75.2
170.6
174.4
For trade payables and current liabilities, the carrying value equals fair value as the impact of discounting is insignificant. Refer
to Note 18 for more information on financial instruments classified by category/fair value hierarchy level and management
of liquidity risk. The Group has an arrangement with a bank under which the bank offers vendors the option to receive earlier
payment of the Group’s trade payables. Vendors utilising the financing arrangement pay a credit fee to the bank. The Group
does not pay any credit fees and does not provide any additional collateral or guarantee to the bank.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
175
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(cid:21)(cid:19). OTHER NON-CURRENT LIABILITIES
Other payables
21. DEFERRED TAX
At 1 June 2017 (restated)(cid:13)
(Charge)/credit to income (restated)*
(Charge)/credit to equity (restated)*
Currency translation (restated)*
At 31 May 2018 (restated)*
Credit/(charge) to income
Credit to equity
Currency translation
Reclassification
At 31 May 2019
(cid:13) See Note 1c) for details.
2019
£m
0.6
0.6
2018
£m
1.0
1.0
Property,
plant and
equipment
£m
Retirement
benefit
obligations
£m
Revaluation
of property,
plant and
equipment
£m
Other
timing
differences
£m
Business
combinations
£m
Accruals
and
provisions
£m
Tax losses
£m
(15.2)
(2.9)
–
1.3
(16.8)
3.1
–
0.1
2.1
(11.5)
2.8
(1.0)
(4.5)
(0.1)
(2.8)
(1.0)
0.4
(0.1)
–
(3.5)
(8.0)
0.1
0.5
0.8
(6.6)
1.0
–
(0.1)
–
(5.7)
3.4
(5.3)
0.6
(1.1)
(2.4)
(4.8)
–
(0.2)
(2.1)
(9.5)
(49.7)
1.3
–
0.3
(48.1)
3.8
1.7
–
(42.6)
5.5
(0.5)
–
(0.3)
4.7
0.3
–
–
–
5.0
0.1
7.2
(0.3)
(0.6)
6.4
(0.3)
–
–
–
6.1
Total
£m
(61.1)
(1.1)
(3.7)
0.3
(65.6)
2.1
0.4
1.4
–
(61.7)
As at 31 May 2019, the deferred tax liability of £9.5m categorised as ‘Other timing differences’ predominantly relates to
intangible assets of £6.0m and unrealised foreign exchange movements of £3.1m.
Certain deferred tax assets and liabilities have been offset in accordance with IAS 12 ‘Income Taxes’. The following is the
analysis of the deferred tax balances (after offset) for financial reporting purposes:
Deferred tax assets
Deferred tax liabilities
(cid:13) See Note 1c) for details.
2019
£m
10.4
(72.1)
(61.7)
(Restated)*
2018
£m
15.0
(80.6)
(65.6)
Deferred income taxes at the balance sheet date have been measured at the tax rate expected to be applicable at the date
the deferred income tax assets and liabilities are realised. For UK deferred income tax, management has performed an
assessment, for all material deferred income tax assets and liabilities, to determine the period over which the deferred tax
assets and liabilities are forecast to be realised. This resulted in a UK deferred income tax rate of 17.0% being used to measure
all deferred tax balances as at 31 May 2019 (2018: 17.0%).
Unremitted earnings may be liable to overseas withholding taxes if distributed as dividends. No deferred tax liability has been
provided for unremitted earnings of Group companies overseas as these are considered indefinitely reinvested outside the
UK. The aggregate amount of temporary differences associated with investment in subsidiaries and joint ventures for which
deferred tax liabilities have not been recognised totalled approximately £13.1m as at 31 May 2019 (2018: £16.6m).
Deferred income tax assets are recognised for tax losses brought forward to the extent that the realisation of the related tax
benefit through future taxable profits is probable. At the balance sheet date, the Group had £6.1m of recognised unused tax
losses (2018: £6.4m).
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
176
22. PROVISIONS
At 1 June 2017
Charged to the income statement
Currency retranslation
Used during year
At 31 May 2018
Charged to the income statement
Currency retranslation
Used during year
At 31 May 2019
Restructuring
and warranty
provisions
£m
3.9
0.6
(0.2)
(3.1)
1.2
1.1
–
(0.7)
1.6
Provisions as at 31 May 2019 relate to restructuring costs in connection with the Group structure and systems project (2019: £nil,
2018: £0.6m), long-term employee provisions (2019: £1.5m, 2018: £0.2m) and warranty costs in relation to the Africa Electricals
division (2019: £0.1m, 2018: £0.4m). The majority of provisions are expected to be utilised in the next 12 months.
23. RETIREMENT BENEFITS
The Group operates retirement benefit schemes for most of its UK and overseas subsidiaries. The defined benefit scheme
associated obligations have all been measured in accordance with IAS 19 (revised).
Summary of Group retirement schemes
UK retirement benefits
The UK operates a defined contribution scheme for current employees. The UK’s defined benefit schemes were closed to
future accrual on 31 May 2008. The following four defined benefit schemes are the UK’s main schemes:
• Main staff plan – for all historically eligible UK-based staff, excluding PZ Cussons Plc Executive Directors;
• Directors’ plan – for PZ Cussons Plc Executive Directors;
• Expatriate plan – for all eligible expatriate staff based outside the UK; and
• Unfunded plan – unfunded unapproved retirement scheme.
Current and past employees within these schemes are provided with defined benefits based on service and final salary.
The assets of the schemes are administered by trustees and are held in trust funds independent of the Group. In relation
to the unfunded plan, the Group made payments during the year to former Directors of £178,747 (2018: £172,208).
Overseas retirement benefits
Outside of the UK the Group operates a number of defined benefit and defined contribution schemes. Included within
‘Overseas retirement benefits and similar obligations’ below are the unfunded retirement benefit obligations relating
to certain of the Group’s overseas subsidiaries and other employee-related provisions for long service and sick leave.
The Nigerian gratuity scheme is a defined contribution scheme that is computed based on the agreement between
PZ Cussons Nigeria Plc and Staff of PZ Cussons Nigeria Plc dated 31 December 2006. The scheme is only applicable to staff
employed before 1 January 2007. The scheme is funded directly using the Company’s cash flow and expensed to the income
statement appropriately.
Basis of recognition of pension scheme surplus
The trust deeds for the Directors’ and Main staff plan provides the Group with an unconditional right to a refund of surplus
assets assuming the full settlement of plan liabilities in the event of a plan wind-up. Furthermore, in the ordinary course of
business the trustee has no rights to unilaterally wind up the scheme, or otherwise augment the benefits due to members
of the scheme. Based on these rights, any net surplus in these two UK schemes are recognised in full.
The trust deed for the Expatriate plan provides the trustees with an unconditional right to wind up the scheme and distribute
the surplus to members; therefore the surplus on the expatriate scheme is not recognised.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
177
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. RETIREMENT BENEFITS CONTINUED
Summary of Group defined benefit schemes (as recorded on the balance sheet)
Expatriate plan
Directors’ plan
Main staff plan
Unfunded plan
Other overseas units
Restriction due to asset ceiling (see Note 1)
Defined benefit asset/(liability) per Group accounts
Surplus
£m
55.9
7.6
28.7
–
–
92.2
(55.9)
36.3
2019
Deficit
£m
–
–
–
(4.5)
(6.8)
(11.3)
–
(11.3)
Total
£m
55.9
7.6
28.7
(4.5)
(6.8)
80.9
(55.9)
25.0
Surplus
£m
57.0
7.0
26.3
–
–
90.3
(57.0)
33.3
2018
Deficit
£m
–
–
–
(4.2)
(7.8)
(12.0)
–
(12.0)
Total
£m
57.0
7.0
26.3
(4.2)
(7.8)
78.3
(57.0)
21.3
UK schemes risk review
The UK’s main schemes expose the Group to actuarial risks such as investment risk, interest rate risk and longevity risk.
Risk
Description
Mitigation
Investment risk
Interest risk
The present value of the defined benefit
plan liability is calculated using a discount
rate (investment return) determined by
direct reference to high-quality corporate
bond yields (for IAS 19 purposes) and gilt
yields (for statutory funding and long-term
funding purposes). If the return on Plan
assets is less than these discount rates, the
funding position of the Plan will fall.
A decrease in the corporate bond yield and/
or gilt yield will increase the present value
of the Plan’s liabilities under IAS 19
and statutory/long-term funding bases
respectively.
As part of the financing of the Plans, they invest in assets with
higher return expectations than lower risk bonds that are the
best match for the Plans’ liabilities. To control the resulting
investment risk, the Plans invest in diversified portfolios of
growth assets with the balances invested in liability-matching
bond assets designed to control interest rate risk (see below).
The split between growth assets and liability-matching bond
assets for each Plan is regularly monitored to ensure investment
risk is not excessive given the statutory funding assumptions
and the Plans’ long-term funding objectives.
The Plans make use of liability-driven investment techniques
to protect them against the majority of the interest rate risk
inherent in their liabilities. This is achieved by investing in gilts
and investment-grade corporate bonds such that changes in the
Plans’ liabilities due to falling gilt and/or corporate bond yields
are offset by similar movements in the value of the Plans’
overall assets.
Reflecting the Plans’ focus on controlling interest risk relative
to their statutory and long-term funding bases, the Plans’
liability-matching bond portfolios are predominantly invested
in gilts, with the balance invested in investment-grade
corporate bonds to increase the expected return on the Plans’
assets in a risk-controlled way. In doing so, the exposures to
investment-grade corporate bonds also help mitigate the
interest rate risk inherent in the Plans’ IAS 19 liabilities.
Inflation risk
Longevity risk
An increase in inflation results in higher
benefit increases for members, which
results in higher Plan liabilities.
The Plans’ liability-matching bond assets are also designed to
hedge the majority of the inflation rate risk inherent in the Plans’
liabilities. This is achieved by investing in index-linked gilts.
The value of the Plans’ liabilities is calculated
by reference to the best estimate of the life
expectancy of each Plan’s participants. An
increase in life expectancy of the Plans’
participants will increase the Plans’
liabilities.
To help control longevity risk all the Plans are closed to future
benefit accrual.
The Plans consider additional approaches to mitigating
longevity risk, for example by buying annuities with an
insurance company to cover the Plans’ liabilities.
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
178
The movements in the year are as follows:
At 1 June 2017
Currency retranslation
Interest income/(expense) and administrative expenses
Contributions paid
Utilised in the year
Gain on settlement
Remeasurement gains
At 31 May 2018
Currency retranslation
Interest income/(expense) and administrative expenses
Contributions paid
Utilised in the year
Past service cost
Remeasurement gains/(losses)
At 31 May 2019
Overseas
retirement
benefits
and similar
obligations
£m
UK
retirement
benefits
and similar
obligations
£m
(10.1)
1.0
0.2
–
1.0
–
0.1
(7.8)
(0.1)
(0.5)
–
0.8
–
0.8
(6.8)
(3.7)
–
(0.4)
6.5
–
0.2
26.5
29.1
–
0.4
6.2
–
(0.7)
(3.2)
31.8
Total
£m
(13.8)
1.0
(0.2)
6.5
1.0
0.2
26.6
21.3
(0.1)
(0.1)
6.2
0.8
(0.7)
(2.4)
25.0
Funding and contributions by the Group
The Directors’ and Expatriate plans are fully funded. A recovery plan for the Main plan was agreed between the trustee
and the employer on 29 June 2016. Under the recovery plan, it was agreed that the employer would pay shortfall correction
contributions of £6m per annum until 31 May 2019, the date that the plan’s funding deficit was expected to be eliminated.
These arrangements were formalised in a schedule of contributions which the scheme actuary certified on 29 June 2016. The
funding deficit was not eliminated as at 31 May 2019 and so it has been agreed between the trustee and the employee that
shortfall contributions of £6m per annum will continue to be paid until the plan is fully funded. The deficit will continue to be
reviewed annually until it is fully funded. The plan is expected to be fully funded by 31 May 2022.
Maturity profile of obligation
The graph below sets out the undiscounted benefit payments that are expected to be paid from the funded plans based
on the data underlying the actuarial valuations as at 31 May 2019:
FUTURE BENEFIT PAYMENTS (funded plans)
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052
2054
2056
2058
2060
2062
2064
2066
2068
2070
2072
2074
2076
2078
2080
2082
2084
2022
2024
2026
2028
2030
•
•
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
179
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. RETIREMENT BENEFITS CONTINUED
Overseas retirement benefits and similar obligations measurement and assumptions used
The most significant overseas scheme as at 31 May 2019 is the Indonesian post-retirement benefit scheme. The obligations
have been measured in accordance with IAS 19 (revised) and a discount rate of 8.75% (2018: 7.5%) and salary inflation rate of
8.0% (2018: 8.0%) have been used. The scheme is unfunded and provision for future obligations included in the above table is
£6.6m (2018: £7.5m).
UK retirement benefits and similar obligations measurement and assumptions used
The last triennial actuarial valuations of the schemes administered in the UK were performed by independent professional
actuaries at 1 June 2016 using the projected unit method of valuation.
For the purposes of IAS 19 (revised) the actuarial valuation as at 1 June 2016, which was carried out by a qualified independent
actuary, has been updated on an approximate basis to 31 May 2019. There have been no changes in the valuation methodology
adopted for this year’s disclosures compared to the previous year’s disclosures.
The key financial assumptions used by the actuary were as follows:
Rate of increase in retirement benefits in payment
Discount rate
Inflation assumption
The mortality assumptions used were as follows:
Weighted average life expectancy on post-retirement mortality table used to determine benefit obligations
– Member age 65 (current life expectancy)
– Member age 40 (life expectancy at age 65)
Movements in the fair value of plan assets were as follows:
1 June
Interest income
Return of plan assets (excluding interest income)
Employer contribution
Administrative expenses
Benefits paid
31 May
2019
3.00%
2.35%
3.15%
2019
Years
23.4
25.5
Assets
2019
£m
397.0
11.0
11.8
6.2
(0.5)
(15.5)
410.0
2018
2.85%
2.80%
3.00%
2018
Years
24.4
26.5
Assets
2018
£m
408.4
9.9
(9.6)
6.5
(0.4)
(17.8)
397.0
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
180
The assets in the schemes were:
Equities
Bonds
Property
Cash and other
Total fair value of scheme assets
Present value of scheme liabilities
Funded status
Restriction due to asset ceiling (see Note 1)
Retirement benefit surplus/(liability)
Related deferred tax (liability)/asset
Net retirement benefit surplus/(liability)
2019
£m
23.9
345.3
9.2
31.6
410.0
(322.2)
87.8
(55.9)
31.9
(5.4)
26.5
2018
£m
52.3
288.6
9.6
46.5
397.0
(310.9)
86.1
(57.0)
29.1
(4.9)
24.2
2017
£m
56.4
291.9
6.0
54.1
408.4
(360.8)
47.6
(51.3)
(3.7)
0.6
(3.1)
Equities and bond assets are quoted, with all other assets being unquoted.
The UK schemes’ investment strategy is set by the trustee after taking appropriate advice from its investment consultant.
The trustee’s primary objective is to invest the plan’s assets in the best interests of the members and beneficiaries. Within
this framework the trustee has agreed a number of objectives to help guide it in its strategic management of the assets and
control of the various investment risks to which the plan is exposed.
Reconciliation of asset ceiling
Restriction due to asset ceiling at beginning of year
Interest on asset restriction
Other changes in asset restriction
Restriction due to asset ceiling at end of year
2019
£m
57.0
1.6
(2.7)
55.9
2018
£m
51.3
1.3
4.4
57.0
The movements documented above have been included when reconciling the total assets and obligations of the schemes;
however, they have been excluded when reconciling the open to closing balance sheet position, as the surplus on the scheme
has been derecognised.
Movements in the present value of the defined benefit obligations were as follows:
1 June
Interest expense
Past service cost
Settlement gain
Remeasurement gain due to changes in demographic assumptions
Remeasurement (loss)/gain due to changes in financial assumptions
Remeasurement gain due to experience adjustments
Benefits paid
31 May
Plans that are wholly or partly funded
Plans that are wholly unfunded
Obligations
2019
£m
Obligations
2018
£m
(310.9)
(8.5)
(0.7)
–
4.6
(28.0)
5.8
15.5
(322.2)
(317.7)
(4.5)
(322.2)
(360.8)
(8.6)
–
0.2
13.3
27.2
–
17.8
(310.9)
(306.7)
(4.2)
(310.9)
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
F
I
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
O
T
H
E
R
I
N
F
O
R
M
A
T
O
N
I
P
Z
C
U
S
S
O
N
S
P
L
C
A
N
N
U
A
L
R
E
P
O
R
T
&
A
C
C
O
U
N
T
S
2
0
1
9
181
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
23. RETIREMENT BENEFITS CONTINUED
The net retirement benefit income before taxation recognised in the income statement in respect of the defined benefit
schemes is summarised as follows:
Net interest on net defined benefit schemes
Past service cost
Gain on settlements
Administration expenses paid by the scheme
Net retirement benefit expense before taxation
The above amounts are recognised in the Group’s income statement in arriving at operating profit.
The reconciliation of the opening and closing balance sheet position is as follows:
Retirement benefit surplus/(deficit) at beginning of year
Net pension interest income
Administration expenses paid by the scheme
Past service cost
Contributions paid
Gain on settlements
Remeasurement gain due to changes in demographic assumptions
Remeasurement (loss)/gain due to changes in financial assumptions
Remeasurement gain due to experience adjustments
Changes in asset ceiling/onerous liability (excluding interest income)
Return/(loss) on scheme assets (excluding interest income)
Net surplus/(deficit) at end of year
Analysed between:
Retirement benefit surplus
Retirement benefit obligation
2019
£m
0.9
(0.7)
–
(0.5)
(0.3)
2019
£m
29.1
0.9
(0.5)
(0.7)
6.2
–
4.6
(28.1)
5.8
2.7
11.8
31.8
36.3
(4.5)
31.8
2018
£m
–
–
0.2
(0.4)
(0.2)
2018
£m
(3.7)
–
(0.4)
–
6.5
0.2
10.4
21.5
–
(5.4)
29.1
33.3
(4.2)
29.1
Remeasurement gains and losses are recognised directly in the Statement of Comprehensive Income.
The sensitivities on the key actuarial assumptions as at the end of the year in relation to the UK schemes were:
Discount rate
Rate of inflation
Rate of mortality
Decrease of 0.25%
Increase of 0.25%
Increase in life expectancy of 1 year
Increase of 4.1%
Increase of 3.1%
Decrease of 3.8%
Change in assumption
Change in defined benefit obligation
The sensitivities on the key actuarial assumptions as at the end of the year in relation to the overseas schemes were:
Discount rate
Salary rate
Change in assumption
Decrease of 1.0%
Increase of 1.0%
Change in defined benefit obligation
Increase of 10.0%
Increase of 9.7%
The sensitivities shown above are approximate. Each sensitivity considers each change in isolation and is calculated using
the same methodology as is used for the calculation of the defined benefit obligation at the end of the year. The inflation
sensitivity includes the impact of changes to the assumptions for the revaluation and pension increases. In practice it is unlikely
that the changes would occur in isolation.
During the year ending 31 May 2020 the Group expects to make cash contributions of £6.0m (2018: £6.0m) to funded defined
benefit plans.
The amount recognised as an expense in the Consolidated Income Statement in relation to defined contribution schemes is
£3.9m (2018: £3.9m). The amount recognised as an expense in the Consolidated Income Statement in relation to the Nigerian
gratuity scheme is £0.6m (2018: £0.9m).
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24. SHARE CAPITAL
Allotted, issued and fully paid:
Ordinary shares of 1p each
Total called-up share capital
2019
2018
Number
000
Amount
£m
Number
000
Amount
£m
428,725
428,725
4.3
4.3
428,725
428,725
4.3
4.3
25. EMPLOYEE SHARE OPTION TRUST
Included within ‘Other reserve’ is the Employee Share Option Trust (ESOT).
The ESOT purchases shares to fund the Executive Share Option Scheme and the Performance Share Plan, details of which
are provided in the Report on Directors’ Remuneration. At 31 May 2019, the ESOT held 10,384,591 (2018: 10,415,400) ordinary
shares with a book value of £40.1m (2018: £40.1m). The market value of these shares as at 31 May 2019 was £21.1m (2018:
£24.8m). During the year the ESOT purchased nil shares of the Company at a cost of £nil (2018: 116,489 at a cost of £0.3m).
The trust has waived any entitlement to dividends in respect of all the shares it holds.
26. RECONCILIATION OF PROFIT BEFORE TAX TO CASH GENERATED FROM OPERATING ACTIVITIES
Profit before tax
Adjustment for net finance costs
Operating profit
Depreciation (Note 11)
Amortisation (Note 10)
Impairment of assets
Profit on sale of assets
Difference between pension charge and cash contributions
Share of results from joint ventures
Operating cash flows before movements in working capital
Movements in working capital:
Inventories
Trade and other receivables
Trade and other payables
Provisions
Cash generated from operating activities
(cid:13) See Note 1c) for details.
(Restated)*
2018
£m
59.2
5.6
64.8
18.1
6.4
10.2
(7.7)
(6.5)
(1.7)
83.6
16.2
20.9
(59.0)
(2.6)
59.1
2019
£m
37.0
6.7
43.7
16.9
6.2
26.2
(3.5)
(6.2)
(2.3)
81.0
(0.1)
7.5
(4.9)
(0.6)
82.9
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27. OPERATING LEASE COMMITMENTS
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-
cancellable operating leases over certain of its properties, which fall due as follows:
Within one year
In the second to fifth years inclusive
Over five years
2019
£m
3.7
5.0
4.8
2018
£m
2.1
5.5
1.7
The Group leases a number of premises. These are subject to review on dates ranging from 2019 to 2036.
(cid:21)(cid:27). SHARE-BASED PAYMENTS
Share-based payments are made to senior executives and other selected key individuals throughout the organisation. These
are made via the Performance Share Plan and the Executive Share Option Scheme. The total credit in the year relating to
the two schemes was £nil (2018: £nil).
Performance Share Plan
The Group operates a Performance Share Plan (PSP) for main Board Executive Directors and certain key senior executives.
The extent to which such awards vest will depend upon the Group’s performance over the three year period following the
award date. The Group’s performance is measured by reference to the growth of adjusted earnings per share over a single
three year period. The fair value of the award is taken as the share price at the date of grant.
In the current year, 1,620,898 awards were made under the PSP scheme (2018: total awards of 1,233,868). The number of
shares exercised in the year was nil (2018: nil) at a market value of £nil (2018: £nil) based on the market price at the date
of exercise. In addition the number of lapsed share options totalled 1,287,692 (2018: 606,297). The number of awards
outstanding but not yet exercisable is 3,808,909 at 31 May 2019 (2018: 3,142,455). The total credit included in operating
profit in relation to these awards was £nil (2018: £nil).
Executive Share Option Scheme
Prior to the adoption by the Company of the Performance Share Plan in 2008, Executive Directors and certain other senior
executives were generally eligible for the grant of options under the PZ Cussons Plc Executive Share Option Scheme. Under
this scheme options are exercisable at a price equal to the average quoted market price of the Company’s shares on the
dealing day before the option is granted. Options are forfeited if the employee leaves the Group for any reason outside of
the scheme rules. Options under the scheme are exercisable in a period beginning no earlier than three years from the date
of grant and are subject to performance conditions.
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the date of
grant is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that
will eventually vest.
Fair value is measured by use of a Black-Scholes model according to the relevant measures of performance. The model includes
adjustments, based on management’s best estimate, for the effects of exercise restrictions, behavioural considerations and
expected dividend payments. The option life is derived by the models based on these assumptions and other assumptions
identified below. The total expense included within operating profit in respect of the share option scheme was £nil (2018: £nil).
No options have been granted during the current or previous year under the Executive Share Option Scheme and it is not
expected that any further awards will be made.
There were no options outstanding at 31 May 2019 or 31 May 2018 that are outside of the scope of IFRS 2 ‘Share-based Payment’.
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29. RELATED PARTY TRANSACTIONS
PZ Wilmar Limited and PZ Wilmar Food Limited
The following related party transactions were entered into by subsidiary companies during the year under the terms of a joint
venture agreement with Singapore-based Wilmar International Limited:
• At 31 May 2019 the outstanding loan balance receivable from PZ Wilmar Limited was £33.7m (2018: £25.5m) and from PZ
Wilmar Food Limited was £8.4m (2018: £7.8m). These receivables relate to long-term loan investments that have been
made by both joint venture partners.
• The value of certain raw materials and services the Group sourced and then sold to PZ Wilmar Limited was £nil (2018:
£4.7m). At 31 May 2019 the outstanding trade receivable balance from PZ Wilmar Limited was £2.2m (2018: £3.9m) and
from PZ Wilmar Food Limited was £nil (2018: £0.1m). The outstanding trade receivable balance from the Group to PZ
Wilmar Food Limited at 31 May 2019 was £nil (2018: £nil).
• At 31 May 2019 the outstanding other receivable balance from PZ Wilmar Limited was £nil (2018: £1.1m) and from PZ
Wilmar Food Limited was £nil (2018: £nil). The outstanding other receivable balance from the Group to PZ Wilmar Food
Limited at 31 May 2019 was £nil (2018: £nil). These receivables relate to short-term loan investments that have been made
by the Group’s Nigeria subsidiaries.
All trading balances will be settled in cash. There were no provisions for doubtful related party receivables at 31 May 2019
(2018: £nil) and no charge to the income statement in respect of doubtful related party receivables (2018: £nil).
Wilmar PZ International Pte Limited
The following related party transactions were entered into by subsidiary companies during the year under the terms of a joint
venture agreement with Singapore-based Wilmar International Limited:
• At 31 May 2019 the outstanding other receivable balance from Wilmar PZ International Pte Limited was £0.3m (2018: £3.9m).
The outstanding other receivable balance from the Group to Wilmar PZ International Pte Limited at 31 May 2019 was £nil
(2018: £nil). These receivables relate to services provided by subsidiary companies to Wilmar PZ International Pte Limited.
(cid:22)(cid:19). SUBSIDIARIES, (cid:45)OINT VENTURES AND NON-CURRENT ASSET INVESTMENTS
Details of the Company’s subsidiaries at 31 May 2019 are as follows:
Company
Five AM Life Pty Limited
Operation
Dormant
Incorporated in
Parent
Company’s
interest
Proportion
of voting
interest
Australia
(cid:103)100%
(cid:103)100%
PZ Cussons (Holdings)
Pty Limited
PZ Cussons Australia
Pty Limited
PZ Cussons Beauty Australia
(Holdings) Pty Limited
Rafferty’s Garden
Pty Limited
Rafferty’s Garden
USA Corporation
Holding company
Australia
(cid:103)100%
(cid:103)100%
Manufacturing
Australia
(cid:103)100%
(cid:103)100%
Holding company
Australia
(cid:103)100%
(cid:103)100%
Dormant
Australia
(cid:103)100%
(cid:103)100%
Dormant
Australia
(cid:103)100%
(cid:103)100%
United Laboratories Limited
Dormant
Australia
(cid:103)100%
(cid:103)100%
PZ Cussons (New Zealand)
Limited
Paterson Services (Shanghai)
Limited
Distribution
Australia
(cid:103)100%
(cid:103)100%
Dormant
China
(cid:103)100%
(cid:103)100%
Registered office address
Building A, Level 1, 13–15 Compark
Circuit, Mulgrave, Victoria, 3170
Building A, Level 1, 13–15 Compark
Circuit, Mulgrave, Victoria, 3170
Building A, Level 1, 13–15 Compark
Circuit, Mulgrave, Victoria, 3170
Building A, Level 1, 13–15 Compark
Circuit, Mulgrave, Victoria, 3170
Building A, Level 1, 13–15 Compark
Circuit, Mulgrave, Victoria, 3170
Building A, Level 1, 13–15 Compark
Circuit, Mulgrave, Victoria, 3170
Building A, Level 1, 13–15 Compark
Circuit, Mulgrave, Victoria, 3170
71–77 Richard Pearse Drive, Mangere,
Auckland, 2150
Sunshine World Building, Room 635,
No. 2000 Pudong Avenue, Pudong,
Shanghai
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185
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(cid:22)(cid:19). SUBSIDIARIES, (cid:45)OINT VENTURES AND NON-CURRENT ASSET INVESTMENTS CONTINUED
Company
Beauty Source Limited
Operation
Dormant
Incorporated in
Parent
Company’s
interest
Proportion
of voting
interest
England
(cid:103)100%
(cid:103)100%
Bronson Holdings Limited
Holding company
England
(cid:103)100%
(cid:103)100%
Milk Ventures (UK) Limited
Holding company
England
(cid:103)100%
(cid:103)100%
PZ Cussons (Holdings) Limited Holding company
England
(cid:13)100%
(cid:13)100%
PZ Cussons (International
Finance) Limited
Provision of services
to Group companies
PZ Cussons (International)
Limited
Provision of services
to Group companies
England
(cid:103)100%
(cid:103)100%
England
(cid:13)100%
(cid:13)100%
PZ Cussons (UK) Limited
Manufacturing
England
(cid:103)100%
(cid:103)100%
PZ Cussons Beauty LLP
Distribution & holding
partnership
England
(cid:103)100%
(cid:103)100%
Seven Scent Limited
Manufacturing
England
(cid:103)100%
(cid:103)100%
St. Tropez Acquisition Co.
Limited
Holding company
England
(cid:103)100%
(cid:103)100%
St. Tropez Holdings Limited
Holding company
England
(cid:103)100%
(cid:103)100%
The Sanctuary at Covent
Garden Limited
Thermocool Engineering
Company Limited
Dormant
England
(cid:103)100%
(cid:103)100%
Dormant
England
(cid:103)100%
(cid:103)100%
PZ Cussons Ghana Limited
Distribution
Ghana
(cid:103)90%
(cid:103)90%
Minerva SA
Manufacturing
Greece
(cid:13)100%
(cid:13)100%
Parnon (Hong Kong) Limited
Provision of services
to Group companies
Hong Kong
(cid:103)100%
(cid:103)100%
PZ Cussons (Hong Kong)
Limited
Dormant
Hong Kong
(cid:103)100%
(cid:103)100%
PZ Cussons India
PVT Limited
Provision of services
to Group companies
India
(cid:103)100%
(cid:103)100%
PT PZ Cussons Indonesia
Manufacturing
Indonesia
(cid:103)100%
(cid:103)100%
PZ Cussons (Europe) Limited Dormant
Ireland
(cid:103)100%
(cid:103)100%
Cussons and Company Limited Dormant
PZ Cussons East Africa Limited Manufacturing
Food For Life International
Limited
Dormant
Kenya
Kenya
Nigeria
(cid:103)100%
(cid:103)100%
(cid:103)100%
(cid:103)100%
(cid:103)100%
(cid:103)100%
Registered office address
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
14 Upper St Martin’s Lane, Covent
Garden, London, WC2H 9FB
Agecroft Commerce Park, Lamplight
Way, Swinton, Manchester, M27 8UJ
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Manchester Business Park, 3500
Aviator Way, Manchester, M22 5TG
Plot 27/3–27/7, Sanyo Road, Tema,
PO Box 628
165 Tatoiou & Odysseos Str, 14452,
Metamorphosis, Attiki
1/F., Hing Lung Comm. Bldg.,
68–74 Bonham Strand, Sheung Wan
Level 54, Hopewell Centre, 183
Queen’s Road East
1407 Real Tech Park, 14th Floor, Plot
No. 39/2, Sector – 30/A, Vashi, Navi
Mumbai, 400705
RDT(cid:59) Tower 5th Floor
JL Prof Satrio KAV E IV/6, Mega
Kuningan Jakarta Selatan 12940
The Greenway Ardilaun Court,
112–114 St Stephen’s Green, Dublin,
DO2 TD28
PO Box 48597, 00100 GPO, Nairobi
PO Box 48597, 00100 GPO, Nairobi
45/47 Town Planning Way, Ilupeju,
Lagos
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Company
Harefield Industrial Nigeria
Limited
Operation
Distribution
Incorporated in
Parent
Company’s
interest
Proportion
of voting
interest
Nigeria
(cid:103)100%
(cid:103)100%
HPZ Limited¹
Manufacturing
Nigeria
(cid:103)55%
(cid:103)55%
Nutricima Limited
Manufacturing
Nigeria
(cid:103)100%
(cid:103)100%
PZ Coolworld Limited
Retail
Nigeria
(cid:103)100%
(cid:103)100%
PZ Cussons Nigeria Plc
Manufacturing
Nigeria
(cid:103)73%
(cid:103)73%
Roberts Pharmaceuticals
Limited
Dormant
Nigeria
(cid:103)100%
(cid:103)100%
PZ Cussons Polska SA
Distribution
PZ Cussons Singapore
Private Limited
Guardian Holdings
Company Limited
Provision of services
to Group companies
Provision of services
to Group companies
Poland
Singapore
(cid:103)100%
(cid:103)100%
(cid:103)100%
(cid:103)100%
Thailand
(cid:103)49%
(cid:103)49%
PZ Cussons (Thailand) Limited Manufacturing
Thailand
(cid:103)100%
(cid:103)100%
PZ Cussons Middle East
and South Asia FZE
Distribution
St. Tropez Inc.
Distribution
UAE
USA
(cid:103)100%
(cid:103)100%
(cid:103)100%
(cid:103)100%
Registered office address
45/47 Town Planning Way, Ilupeju,
Lagos
45/47 Town Planning Way, Ilupeju,
Lagos
45/47 Town Planning Way, Ilupeju,
Lagos
45/47 Town Planning Way, Ilupeju,
Lagos
45/47 Town Planning Way, Ilupeju,
Lagos
45/47 Town Planning Way, Ilupeju,
Lagos
Ul. Chocimska 17, 00-791 Warszawa
61 Robinson Road, (cid:6)08-02 Robinson
Centre, Singapore
35 Moo 4 Tessamphan Road,
Banchang, Muang, Pathumthani
12000
35 Moo 4 Tessamphan Road,
Banchang, Muang, Pathumthani
12000
JAFZA – 14, 14422, PO Box 17233,
Jebel Ali, 17233, Dubai
140 Broadway, 22nd Floor,
Suite 2240, New York
(cid:13) Shares held by the Parent Company.
(cid:103) Shares held by a subsidiary.
1 HPZ Limited is 74.99% owned by PZ Cussons Nigeria Plc and is therefore consolidated.
Parent
Company’s
interest
(cid:103)51%
(cid:103)49%
(cid:103)50%
Registered office address
45/47 Town Planning Way, Ilupeju, Lagos
45/47 Town Planning Way, Ilupeju, Lagos
56 Neil Road, Singapore
Joint venture companies
Operation
Incorporated in
PZ Wilmar Food Limited
Manufacturing
PZ Wilmar Limited
Manufacturing
Wilmar PZ International
Pte Limited
Provision of services
to joint venture
companies
Nigeria
Nigeria
Singapore
(cid:103) Shares held by a subsidiary.
All subsidiary entities have a year end of 31 May.
31. EVENTS AFTER THE REPORTING PERIOD
There were no material events after the balance sheet date.
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COMPANY BALANCE SHEET
At 31 May 2019
Fixed assets
Investment
Current assets
Debtors
Investments
Cash at bank and in hand
Creditors – amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors – amounts falling due in more than one year
Net assets
Capital and reserves
Called-up share capital
Capital redemption reserve
Hedging reserve
Other reserve
Profit and loss account
Total shareholders’ funds
(cid:13)
See Note 1c) for details.
Notes
4
5
6
7
8
(Restated)*
31 May
2018
£m
(Restated)*
1 June
2017
£m
31 May
2019
£m
106.3
106.3
271.6
0.3
0.3
272.2
(5.2)
267.0
373.3
(204.0)
106.3
106.3
296.9
0.3
0.5
297.7
(257.4)
40.3
146.6
–
169.3
146.6
4.3
0.7
(0.3)
(40.1)
204.7
169.3
4.3
0.7
–
(40.1)
181.7
146.6
116.8
116.8
321.9
0.3
0.8
323.0
(400.7)
(77.7)
35.6
–
39.1
4.3
0.7
–
(40.0)
74.1
39.1
PZ Cussons Plc reported a profit for the financial year ended 31 May 2019 of £57.6m (2018: £142.5m).
The financial statements from pages 188 to 197 were approved by the Board of Directors and authorised for issue.
They were signed on its behalf by:
C Silver
26 July 2019
G A Kanellis
PZ Cussons Plc
Registered number 00019457
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COMPANY STATEMENT OF CHANGES IN EQUITY
At 1 June 2017 (restated)*
Profit for the year
Acquisition of shares for ESOT
Ordinary dividends
At 31 May 2018
At 1 June 2018
Profit for the year
Cost of hedging reserve
Total comprehensive income for the year
Ordinary dividends
At 31 May 2019
(cid:13) See Note 1c) for details.
Called-up
share
capital
£m
Capital
redemption
reserve
£m
Notes
Hedging
reserve
£m
Other
reserve
£m
4.3
–
–
–
4.3
4.3
–
–
–
–
0.7
–
–
–
0.7
0.7
–
–
–
–
–
–
–
–
–
–
–
(0.3)
(0.3)
–
(40.0)
–
(0.1)
–
(40.1)
(40.1)
–
–
–
–
8
8
Profit
and loss
account
£m
74.1
142.5
(0.3)
(34.6)
181.7
181.7
57.6
–
57.6
(34.6)
4.3
0.7
(0.3)
(40.1)
204.7
Total
£m
39.1
142.5
(0.4)
(34.6)
146.6
146.6
57.6
(0.3)
57.3
(34.6)
169.3
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation
The Company financial statements of PZ Cussons Plc Limited have been prepared in accordance with Financial Reporting
Standard 101 ‘Reduced Disclosure Framework’ (FRS 101). The financial statements have been prepared under the historical
cost convention and in accordance with the Companies Act 2006.
As permitted by section 408(3) of the Companies Act 2006, the income statement of the Parent Company is not presented
with these Financial Statements. The retained profit of the Parent Company is shown in the statement of changes in equity.
Details of dividends paid are included in Note 8 of the consolidated financial statements.
The entity satisfies the criteria of being a qualifying entity as defined in FRS 101. Its Financial Statements are consolidated
into the Group Financial Statements of PZ Cussons Plc which are included within this Annual Report. The shareholders of the
Company were notified of the exemptions to be taken by way of an RNS announcement on 4 July 2016 and the shareholders
have not objected to the use of the exemptions taken.
The preparation of Financial Statements in conformity with FRS 101 requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The
areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
financial statements, are disclosed below.
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements,
in accordance with FRS 101:
• Paragraphs 45(b) and 46 to 52 of IFRS 2 ‘Share-based Payment’ (details of the number and weighted average exercise prices
of share options, and how the fair value of goods or services received was determined)
IFRS 7 ‘Financial Instruments: Disclosures’
•
• Paragraphs 91 to 99 of IFRS 13 ‘Fair Value Measurement’ (disclosure of valuation techniques and inputs used for fair value
measurement of assets and liabilities)
• Paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ comparative information requirements in respect of:
(i) paragraph 79(a)(iv) of IAS 1;
(ii) paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’;
(iii)
paragraph 118(e) of IAS 38 ‘Intangible Assets’ (reconciliations between the carrying amount at the beginning and
end of the period)
• The following paragraphs of IAS 1 ‘Presentation of Financial Statements’:
– 10(d) (statement of cash flows);
– 16 (statement of compliance with all IFRS);
– 38A (requirement for minimum of two primary statements, including cash flow statements);
– 38B-D (additional comparative information);
– 111 (cash flow statement information); and
– 134–136 (capital management disclosures)
IAS 7 ‘Statement of Cash Flows’
•
• Paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ (requirement for the
disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective)
• Paragraph 17 of IAS 24 ‘Related Party Disclosures’ (key management compensation)
• The requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or
more members of a group.
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a) New and amended standards adopted by the Group
Details of the impact of new accounting standards effective from 1 June 2018 on the Company are as follows:
•
•
IFRS 15 ‘Revenue from Contracts’ is not applicable to the Company’s financial statements.
IFRS 9 ‘Financial Instruments’ has had no impact on the Company’s financial statements.
b) Standards, amendments and interpretations to existing standards that are not yet effective and have not been
early-adopted by the Group
IFRS 16 ‘Leases’ that is effective from 1 June 2019 is not applicable to the Company’s financial statements.
No other standards, amendments or interpretations that are not yet effective and have not been early-adopted are expected
to have an impact on the Company’s financial statements.
c) Restatement due to prior year adjustment
A presentational adjustment was made in respect of the classification of reserves in relation to the Executive Share
Option Trust (ESOT) reserve. This reserve has now been included in the Statement of Changes in Equity and Balance Sheet
as ‘Other reserve’ given its non-distributable nature.
This has been recognised as a prior year error in accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates
and Errors’ with the financial statements restated accordingly. The impact of the prior year adjustment is shown in the
table below:
31 May 2018
£m
As
previously
reported
Adjustment
to brought
forward
reserves
Adjustment
(in-year
impact) As restated
As
previously
reported
1 June 2017
£m
Adjustment
to brought
forward
reserves As restated
Consolidated Statement of Changes in Equity
Profit and loss account
Other reserves
141.6
–
40.0
(40.0)
0.1
(0.1)
181.7
(40.1)
34.1
–
40.0
(40.0)
74.1
(40.0)
d) Foreign currencies
Assets and liabilities are translated at exchange rates prevailing at the date of the Company Balance Sheet. Exchange gains
or losses are recognised in the profit and loss account. The Company’s functional currency is Sterling as this is the functional
currency of the principal operating environment of the Company. The Company financial statements have been presented in
Sterling and have been rounded to 0.1 of a million.
e) Current tax
The current tax liability/asset directly relates to the actual tax payable/receivable on the Company’s profits and is determined
based on tax laws and regulations in effect at the year end date. Assumptions and judgements are made in applying these
laws to the taxable profits in any given period in order to calculate the tax charge for that period. Where the eventual tax paid
or reclaimed is different to the amounts originally estimated, the difference will be charged or credited to the profit and loss
account in the period in which it is determined.
f) 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 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 accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and interests
in joint ventures, 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.
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
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. Deferred
tax is charged or credited to the Income Statement, except when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset 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 liabilities on a net basis.
g) Financial instruments
Financial assets and financial liabilities are recognised on the Company Balance Sheet when the Company becomes a party to
the contractual provisions of the instrument.
Financial instruments utilised by the Company during the years ended 31 May 2019 and 31 May 2018, together with
information regarding the methods and assumptions used to calculate fair values, can be summarised as follows:
Current asset investments
In accordance with IFRS 9 ‘Financial Instruments’, unlisted investments are held in the Company’s Balance Sheet at cost
because their fair value cannot be measured reliably due to the lack of quoted market prices.
Current assets and liabilities
Financial instruments included within current assets and liabilities (excluding cash and borrowings) are generally short-term in
nature and accordingly their fair values approximate to their book values.
Classification and measurement of financial instruments
The Directors of the Company reviewed and assessed the Company’s existing financial instruments as at 1 June 2018, based
on the facts and circumstances that existed at that date, and concluded that the initial application of IFRS 9 has had no impact
on the Company’s financial instruments as regards their classification and measurement.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model as opposed to an incurred credit
loss model under IAS 39. The expected credit loss model requires the Company to account for expected credit losses and
changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the
financial assets. In the year no loss events have been identified.
Borrowings
The carrying values of cash and short-term borrowings and current asset investments approximate to their fair values because
of the short-term maturity of these instruments.
h) Borrowings
Interest-bearing bank loans and overdrafts are initially recorded at fair value, net of direct issue costs, and are subsequently
measured at amortised cost. Finance charges, including premiums payable on settlement or redemption and direct issue costs,
are accounted for on an accruals basis through the Income Statement using the effective interest method and are added to
the carrying amount of the instrument to the extent they are not settled in the year in which they arise.
i) Intercompany debtors
Intercompany debtors are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest rate method, less provision for impairment based on an expected credit loss model. A provision for impairment of
intercompany debtors is established when there is objective evidence that the Company will not be able to collect all amounts
due according to the original terms of the debt, and is measured as the difference between carrying value and present value
of estimated future cash flows. Subsequent recoveries of previously impaired intercompany debtors are recognised as a credit
to profit.
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j) Intercompany creditors
Intercompany creditors are non-interest-bearing, repayable on demand and are initially stated at fair value and subsequently
measured at amortised cost.
k) 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 the Company after deducting all of
its liabilities.
l) Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
Where the Company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any
directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity
holders until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration
received, net of any directly attributable incremental transaction costs and the related income tax effects, are included in
equity attributable to the Company’s equity holders.
m) Investments in subsidiaries
Investments in subsidiaries are held at cost, less any provision for impairment. Where equity-settled share-based payments
are granted to the employees of subsidiary companies, the fair value of the award is treated as a capital contribution by the
Company and the investment in subsidiaries is adjusted to reflect this capital contribution.
The carrying amounts of the Company’s investments are reviewed annually to determine whether there is any indicator of
impairment. If any such indicator exists, the asset’s recoverable amount is estimated. The recoverable amount is the higher
of an asset’s fair value less costs to sell or its value-in-use.
An impairment loss is recognised whenever the carrying amount of the investment, or its cash-generating unit, exceeds its
recoverable amount. Impairment losses are recognised in the profit and loss account.
An impairment loss is reversed when there is an indication that the impairment may no longer exist and there has been a
change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that
would have been determined if no impairment loss had been recognised.
n) Borrowing costs
Borrowing costs are not capitalised; they are recognised in profit or loss in the period in which they are incurred.
o) Own shares held by ESOT
Transactions of the Company-sponsored Employee Share Option Trust (ESOT) are treated as being those of the Company and
are therefore reflected in the Company’s Financial Statements. In particular, the trust’s purchases and sales of shares in the
Company are debited and credited directly to equity.
p) Dividend distribution
Dividend distributions to the Company’s shareholders are recognised as a liability in the Company’s Financial Statements in
the period in which the dividends are approved by the Company’s shareholders. In respect of interim dividends these are
recognised once paid.
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES CONTINUED
q) Share-based payments
The Company operates a Performance Share Plan and an Executive Share Option Scheme for senior executives, both of which
involve equity-settled share-based payments.
Equity-settled share-based payments under the Executive Share Option Scheme are measured at fair value (excluding the
effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date is expensed
on a straight-line basis over the vesting period. Fair value is measured using the Black-Scholes pricing model. The expected life
used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
The awards under the Performance Share Plan are measured at the fair value at the date of grant and are expensed over the
period to which the performance relates based on the expected outcome of the vesting conditions. At each balance sheet
date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the
revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
The social security contributions payable in connection with the grant of the share options are considered an integral part
of the grant itself, and the charge will be treated as a cash-settled transaction.
r) Critical accounting policies and key sources of estimation uncertainty
Estimates and accounting judgements are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances.
The preparation of Financial Statements under IFRS requires management to make assumptions and estimates about future
events. The resulting accounting estimates will, by definition, differ from the actual results.
In the course of preparing the Company’s Financial Statements, no key source of estimation uncertainty has been identified.
The critical judgements required when preparing the Company’s financial statements are as follows:
Carrying value of investments in subsidiaries
Annually the Directors consider whether there are any indicators of impairment that may suggest that the recoverable
amount of the Company’s investments in subsidiaries is less than their carrying amount. The assessment of impairment
indicators requires management to apply judgement in assessing current and forecast trading performance as well as
assessing the impact of principal risks and uncertainties specific to the investments it holds. Details of the Company’s
investments are set out in Note 4 and in the year to 31 May 2019 the Directors have concluded that no indicators of
impairment existed.
2. DIRECTORS’ EMOLUMENTS
Aggregate amount of Directors’ emoluments
Emoluments of the highest paid Director
2019
£m
1.8
0.7
2018
£m
2.0
0.7
For the year ended 31 May 2019 the highest paid Director received Company pension contributions of £0.1m (2018: £0.1m).
This information can be found in Note 5 of the Consolidated Financial Statements.
Additional information on Directors’ emoluments, including details of gains or losses made on the exercise of share options
in the year and the Directors’ interests in the Group, have been included in the Report on Directors’ Remuneration on
pages 91 to 109.
The Directors are employed by another Group company, PZ Cussons (International) Limited and there are no employees
of the Company.
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3. DIVIDENDS
Amounts recognised as distributions to ordinary shareholders in the year comprise:
Final dividend for the year ended 31 May 2018 of 5.61p (2017: 5.61p) per ordinary share
Interim dividend for the year ended 31 May 2019 of 2.67p (2018: 2.67p) per ordinary share
Proposed final dividend for the year ended 31 May 2019 of 5.61p (2018: 5.61p) per ordinary share
2019
£m
2018
£m
23.5
11.1
34.6
23.5
23.5
11.1
34.6
23.5
The proposed final dividends for the years ended 31 May 2018 and 31 May 2019 were/are subject to approval by shareholders
at the Annual General Meeting and hence have not been included as liabilities in the Financial Statements at 31 May 2018 and
31 May 2019 respectively.
4. INVESTMENTS IN SUBSIDIARIES
Cost at 1 June 2017
Disposals in the year to 31 May 2018
Net book value at 31 May 2018
Cost at 1 June 2018
Net book value at 31 May 2019
Shares
£m
113.8
(10.5)
103.3
103.3
103.3
Loans
£m
3.0
–
3.0
3.0
3.0
Total
£m
116.8
(10.5)
106.3
106.3
106.3
Details of the Company’s direct subsidiaries at 31 May 2019 are shown below. For a full listing of all Company subsidiaries see
Note 30 of the Group’s Consolidated Financial Statements.
Subsidiary companies
Operation
PZ Cussons (Holdings) Limited
PZ Cussons (International) Limited
Minerva SA
Holding company
Provision of services to Group companies
Manufacturing
5. DEBTORS
Amounts owed by Group companies
Other receivables
Incorporated
in
Parent
Company’s
interest
Proportion
of voting
interest
England
England
Greece
100%
100%
100%
100%
100%
100%
2019
£m
266.0
5.6
271.6
2018
£m
293.2
3.7
296.9
£264.4m (2018: £291.1m) of amounts owed by Group companies are interest-bearing and are based on market rates of
interest. £1.6m (2018: £2.1m) of amounts owed by Group companies are non-interest-bearing. All of the balances are
unsecured and are repayable on demand.
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NOTES TO THE COMPANY FINANCIAL STATEMENTS
6. CURRENT ASSET INVESTMENTS
Unlisted
7. CREDITORS
Due within one year
Bank loans and overdrafts
Amounts owed to Group companies
Accruals and deferred income
Due in greater than one year
Bank loans
2019
£m
0.3
2019
£m
–
4.8
0.4
5.2
204.0
204.0
2018
£m
0.3
2018
£m
252.0
5.0
0.4
257.4
–
–
£0.9m (2018: £0.9m) of amounts owed to Group companies are interest-bearing and are based on market rates of interest.
Amounts owed to Group companies are unsecured and have no fixed date of repayment.
Financial instruments and risk management
The Company is exposed to financial risks arising from changes in interest rates. Other financial risks are not considered
significant.
The financial instruments held by the Company do not, either individually or as a class, create a potentially significant exposure
to market, credit, liquidity or cash flow interest rate risk.
(cid:27). CALLED-UP SHARE CAPITAL
Allotted, called up and fully paid:
Ordinary shares:
Ordinary shares of 1p each
Total called-up share capital
2019
2018
Number
000
Amount
£m
Number
000
Amount
£m
428,725
428,725
4.3
4.3
428,725
428,725
4.3
4.3
9. EMPLOYEE SHARE OPTION TRUST
Included within retained earnings is the Employee Share Option Trust (ESOT).
The ESOT purchases shares to fund the Executive Share Option Scheme and the Performance Share Plan, details of which
are provided in the Report on Directors’ Remuneration. At 31 May 2019, the trust held 10,384,591 (2018: 10,415,400) ordinary
shares with a book value of £40.1m (2018: £40.1m). The market value of these shares as at 31 May 2019 was £21.1m (2018:
£24.8m). During the year the ESOT purchased nil shares of the Company at a cost of £nil (2018: 116,489 at a cost of £0.3m).
The trust has waived any entitlement to dividends in respect of all the shares it holds.
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(cid:20)(cid:19). SHARE-BASED PAYMENTS
Share-based payments are made to senior executives and other selected key individuals throughout the Company. These are
made via the Performance Share Plan and the Executive Share Option Scheme. The total credit in the year relating to the two
schemes was £nil (2018: £nil).
Performance Share Plan
The Company operates a Performance Share Plan (PSP) for main Board Executive Directors and certain key senior executives.
The extent to which such awards vest will depend upon the Group’s performance over the three year period following the
award date. The Group’s performance is measured by reference to the growth of adjusted earnings per share over a single
three year period. The fair value of the award is taken as the share price at the date of grant.
In the current year, 1,620,898 awards were made under the PSP scheme (2018: total awards of 1,233,868). The number of
shares exercised in the year was nil (2018: nil) at a market value of £nil (2018: £nil) based on the market price at the date
of exercise. In addition the number of lapsed share options totalled 1,287,692 (2018: 606,297). The number of awards
outstanding but not yet exercisable is 3,808,909 at 31 May 2019 (2018: 3,142,455). The total credit included in operating
profit in relation to these awards was £nil (2018: £nil).
11. CONTINGENT LIABILITIES AND GUARANTEES
The Company is a guarantor to a borrowing facility relating to loans provided to certain Group UK entities. The amount
borrowed under this agreement at 31 May 2019 was £204.0m (2018: £252.0m).
12. EVENTS AFTER THE REPORTING PERIOD
There were no material events after the balance sheet date.
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197
Other
information
Further statutory and other information
Shareholder information and contacts
199
200
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FURTHER STATUTORY AND OTHER INFORMATION
HEALTH & SAFETY
PZ Cussons Plc aims to maintain a safe workplace at all locations in which it operates. We continue to ensure that our
business activities are undertaken in a responsible manner and in accordance with the relevant statutory legislation, and
that employees at all levels participate in the development, promotion and maintenance of a safe and healthy working
environment for employees, visitors and the public. The Company employs health & safety specialists and, where appropriate,
provides on-site medical facilities for employees.
The Company continues to monitor and increase standards of health & safety at work through risk assessment, safety audits,
formal incident investigation and training. Our investment in plant and equipment enables us to modernise designs and
operate safer and more efficient processes.
EMPLOYMENT AND STAFF DEVELOPMENT
As an international group, and particularly bearing in mind our operations in developing countries, we focus resources on the
employment and development of local staff with the intention of assisting both our operations in those countries and the
local community. Employees are involved at all levels of decision-making throughout the Group with effective communication
via regular consultation groups and briefings. Training is vital to ensuring continuous improvement in performance and over
the past year employees of all grades have received training through a wide range of courses.
The employment policies of the Group embody the principles of equal opportunity, training and development and rewards
appropriate to local markets, and are tailored to meet the needs of its businesses and the areas in which they operate. This
includes procedures to support the Group’s policy that disabled persons shall be considered for appropriate employment and
subsequent training and career development. The Company continues to share valuable experience and best practice within
the Group through employee secondment.
COMMUNITY AND CHARITY
We support a range of charitable causes, both in the UK and overseas, mainly through a UK-based shareholding trust,
with additional contributions made through staff time and gifts in kind. PZ Cussons Plc continues to provide assistance and
donations to significant global fundraising initiatives and recognises its responsibility to the communities in which it operates.
We are committed to establishing and maintaining strong relationships with community groups, particularly in developing markets.
AUDITOR
Deloitte LLP has signified its willingness to continue in office and a resolution for its appointment as External Auditor will be
proposed at the forthcoming Annual General Meeting.
DIRECTORS’ REPORT OF PZ CUSSONS PLC
For the purposes of section 234 of the Companies Act 2006, the Report of the Directors of PZ Cussons Plc for the year ended
31 May 2019 comprises this page and the information contained in the Report of the Directors on pages 110 to 115.
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PZ CUSSONS PLC ANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSOTHER INFORMATION SHAREHOLDER INFORMATION AND CONTACTS
ANNUAL GENERAL MEETING
The Annual General Meeting will be held at
10.30am on Wednesday 25 September 2019 at:
PZ Cussons Plc
Manchester Business Park
3500 Aviator Way
Manchester
M22 5TG
FINANCIAL CALENDAR
The key dates for PZ Cussons’ financial calendar
are available on our website: www.pzcussons.com
REGISTERED OFFICE
PZ Cussons Plc
Manchester Business Park
3500 Aviator Way
Manchester
M22 5TG
Tel: 0161 435 1000
www.pzcussons.com
REGISTERED NUMBER
Company registration number – 00019457
REGISTRARS
Computershare Investor Services Plc
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
www.computershare.com
COMPANY SECRETARY
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Disclaimer
The purpose of this document is to provide information to
the members of PZ Cussons Plc. This document contains
certain statements that are forward-looking statements.
These statements appear in a number of places throughout
this document and include statements regarding our
intentions, beliefs or current expectations and those of our
officers, Directors and employees concerning, among other
things, our results of operations, financial condition, liquidity,
prospects, growth, strategies and the business we operate.
By their nature, these statements involve uncertainty since
future events and circumstances can cause results and
developments to differ materially from those anticipated.
The forward-looking statements reflect knowledge and
information available at the date of preparation of this
document and unless otherwise required by the applicable
law the Company undertakes no obligation to update or revise
these forward-looking statements. Nothing in this document
should be construed as a profit forecast. The Company and
its Directors accept no liability to third parties in respect of
this document save as would arise under English law.
This report has been printed in the UK on Heaven 42 paper.
This is an environmentally responsible paper manufactured
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If you have finished reading this report and no longer wish
to retain it, please pass it on to other interested readers, or
recycle it. Thank you.
This Annual Report is available at
www.pzcussons.com
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PZ Cussons
Manchester Business Park
3500 Aviator Way
M22 5TG
Tel: 0161 435 1000
www.pzcussons.com