·2005ANNUAL REPORT &ACCOUNTS

PATERSON ZOCHONISINDUSTRIES PLCRC693

PATERSONZOCHONIS PLC: GROUP OF COMPANIES.Head office: Cussons International Ltd. Cussons House

Bird Hall Lane, stockport, Xk3 OXN UK.Associate in Africa: Cameroun, Ghana, KenyaEurope, America, South East Asia, China and Austrialia

PATERSON rocHONIS INDUSTRIES PLC45/47 Town Planning Way, lIupeju Industrial Eastate,P.M.B 21132, Ikeja. Tel: 01-4973460-8, Fax: 4962076

WeLCOME TO OUR WORlD

OVENUS

Experience our world;a world of trust and total care,

a world of innovative research and development

to ~hal~enge tomorrow's frontiers,a world where quality is a tradition

and every need is met,Welcome to our range of Beauty, Health,

Baby and Fabric CARE.

WELCOME .... TO OUR WORLD!... cvumU~~~

-.....==============~====

Ihareholder'S Admission Form

Please admit shareholder ; .

or in his/her place Mr. /Mrs. /Miss .

to represent him/her at the 57th ANNUAL GENERAL MEETING of 'thisCompany to be held at 10.00 a.m. on Thursday, 22 September, 2005 at NiconHilton Hotel, Abuja.

THIS FORM SHOULD BE COMPLETED, TORN OFF, AND PRODUCED BYTHE SHAREHOLDER OR HIS/HER NOMINEE IN ORDER TO GAINENTRANCE TO THE MEETING.

Please see also the proxy form on page 47.

. R. A. AladeCompany Secretary

NOTES

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Ultra Modern/lntergrated Factory; (Detergents, Toiletries andHousehold products) Ikorodu, Lagos State, Nigeria.

C®] PATERSON ZOCHONIS INDUSTRIES PLC '45/47, Town Planning Way, lIupeju Industrial Estate, R M. B. 21132, Ikeja. Tel: 01-4973460-8. Fax: 4962076

IANNUAL REPORT AND ACCOUNTS

FOR THE YEAR ENDED 31 MAY, 2005

I~ ontents

Page

Board of directors, officers etc.

4

Results at a glance

5

Notice of meeting

6

Chairman's statement

10

Report of the directors

12

Report of the auditors

16

Report of the audit committee

17

Statement of accounting policies

18

Consolidated profit and loss account

20

Consolidated balance sheet

21

Statement of cash flows

22

Performance indicators

25

Notes to the accounts

26

Statement of value added

37

Group five-year financial summary

38

Shareholders' information

40

Some major distributors

42

Proxy form (detachable)

47

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ICOMPANYREGISTRATION NO. RC 693: oard of Directors, Officers, et"c.

Directors

Mallam Adamu Ciroma

P. Varelas (Greek)

B. Oyelola

K. Theodorakopoulos (Greek)

J. O. Akande

C. Giannopoulos (Greek)

A. Loizos (Greek)

E. Mgbeahuru

R. Murphy (British)

K. Rodgers (British)D. O. Sodeinde

Company SecretflryR. A. Alade

Registered Office

45/47, Town Planning Way,Ilupeju Industrial Estate,P.M.B. 21132,Ikeja.

Registrar and Transfer Office

First Registrar Nigeria LimitedPlot 2, Abebe Village Road,Iganmu Complex,P.M.B. 12692,Lagos.

Auditors

-Akintola Williams Deloitte(Chartered Accountants)235, Ikorodu Road,Ilupeju,Lagos.

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Chairman, CFR

Chief Executive

D~uty Chief Executive

Managing

Appointed 1 June 2005

- Appointed 1 November 2004

lesults at a Glance

20052004Increase/N'OOO

N'OOO(Decrease).%

Turnover

34,134,60927,995,03521.9/

Profit before taxation4,379,9523,303,66232.6

Profit after taxation

3,375,1342,087,35461.7

--

Proposed dividend1,633,5681,306,85425.0

Retained profit for the year

1,603,605553,182189.9

At year end:Share capital

1,089,045871,23625.0

Shareholders' funds

20,304,69018,701,0858.6

Per 50k share data:Based on 2,178,090,265 (2004: 1,742,472,212)ordinary shares of 50k each:

Earnings per share

N1.49N1.19

Dividend per share

NO.75NO.75

-. Net assets per share

N9.32N10.73

Dividend cover (times)

2.071.60

Stock exchange quotation:As at 31 May

N12.51N16.01

Number of employees

5,2655,409

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lotice of Meeting

NOTICE ISHEREBY GIVEN that the 57th Annual General Meeting of Paterson ZochonisIndustries PIc will be held at Nicon Hilton Hotel, Abuja on Thursday, 22 September, 2005at 10.00 a.m. for the following purposes: .

Ordinary Business

1. To receive the accounts for the year ended 31 May, 2005 andthe reports of the directors and auditors thereon.To declare a dividend.

To consider a resolution to re-elect

Mallam Adamu Ciroma, CFR, a director retiring byrotation who is 70 years old, special notice having been givento the company pursuant to section 256 of the Companiesand Allied Matters Act, 1990.

4. To approve the remuneration of the directors.5.. To authorisethe directors to fix the remuneration of the auditors.

6.

2.

3. (a) To re-elect directors.

(b)

To elect members of the audit committee.

(resolution 1)

(resolution 2)

(resolutions 3 - 6)

(resolution 7)

(resolution 8)

(resolution 9)

(resolution 10)

Special Business

To consider and, if thought fit, to pass the following resolutions which will be'proposedas ordinary resolutions:

1. . "That the authorised share capital of the company be and it is hereby increased to N6.5billion by the creation of additional 10billion ordinary shares of 50 kobo each rankingin all respects pari passu with the existing shares of the company" (resolution 11)

2. "That the directors be and are hereby authorised to issue up to 500 million ordinaryshares of 50 kobo each to the members of.the company by way of a rights issue at aprice and ratio to be determined by the directors and cleared with the Securities andExchange Commission; the new shares will rank in all respects pari passu with theexisting shares of the company and that any shares not taken up by the existingshareholders within a stipulated period be offered for sale to other interestedshareholders of the company" (resolution 12)

BY ORDER OF THE BOARD

R. A. Alade

Company Secretary

45/47, Town Planning Way,Ilupeju Industrial Estate,Lagos18 July, 2005

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lotice of MeetingContinued

Proxy

A member of the company entitled to attend and vote at the meeti~g is entitled to appointa proxy to attend and vote in his/he-r place and such proxy need not be a member of thecompany. A detachable proxy form is on page 47. Executed proxy forms should bedeposited at the registered office of the company, 45/47, Town Planning Way, IlupejuIndustrial Estate, P.M:B. 21132, Ikeja not later than 10.00 a.m. on Tuesday, 20 September,2005.

Dividend Warrants

If the payment of the dividend is approved, warrants will be posted on 4 October, 2005to shareholders whose names appear on the Register of Members on 2 September, 2005.

Closure of Register

The Register of Members and Transfer Book will be closed from Monday, 5 September toFriday, 9 September, 2005 (both dates inclusive) for the purpose of updating the Registerof Members.

Audit Committee

In accordance with Section 359(5) of the Companies and Allied Matters Act 1990, anymember may nominate a shareholder as a member of the Audit Committee, by givingnotice in writing of such nomination to r~ach the Company Secretary at least 21 daysbefore the Annual General Meeting.

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. ~ eds.cotton 801.t feeJih other ne.••.• .:g every m

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~SOFTDRYTOPSHEE~Gives cotton soft feeling

iJ INTRAFIL SUB-LAYER:Helps gra'1' wetnessfast~r awayfrom the surface, making youteeldrierq4icker '

f) PROTECTIVE WINGS:Help prevent leaks and keep pad inplace

'~J SIDE CHANNELS:Help guide wetness away from the.sides to protect against§igVeak~ge

Ihairman's Statement

Businessenvironment

Results

Products

Dividend

Board

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Fellow shareholders, Distinguished Ladies and Gentlemen.

I have the honour and pleasure in welcoming you to the 57th Annual General Meeting of our companyat Abuja today the 22nd September, 2005 and to present to you the Annual Report and Financial

Statements for the year ended 31st May, 2005. I am also pleased to announce that your company hasexperienced another year of sales and profit growth, as well as wealth creation for its shareholders.

The Nigerian economy's key sector - oil and gas showed good performance during the yearunder review raising currency reserves to record height. With the present oil price the future macroeconomic indicators appear positive.

The encouraging scenario for the Nigerian econom)' has been further boosted by the recent promise of

debt relief by the Paris Club of creditors. Hopefully the Federal government will now be able to channelthe proceeds from oil and gas to other areas that will improve tfie ailing infrastructure. The investmentwilf no doubt filter down to the consumers and provide the needed boost to their purchasing power.

The state of our roads and the railway network coupled with epileptic power supply present seriousimpediments to the success of manufacturing companies such as ourselves, and require added costs tocounteract them. These costs if not addressed will eventually result in Nigerian manufacturersbecoming uncompetitive.

However, we applaud Government efforts to put the economy on a sound footing as evidenced by theeconomic reform agenda and share the belief that these successful reforms will aid growth anddevelopment of the Nigeria economy.

The high oil prices had adversely affected the cost of many of the oil based raw materials used inmanufacturing our products. As usual with large increases in cost which cannot immediately be passedon to the consumers, this will inevitably be to the short-term detriment of the company's profit margins.

This increase in the cost of importation was exacerbated by the scarcity of some raw materials due tothe large demand by the emergent Chinese economy.

The Naira has been stable during the year, fluctuating only slightly around the N 132.8 level to the US$.

Despite the difficulties mentioned above I am pleased to announce that the company achievedsatisfactory growth in the year under review. Sales grew by 22% from N28.0 billion to N34.1 billionand pre tax profits grew by 33% from N3.3 billion to N4.4 billion.

The tax liability of the company for.the year is N1.0 billion compared with Nl.2 billion for last year.The 17% reduction is due to the Pioneer Status granted to HPZ Limited, a company in which we have75% equity. Accordingly, HPZ's profit of over N500 million will not be taxed and this has resulted inhigher profit attributaDle to members.

Despite strong competition from other companies within the industry and the low qualityimpor~s fromparticularly the Far East, our major brands maintained their 'pride of place' as market leaders.

In the soap sector Joy and Premier continue to maintain their leadership position for outstandingquality and value for money.

We launched Elephant Ultra - a premium white Detergent powder during the year and it has shownremarkable progress in the market. Furthermore production of soaps and detergents achieved a recordlevel during the year.

The beauty-care range has been enhanced by the launch of a Joy hair relaxer product to complementthe existing Venus hair-care range.

The Haier- Thermocool business unit has expanded its .product range to cover the full spectrum ofrefrigerators and freezers of different sizes with modern features. The range can now supply productsto suit all pockets. It has also moved into the electronics market supplying televisions, microwavecookers and DVD players. Haier-Thermocool has had spectacular growth in sales this year and is nowa leading player in its market.

Based on the results for the year ended 31st May 2005 the Board is pleased to recommend to theshareholders at this Annual General Meeting a dividend payment of N1.63 billion representing 75kobo per share. This is an increase in dividend of 25% over last year's figure of Nl.31 billion. Thedividend will be paid subject to the deduction of withholding tax at the appropriate rate.

During the year, the following Board changes took place:

Mr. P. Plevin resigned from the Board to return to the UK after 18 years service with the PZ family ofcompanies in Africa.

Ihairman'S Statement Continued

Staff

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Also Mr. E. O. Ola resigned as a director following his retirement from the company after 32 years ofwhich 12 were spent on the Board.

On your behalf I would like to wish them well in these new chapters of their lives and to thank themboth for the long years of dedicated service to the company.

It is my pleasure to welcome Mr. K. Rodgers to the Board in the position of Finance Director and Mr.J. O. Akande in position of Human Resources Director.

The staff remain one of our greatest assets and our excellent results this year could not have beenachieved without their continued diligence and support. I wish to thank them for their dedication toduty.

A long term staff development programme has been launched, with the clear objectives of improvingthe quality of our management resource, both from within and by external recruitment.

The programme will identify and give career planning opportunities to individuals who display ourvalues and possess the clear ability and potential to progress further.

The programme is set in the context of our commitment to establishing a working environment whichis based on transparent meritocracy and involves excellent people in determining the future of thebusiness.

Furthermore, we are beginning to see the benefits of the innovations brought about by "Project Sunrise"which was introduced three years ago. This has resulted in improved productivity and sustainedmotivation of our staff as evidenced by reduced absenteeism. The entire workforce is now involved inthe application of a variety of world class manufacturing techniques.

The success of this programme has encouraged more widespread change in the business. Throughout

our company, our people are being trained and empowered to confront positively a variety of keyissues - for example, the need to find new approaches to the changing economic circumstances of ourconsumers, the increasing competition in the sectors in which we operate and the globalisation of trade.

In part, these are being addressed through the creation of new Strategic Business Units which arebringing strategic clarity and focus to our core sectors. And largely by the empowerment anddevelopment of the staff, as they gain clear responsibility for the objectives and full accountability fortheir performance ..

Future The outlook for the company is inherently linked to the outlook for the Nigerian economy and PZ iswell positioned to take advantage of new opportunities and market growth.

There are two specific events for the immediate future that need highlighting; they are:

Nutricima Limited which is a subsidiary of PZ Cussons Plc UK, has started to manufacture'milkproducts in Nigeria using the brand name of'Nunu'. PZ Industries has been appointed sole distributorsfor these products and will derive a fee income for its services. Sales commenced in June and are

.meeting expectations.

PZ Industries is in the process of committing to significant levels of capital expenditure. Thisinvestment will be made to consolidate the company's infrastructure and secure its manufacturing anddistribution activities for the foreseeable future.

Appreciation Finally, sentiments of gratitude are due to some other significant groups of people:

To our loyal distributors who have worked tirelessly in promoting our brands in the market.

To the million of Nigerian consumers who put their trust in our products every day.

To our faithful shareholders who have remained steadfastly with us.

And most especially to my colleagues on the Board for their strategic guidance. We thank all thesepeople for their support. .'.

I look forward to the next year and to work with all of you to ensure the growth and stability o( ourcompany.

Mallam Adamu Ciroma, CFRChairman

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leport of the Directors FOR THE YEAR ENDED 31 MAY, 2005

The Directors present their report together with the group financial statements as at 31May, 2005.

Accounts,results andappropriations

Group profit after taxation and minority interest wasLess: Appropriations:

Dividend proposed

Retained profit transferred to general reserve

N'OOO

3,237,173

1,633,568

1,603,605

(Appointed 1 June 2005)

(Resigned 31 May 2005)(Appointed 1 November 2004)(Resigned 1 November 2004)

Board of directors

The Directors recommend to shareholders the declaration of a dividend of N 1,633,567,699

(2004 - Nl,306,854,159), that is, 75 kobo per share (2004 -75 kobo per share) to be paidon 4 October, 2005.

The following persons served as directors during the year:Mallam Adamu Ciroma - Chairman

P. Varelas (Greek) - Chief ExecutiveB. Oyelola - Deputy Chief ExecutiveK. Theodorakopoulos (Greek) - ManagingC. Giannopoulos (Greek)J. O. AkandeA. Loizos (Greek)

E. Mg~eahuruR. Murphy (British)E. O. Ola

K. Rodgers (British)P. Plevin (British)D. O. Sodeinde

Since the last annual general meeting, Messrs E. O. Ola and P. Plevin resigned from theboard. Messrs J. O. Akande and K. Rodgers who were appointed to the board since thelast annual general meeting retire at this meeting and offer themselves for election.

In accordance with the articles of association, Mallam A. Ciroma and Messrs A. Loizosand P. Varelas retire by rotation at this annual general meeting and, being eligible, .offerthemselves for re-election.

Directors' interests The interest of each director in the shares of the company as recorded in the register ofmembers for the purpose of section 275 of the Companies and Allied Matters Act, 1990was as follows:

Number of Shares31 May

Mallam Adamu Ciroma

Mr. E. MgbeahuruMr. B. OyelolaMr. D. O. SodeindeMr. J. O. Akande

2005

2,466,90187,434

406,96081,72760,000

2004

1,973,52269,934

232,16861,382

No changes were made in the above holdings up to 18 July, 2005.

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Iport of the DirectorsContinued

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fDirectors'responsibilities

Majorshareholdings

No director has notified the company of any indirect interest in the shares of the company,and the company's registers of debenture holders do not disclose any director's interest.No director disclosed any declarable interest in any contract with the company during theyear in pursuance of section 277 of the Act. .

Record of Directors Attendance

In accordance with section 258(2) of the Companies and Allied Matters Act, 1990 therecord of the directors attendance at directors' meeting during the year is available forinspection at the annual general meeting.

The directors are responsible for the preparation of financial statements which give atrue and fair view of the state of affairs of the group at the end of each financial year, andof the profit or loss for that period, and comply with the Companies and Allied MattersAct, 1990. In doing so they ensure that:

proper accounting records are maintained;internal control procedures are instituted which, as far as is reasonably possible;

. safeguard the assets and prevent and detect fraud and other irregularities;applicable accounting standards are followed;suitable accounting policies are adopted and consistently applied;judgements and estimates made are reasonable and prudent; andthe going concern basis is used, unless it is inappropriate to presume that thecompany will continue in business.

PZ Cussons PIc, Manchester held 1,288,814,972 shares which is 59.17% of the paid-up'capital at 31 May, 2005. No other shareholder held more than 10% of thecompany's paid-up capital as at that date. This position remained unchanged up to 18July, 2005.·

The issued share capital of 2,178,090,265 shares of 50 kobo each by the company is heldas follows:I'

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Analysis of. shareholdings

Range1- 500

501 - 1,0001,001 - 5,0005,001 - 50,000

50,001 - 100,000100,001 - 500,000500,001 - 1,000,000Above 1,000,000 .

No. ofShareholders

12,3347,858

21,12027,244

1,0708268071

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Unit of

Holdings

3,270,6855,923,677

52,718,394338,523,352

74,322,373158,080,20857,246,407

1,488,005,169

2,178,090,265

Percentage ofHoldings

0.150.272.42

15.543.417.262.63

68.32

100.00

No individual shareholder other than PZ Cussons PIc Manchester held more than 5% of

the issued share capital of the company. The poSlitionremained unchanged up to 18July,2005 ..

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Iport of the DirectorsContinued.

Fixed assets

Donations andcharitable gifts

Movements in fixed assets during the year are shown in note 5 on pages 27 to 29. In theopinion of the directors, the market value of the group's properties is not lower than thevalue shown in the financial statements.

No donations were made during the year under review.

Group's distributors The group has 26 distribution depots across the country with over 1,000 distributors. Themajor distributors are listed on pages 42 to 44.

Suppliers

Research anddevelopment

Employment andemployees

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The group obtains its requirements from both local and overseas suppliers. The principaloverseas suppliers are associated companies in the PZ Cussons Plc group. The transactionsare carried out at arm's length.

The group's research and development efforts, supported through licensing andtechnical services agreements with overseas associated companies in the PZ Cussons Plcgroup, are designed to ensure a constant programme of product improvement and newproduct introduction.

Employment of disabled personsThe group's policy provides for due priority to be accorded to disabled persons inrecruitment for any available position where their incapacity will not expose them todanger or serious disadvantages. Employees who become disabled in the course of theiremployment are retained and redeployed wherever possible within the context of theabove policy. However, the group had no registered disabled person in its employmentduring the year under review.

Health, safety and welfare

The group maintains a staff clinic as well as subsidised canteen facilities at each of thefactories in Aba, Ikorodu and Ilupeju for its employees. Full medical services are given atthese clinics and these are supplemented with public and private hospital servicesretained for the use of employees in all business locations in Nigeria. It is a basic policyof the group to maintain a safe working environment at all times in each factory or 10.cationand measures to ensure the achievement of this objective are under constant review.

Employee involvement and training

The group is committed to keeping employees fully informed as much as possibleregarding the group's performance and progress through regular briefings and meetings.Their views are sought wherever practicable on matters which particularly affect them asemployees. The group believes that the professional and technical expertise of itsmanagers and staff constitute a major asset, and investment in developing such skillscontinues to receive constant attention. The group's skill-base has been steadily expandingwith the range of training provided including short courses, and this has broadened theopportunities for career development within the group.

leport of the Directors Continued

Auditors

Incentive schemes designed to meet the circumstances of each individual are implementedwherever appropriate and some of these schemes include bonus and internationalpostings under an exchange programme with associated foreign companies.

Akintola Williams Deloitte having indicated their willingness will continue in office asthe company's Auditors in accordance with Section 357(2) of the Companies and AlliedMatters Act 1990. A resolution will be proposed authorising the directors to fix theirremuneration.

BY ORDER OF THE BOARD

R. A. ALADE

Company Secretary

Lagos, Nigeria18 July, 2005

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