Contents. Chairman & Group CEO s Review. Tribute. Core market review

Transcription

1 Annual Report 2014

2 Contents Performance 04 summary Financial 05 summary Chairman & Group CEO s Review Core market review Tribute

3 The outlook for 2015 Corporate 23 Governance Methven Group Directors General disclosures Directory Financial statements

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5 As an island nation far from the rest of the world, New Zealand has a unique relationship with water. Water is vital to life and our people understand its power to calm, refresh and invigorate.

6 Performance summary FOR THE YEAR ENDED 31 MARCH 2014 Group financial performance year on year Net profit after tax (NPAT) down 8.6% from $5.2 million to $4.7 million. NPAT excluding significant items 1 was down 1.8% from $5.5 million to $5.4 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) excluding significant items 1 decreased 7.1 % from $12.9 million to $12.0 million. Sales revenue increased marginally overall but was down 1.7% from $98.4 million to $96.7 million after conversion to NZ dollars. Methven Annual Report Key components Net Debt 3 of $14.5 million reduced by 16.1% from March Partially imputed final dividend of 4.5 cps to be paid on 30 June 2014, in line with last year s final dividend. New Zealand sales of $35.1 million were slightly above the previous year s $34.9 million but below our expectation, negatively impacted by key customer stock reduction programmes. Our United Kingdom division stabilised, delivering an EBITDA 2 contribution of $1.1 million, up from breakeven last year mainly due to cost rationalisation, revenue showing slight growth. Australian sales grew 5.8%, up from A$33.1 million to A$35.0 million, but significant margin decline was caused by a combination of currency weakness, competitive pricing pressure and supply chain/logistics cost increases. 59% of the top Australian retailers voted Methven best supplier for showers. New Satinjet Feel the Difference campaign delivered 80% customer conversion from trial in New Zealand and is now being rolled out to other markets. Further international recognition of our products with two Australian International Design awards and recognition in the German Design Awards Purchase of Chinese premium tapware supplier/manufacturer Invention Sanitary remains on track for completion on 30 June 2014 and is expected to deliver US$2 million NPAT per annum from September Key personnel appointments were progressed to enhance our ability to meet future consumer needs and drive profitable top-line growth. Strong cashflow was generated to fund dividends and growth.

7 5Methven Annual Report 2014 Financial summary FOR THE YEAR ENDED 31 MARCH 2014 NZ $ Change TRADING RESULTS Sales revenue 96,720 98, % EBITDA 1 12,002 12, % Net profit after tax 4,708 5, % Financial position at year end Total equity 42,865 45,280 Total assets 79,221 84,381 Intangible assets 33,592 33,025 Net cash/(debt) (14,450) (17,222) Capital expenditure 1,150 2,092 Equity ratio 74.8% 72.4% Shareholder statistics Number of shares 66,606,265 66,606,265 Dividend per share 9.50c 9.00c Share price at year end $1.15 $1.29 Earnings per share 7.1c 7.7c Net dividend yield 8.3% 7.0% Gross dividend yield 9.7% 8.2% Net tangible asset value per share 13.9c 18.4c 1 Significant items are merger and acquisition costs relating to the forthcoming acquisition of Invention Sanitary. Refer to note 5 of the financial statements. 2 EBITDA excludes impairment, non-operating foreign exchange gains/losses and inter-segmental charges. Refer to note 5 of the financial statements. 3 Net debt is interest bearing liabilities less cash and cash equivalents.

8 CHAIRMAN AND GROUP CEO S REVIEW Positive outlook despite disappointing results Methven Annual Report Our trading performance through has been disappointing, with revenue, EBITDA and NPAT below previous year. This reinforces the decision to be more consumer and brand driven and the importance of translating our technology and product advantages into profitable top-line sales growth in the coming year. NPAT for the year ended 31 March 2014 was down 8.6% from $5.2 million to $4.7 million and, excluding significant items 1, down 1.8% from $5.5 million to $5.4 million. We achieved modest revenue growth in all key markets which translated to a 1.7% decline in NZ dollar terms. Margin pressure, particularly in Australia, was the major contributor to our fifth year of profit decline. This is not in line with our capability or expectations for shareholders and actions are underway to address issues that have been identified. The customer de-stocking that was reported in January and March highlighted our need for visibility of our customers (resellers) sell through and stock levels to ensure a better understanding of true consumer demand. Initiatives to improve this visibility and forge a closer value adding partnership with our channel partners have become a key area of focus and will create mutual benefits. Our confidence in underlying demand is improving, although there is also a reflection that a return to investment post GFC was too slow and has impacted our short term revenue and earnings. The decrease in debt of 16.1% from $17.2 million to $14.5 million and cashflow strength highlights our sound control environment ensuring that the business remains comfortably within its banking covenants whilst maintaining reasonable levels of dividends to shareholders. We ve taken action to simplify the Group operating structure to further improve working capital management and market focus, and we ve added new leadership to the Group that will increase our customer and consumer focus and address weakness in our brand communication, consumer research, online presence and supply chain. In January 2014, we welcomed David Banfield as our new Group Chief Executive Officer. David has significant international experience and has quickly grasped the opportunities for the Group in all markets and is busy realising these with the team. The planned purchase of our Chinese production partner Invention Sanitary is on track for completion on 30 June 2014 and we re confident that this will enhance our cost competitiveness, give us a more flexible supply chain, and deliver significant earnings growth. Our Satinjet Feel the Difference campaign in New Zealand resulted in 80% sales conversion ratios from consumer trials, proving the appeal of our latest generation of Satinjet technology as a key differentiator with unrealised future potential.

9 Our current performance is not in line with our capability or expectations for shareholders actions are underway to address this.

10 The decrease in debt of 16.1% to $14.5 million and cashflow strength highlights our sound control environment.

11 9Methven Annual Report 2014 We were also delighted by the international recognition of our products with two recent Australian International Design awards (Gold and Silver) and recognition in the German Design Awards. Our NZ manufacturing capability received a further boost when research showed that purchase intention with Australian consumers ranked New Zealand designed and made product second in the world after Australia. Investment has been committed to the final phase of our next breakthrough showering system development which is now on-track for launch in all our key markets early We are aware of the importance of translating our technology and product advantages into profitable top-line sales growth. This is the absolute focus of your board and your re-invigorated management team. TRADING RESULTS NZ $ Change Sales revenue 96,720 98, % EBITDA 2 11,273 12, % Net profit after tax 4,708 5, % Excluding significant items EBITDA 1 12,002 12, % Net profit after tax 1 5,366 5, % 20 GROUP EBITDA GROUP REVENUE $NZ million 10 $NZ million EBITDA 2 FY14 SALES REVENUE FY14 NEW ZEALAND AUSTRALIA UNITED KINGDOM OTHER

12 Delivering sustainable dividends Despite the challenges experienced in the second half of the financial year, strong cashflow and Net Debt 3 reduction was maintained and we remain comfortably within bank facility limits and covenants. This is forecast to remain so after the settlement of the Invention Sanitary acquisition at the end of June Your directors remain confident in the soundness and prospects of the underlying business and in the ability of the Company to continue to pay sustainable dividends over the long term. Continuing the Company s proud dividend history, the directors are pleased to declare a Final Dividend of 4.5 cents per share, payable on 30 June Methven Annual Report COVENANTS AND CASHFLOW Interest cover (EBITA/interest) - not less than 2.5 Gearing ratio (net debt/ebita) - not to exceed x 8.7x 1.5x 1.7x DIVIDENDS SINCE NZX LISTING Dividend NZD million cps 5.7 cps 6.0 cps 6.3 cps 5.5 cps 5.5 cps 5.5 cps 5.5 cps 4.5 cps 4.5 cps 5.5 cps 4.5 cps 4.5 cps 5.0 cps 4.5 cps FY07 HY08 FY08 HY09 FY09 HY10 FY10 HY11 FY11 HY12 FY12 HY13 FY13 HY14 FY14

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14 Core market review UNITED KINGDOM United Kingdom Sales FY14 Solid underlying business performance GB Sales revenue 11,886 11,757 EBITDA EBITDA % of revenue 4.9% 0.1% SHOWERS TAPWARE VALVES Methven Annual Report 2014 Sales revenue increased 1.1% from 11.8 million to 11.9 million. EBITDA 2 was up from break even to 0.6 million profit. Operating costs were down 13.5% following business simplification initiatives. Second half sales and EBITDA 2 were up 4.0% and 94.9% respectively on the first half which was encouraging. 12 CHINA Brand building for future growth CN Sales revenue 2,079 1,661 EBITDA 2 (1,028) (1,675) EBITDA % of revenue -49.4% % Sales revenue increased 25.2% from 1.7 million to 2.1 million. EBTIDA 2 improved, from a 1.7 million loss to a 1.0 million loss as modest investment in the China market continues. Focusing on prestigious hotels and apartments in Guangzhou and Shanghai. CNY 1,000,000 EBITDA loss translates to approximately NZD$200,000

15 NEW ZEALAND Customer de-stocks and small share loss impacts performance New Zealand Sales FY14 NZ $ Sales revenue 35,054 34,896 EBITDA excluding significant items 1 7,679 8,477 EBITDA % of revenue 21.9% 24.3% SHOWERS TAPWARE VALVES Sales revenue was slightly up on the prior year with the timing of the expected lift from Christchurch rebuilding lagging behind expectation. Key customers destocking programmes impacted our revenue for the second half of the year. Satinjet shower sales were up 22% year on year due to successful Feel the Satinjet Difference campaigns. Market share loss was due to new product development delays and is expected to be recovered in FY2015. EBITDA excluding significant items 1 decreased 9.4% from $8.5 million to $7.7 million, due to increased investment in research & development, marketing and enhancing organisational capability. 13 AUSTRALIA Sales growth but profitability impacted by margin pressure and currency weakness Australia Sales FY14 Methven Annual Report 2014 AU $ SHOWERS TAPWARE VALVES Sales revenue 35,009 33,078 EBITDA 2 2,945 3,780 EBITDA % of revenue 8.4% 11.4% Sales revenue increased 5.8% from A$33.1 million to A$35.0 million. The significant margin decline was due to the combined effect of currency weakness, sales mix and price pressures, along with one-off supply chain issues. EBITDA 2 was down 22.1% from A$3.8 million to A$2.9 million as a result of the above margin pressure and increased logistics costs.

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17 Future outlook positive Strengths to leverage Our understanding of the science of showering and how to create the ultimate showering experience sets Methven apart from most of our global competitors. We deliver internationally recognised product of exceptional quality and beautiful design that our consumers love. We were founded in New Zealand in 1886 and throughout our proud history, we have focused on developing and delivering solutions that our tradesmen trust. In addition, our continuous development programme for plumbers supports industry accreditation. Customer, consumer and supplier focus Design will remain a key attribute of Methven product, though we aim to underpin this with a deep understanding of the way our consumers use our product today and in the future. We will use this understanding in our brand communication, our product design and use of technology to enhance the user experience. We have made good progress in building our internal marketing capabilities and will look to significantly increase our ongoing marketing investment in our brand and new products. 15 Acting as one Methven Group We have talented teams in each market and across the Group. Moving to act more effectively as One Methven Group means we will be able to achieve synergies across the group and better meet local consumer and customer needs. Methven Annual Report 2014 Acquisition ensures competitiveness The purchase of Invention Sanitary in China is designed to provide cost competitiveness, supply chain flexibility and earnings growth. We are working closely with the vendor to ensure a seamless transition for both parties. It will also provide further opportunities to work with our customers in our exclusive manufacturing facility. We are confident that we will deliver US$2 million per annum in incremental NPAT from September 2014.

18 Breakthrough innovation Our new patented showering system launching early in 2015 will be the first global launch by Methven. The breakthrough system will be fully designed and manufactured in New Zealand and has been supported by the Callaghan Innovation Technology Development Grant. Research has shown high levels of consumer acceptance for both the showering system and the matching tapware. The tapware will also be launched globally and will create a new standard in the New Zealand market. Methven Annual Report Australia and New Zealand FOCUS IN OUR MARKETS We re focused on maintaining and growing our market leading position in Australia and New Zealand and we believe that by reflecting our consumer understanding at point of purchase, we can deliver good long term growth. Underpinning this will be the launch of our new breakthrough showering system. UK Our brand positioning, high quality products and consumer insights are ideally suited to the UK market and due to the recent resizing of the organization we now have a sound foundation on which to build the business and our brands. We re encouraged by our early success in on-line channels and this, along with untapped distribution, will offer good growth potential. China In China, we will continue to work with prestigious hotels and apartments looking to enhance their guest experience, where research shows that the shower is one of the top three elements commented on in maximising guest satisfaction. We will also develop new showrooms to showcase Methven quality, design capability and range.

19 Tribute The Board and management would like to pay tribute to Kent Sneddon, Methven s Design and Creative Director, who passed away unexpectedly on 18 May Kent was a wonderfully talented designer, fantastic colleague and friend and he will be dearly missed by everyone at Methven. Kent joined Methven in 2006 and led the creation of a world-class team that transformed the Methven brand by developing innovative technologies and designs. These products have been recognised by numerous external industry experts and have been honoured with a number of international design awards in the UK, USA, Australia, New Zealand and Germany. Kent was a senior member of the Executive team and was instrumental in helping develop many of the market leading initiatives which are a hallmark of Methven s success. Above all, Kent was a larger than life character, who personified Methven s values and aspirations. He brought flare, enthusiasum, and energy. With these attributes firmly embedded in his team we will continue to build upon the product and brand foundations that Kent created. DESIGN AWARDS Red Dot Award, Product Design Winner Germany Product Design Award Tahi Twin Lever Tapware GOOD DESIGN GREEN GOOD DESIGN Award Chicago Athenaeum Award Winner Kiri Satinjet Low Flow Shower Head New Zealand BEST Design Awards Silver, Product, Consumer Aroha Tapware Range New Zealand BEST Design Awards Silver, Product, Consumer Koha Satinjet Shower Range New Zealand BEST Design Awards Silver, Product, Consumer Waipori Satinjet Shower Range Australian International Design Award Design Award Winner Koha Satinjet Hand Shower Australian International Design Award Good Design Award Winner Aroha Tapware Range Methven Annual Report 2014 GOOD DESIGN Award Chicago Athenaeum Award Winner Tahi Twin Lever Mixer Range Australian International Design Award Good Design Award Winner, Category Architectural and Interior Tahi Twin Lever Tapware German Design Award Nominee 2013 Waipori Satinjet Hand Shower DESIGN AWARDS 2011 WINNER UK Designer Magazine Design Award Gold, Product Innovation Awards: Bathroom Tahi Twin Lever Tapware GOOD DESIGN Award Chicago Athenaeum Award Winner Waipori Satinjet Hand Shower GOOD DESIGN Award Chicago Athenaeum Award Winner Koha Satinjet Hand Shower

20 18 Our next breakthrough showering system is now on-track for launch in all our key markets in early 2015.

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22 The outlook for 2015 Methven Annual Report Brand investment to support our future growth Our underlying business remains profitable and financially sound and we expect to continue to deliver good dividends in the coming financial year. Our FY15 objective is to further strengthen our position as market leader in New Zealand and Australia while delivering sustainable growth in the UK. We anticipate China delivering strong double-digit growth from a low base, positioning us for meaningful and material growth in the mid-term. Overall, we expect Group revenue and earnings growth to be modest in FY15, and weighted to the second half of the year. The first half year on year growth will be impacted by AUD currency headwind and the high sell-in that created overstocks in the first half of FY2014. We will reinvest incremental margin in order to build the brand further in our core markets, improve the retail experience, and deliver new products that will delight our consumers and set the foundations for long term profitable growth. For the year ending 31 March 2015, as we look to re-invest earnings for future sustainable growth, we expect Group NPAT growth from existing operations to be modest and 15-25% up including benefits from our acquisition. Net Debt 3 is forecast to increase due to the acquisition of Invention Sanitary, investment in product development and brand building, but is forecast to remain comfortably within bank limits and covenants. We remain committed to looking for acquisitions of manageable scale that can further enhance our capability to deliver an incredible showering experience.

23 Australia New Zealand United Kingdom In Australia we ll be focusing on profitable revenue growth, and anticipate: In New Zealand, we ll be focusing on regaining lost market share and we anticipate: In the UK, we re intent on building a dynamic business and focusing on revenue and earnings growth, noting: improving consumer confidence will support underlying demand, however we expect that gains will be hard won launching new showerware that complements our Satinjet technology and will enhance our market leading credentials leveraging our market share in showers with our new tapware range resuming EBITDA 2 profit growth in the second half of the year. launching new showerware that complements our Satinjet technology and will enhance our market leading credentials generating sustainable top line growth by investing in new and existing brand equity through targeted consumer communication and relevant and aligned promotional initiatives market earnings growth being offset by an increase in Group marketing investment. an improving economic outlook the business foundation is stable with good customer satisfaction and is profitable at the EBITDA 2 level our activities are already seeing good results in online, specification and hotel and are expected to provide sales and EBITDA 2 growth while we build the Methven brand. 21 Methven Annual Report 2014 China sales operation In China, our task in 2015 is to build brand credibility and achieve sales growth through conversion of the current pipeline of sales opportunities. A modest investment at current levels will continue to build presence, brand awareness, sales pipeline and ultimately profit for the future. China manufacturing operation We look to welcome Invention Sanitary to the Methven family as of 1 July To ensure a successful cultural, financial and operational transition, a dedicated project team has been working closely with the current owner and continuing CEO Hui Zhuang, and we remain confident that earnings will be as anticipated. We expect an earnings benefit from September 2014.

24 Acknowledgements With another challenging year now behind us the Board would like to acknowledge the continued support and commitment of all Methven employees. The hard work and dedication shown by the team has ensured the underlying business remains profitable, and we are confident that we have the right strategies in place to further strengthen the business in the coming financial year. This year we welcomed David Banfield as our new Group Chief Executive Officer. David is an internationally experienced CEO and joined Methven as a proven leader and business builder. David was Managing Director of Water Filtration market leader Brita in the UK and Ireland between 2000 and 2010 where he delivered significant sales and profit growth. In 2010 David became Global commercial Director for Brita based in Germany and was responsible for commercial activity around the world. David brings a fresh drive to improve shareholder value through building high-performing teams, consumer-focused innovation and strong customer relationships. Methven Annual Report

25 Corporate Governance Role of the board The Board of Directors sets the strategic direction of the Company and is committed to managing the Company in an ethical and professional manner, and in the best interests of the Company and its shareholders. Key responsibilities of the Board include: monitoring the performance of management and the overall financial performance of the Company and the Methven Group monitoring Methven s regulatory and legislative compliance and risk management processes; and developing the strategic direction of Methven with the senior management team ensuring effective policies and procedures are in place concerning disclosure to the market and shareholders. Framework The Board and management are committed to continued development of the Company s governance practices. The Board continues to review and develop its policies and monitor developments to keep abreast of best practice corporate governance for the Methven Group of companies, including its subsidiaries. The Company s corporate governance framework includes the Company s constitution, Board Charter, terms of reference for the Board s Audit, Compliance and Risk Management Committee and Remuneration Committee, along with formal policies on ethics, delegated authorities, disclosure and communications, insider trading, risk management, conflict of interest, environment, health and safety, and policies and procedures for employees. The Board supports directors obtaining independent, professional advice when required. The Board believes that its corporate governance policies and procedures are consistent with the New Zealand Exchange Corporate Governance Best Practice Code and the Principles of Corporate Governance as previously published by the New Zealand Securities Commission. 23 Methven Annual Report 2014

26 Board composition The Board is comprised of five non- Executive Directors. Former Executive Director Rick Fala resigned as Group CEO in December 2013, but continues with the company in his new role as a non-executive Director. The Directors considered independent by Methven are Phil Lough (Chairman), Peter Stanes, Richard Cutfield, and Alison Taylor. The Board is comfortable that the five directors have the skill and experience appropriate to the Company s business. A summary of the skills and experience of each Director is provided on pages 28 and 29. The policy for appointment and retirement of directors is contained within the Company s Constitution. Pursuant to the Constitution of the Company, one-third of the directors retire by rotation at each Annual Meeting. The directors who retire by rotation in each year are those who have been longest in office since their last election. Methven Annual Report 2014 Audit, compliance and risk management committee The Audit, Compliance and Risk Management Committee comprises Peter Stanes (Chairman), Phil Lough, Richard Cutfield, Rick Fala and Alison Taylor. This committee assists the Board to fulfil its responsibilities in the areas of financial and risk management. 24 Remuneration committee The Remuneration Committee comprises, Richard Cutfield (Chairman), Phil Lough, Peter Stanes, Rick Fala and Alison Taylor. This committee provides assistance to the Board to ensure that the Company has remuneration and human resource policies that attract, retain and motivate high calibre and high performing executives and directors.

27 Nomination committee The Board believes that all board members should be involved in the selection and appointment process of new Board members, and, as suggested in the Corporate Governance Best Practice Code in Appendix 16 of the NZX Main Board Listing Rules, a nomination committee is therefore not necessary for Methven. Board and committee meetings held during the Year: Board Meetings Audit, Compliance and Risk Management Committee Remuneration Committee Phil Lough Rick Fala Richard Cutfield Peter Stanes Alison Taylor Total meetings held Share trading by directors and officers The Company has formal policies and procedures that directors and officers must follow when trading Methven shares. They must notify and obtain the consent of the Board prior to any trading. All trading must be conducted within two prescribed trading windows. These periods commence from the date on which the annual result and half yearly results are announced and conclude on the following 31 August and 31 January respectively. Methven Annual Report 2014 Continuous disclosure policy The Board has adopted a policy to ensure that it meets its obligations under the NZX continuous disclosure rules.

28 Our understanding of the science of showering and how to create the ultimate showering experience sets Methven apart from most of our global competitors.

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30 Methven Group Directors Phil Lough Chairman Rick Fala Non-Executive Director Methven Annual Report Phil joined the Board in September He brings to the table a wide range of skills and experience as an international exporter and marketer of primary and value add products. He is a former CEO of Sealord Group and Deputy Chief Executive of the Dairy Board and has had a hands-on role in guiding the international development of these global businesses. Phil is Chairman and Director of Quotable Value Limited, and is a Director of Fisher & Paykel Appliances Holdings Limited, Port Nelson Limited, and Livestock Improvement Corporation Limited. He is a past Chairman of New Zealand Trade and Enterprise. He was awarded the Companion of the Order of New Zealand for services to business in the Queen s Birthday Honours list in June Rick was Chief Executive Officer from 1998 to 31 December 2013 and continues with the company in his new role as a non-executive director. As Chief Executive Officer Rick led the key management team members in the management buy-out of the Methven business and played a key role in delivering sustainable earnings and devising the international export strategy to drive growth for the Group. Rick also led the company through its transition from a New Zealand only business to a truly international designled company. Prior to joining Methven as Chief Financial Officer in 1996, he held a range of financial management roles with McKechnie plc s New Zealand group companies and Ernst and Young. His past directorships include Better by Design, New Zealand Trade and Enterprise, University of Auckland Business School and Auckland Youthline.

31 Alison Taylor Independent Director Peter Stanes Independent Director Richard Cutfield Independent Director 29 Alison joined the Board in June She is Chief Operating Officer of Griffins Foods Limited, one of New Zealand s largest branded food companies, which she joined in With over 20 years experience at major international FMCG companies including PepsiCo, Kimberley Clark, Watties and Goodman Fielder, Alison brings a broad range of skills to the Methven Board, including an extensive marketing career and the execution of a number of significant business transformation projects in privately owned and publicly listed organisations. Alison was Chairperson of the Breast Cancer Research Trust for three years and was also a director of the New Zealand Food and Grocery Council. A Director since September 2004, Peter has many years of experience running international manufacturing and marketing companies, both as a senior executive and a director. He is Chairman and Director of Rembrandt Suits Limited and is a past Director of ZESPRI Group Limited, Wellington Drive Technologies Limited, Aragorn Limited and High Society Limited. He was Managing Director of Trigon Industries Limited, overseeing several years of rapid international expansion. Peter was also Managing Director of Feltex NZ Limited, Executive Chairman of the renamed Feltrax International Limited and, through his Feltex/Feltrax involvement, was for a time a director of their major shareholder, Equiticorp Holdings Limited. He also held senior roles at Alex Harvey Industries Limited. Richard has been a Methven Group Director since March 2001 when he led the management buy-out of Methven from Australian interests, and was Chairman until July Richard is an Executive Director of Most Excellent Holdings Limited, the parent company of international branded nursery products company phil&teds, having previously served as phil&teds COO, CFO and Executive Director. Prior to joining phil&teds in 2009, Richard spent 15 years as an Executive Director of Pencarrow Private Equity Ltd, a leading New Zealand based private equity investor. Richard is also a Director of Phil & Teds Most Excellent Buggy Company Limited and related companies, and a director of Formway Furniture Limited, a designer and international licenser of award winning high performance office seating and furniture products. Richard is a Member of the NZ Institute of Chartered Accountants (CA). Methven Annual Report 2014

32 Financial statements FOR THE YEAR ENDED 31 MARCH 2014 The Directors have pleasure in presenting the annual report of Methven Limited and its financial statements (set out on pages 32 to 80) for the year ended 31 March This annual report is dated 22 May 2014 and the directors authorised the issue of it and these financial statements on that date. Phil Lough Chairman Peter Stanes Director

33 Independent Auditors Report to the shareholders of Methven Limited Report on the Financial Statements We have audited the financial statements of Methven Limited ( the Company ) on pages 32 to 80, which comprise the balance sheets as at 31 March 2014, the income statements, statements of comprehensive income, statements of changes in equity and cash flow statements for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 March 2014 or from time to time during the financial year. Directors Responsibility for the Financial Statements The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal controls relevant to the Company and the Group s preparation of financial statements that give a true and fair view of the matters to which they relate, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. We have no relationship with, or interests in, Methven Limited or any of its subsidiaries other than in our capacities as auditors, providers of due diligence and other services. These services have not impaired our independence as auditors of the Company and the Group. Opinion In our opinion, the financial statements on pages 32 to 80: (i) comply with generally accepted accounting practice in New Zealand; and (ii) comply with International Financial Reporting Standards; and (iii) give a true and fair view of the financial position of the Company and the Group as at 31 March 2014, and their financial performance and cash flows for the year then ended. Report on Other Legal and Regulatory Requirements We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act In relation to our audit of the financial statements for the year ended 31 March 2014: (i) we have obtained all the information and explanations that we have required; and (ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records. Restriction on Distribution or Use This report is made solely to the Company s shareholders, as a body, in accordance with Section 205(1) of the Companies Act Our audit work has been undertaken so that we might state to the Company s shareholders those matters which we are required to state to them in an auditors 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 shareholders, as a body, for our audit work, for this report or for the opinions we have formed. Chartered Accountants 22 May 2014 Auckland 31

34 Income statements FOR THE YEAR ENDED 31 MARCH CONSOLIDATED PARENT NZ $000 Notes Sales revenue 6 96,720 98,420 35,054 34,896 Cost of sales (55,533) (55,226) (18,890) (18,655) Gross profit 41,187 43,194 16,164 16,241 Other income ,855 4,358 Expenses 7 Research, design and engineering (2,865) (2,486) (2,865) (2,486) Sales, distribution, marketing and brand development (21,719) (22,789) (5,161) (5,261) Administration and other expenses (9,330) (9,862) (4,729) (5,717) Investment in subsidiary impairment ,169 (5,169) Finance costs (934) (1,210) (797) (991) Profit before income tax 7,160 7,590 13, Income tax expense 8 (2,452) (2,440) (1,697) (1,466) Net profit/(loss) attributable to shareholders of the parent 4,708 5,150 11,939 (491) Earnings per share for profit attributable to the shareholders of the parent: Basic earnings per share (cents) Diluted earnings per share (cents) The above income statements should be read in conjunction with the accompanying notes.

35 Statements of comprehensive income FOR THE YEAR ENDED 31 MARCH 2014 CONSOLIDATED PARENT NZ $ Profit/(loss) for the year 4,708 5,150 11,939 (491) Items that may be reclassified subsequently to profit or loss Movement in foreign currency translation reserve (68) (1,826) - - Movement in cashflow hedge reserve (991) 552 (507) 166 Income tax relating to items that may be reclassified 264 (146) 142 (46) Total items that may be reclassified subsequently to profit or loss (795) (1,420) (365) 120 Other comprehensive income for the year net of tax (795) (1,420) (365) 120 Total comprehensive income for the year attributable to the shareholders of the parent 3,913 3,730 11,574 (371) 33 The above statements of comprehensive income should be read in conjunction with the accompanying notes.

36 Balance sheets AS AT 31 MARCH 2014 Methven Financial Statements As at 31 March CONSOLIDATED PARENT NZ $000 Notes Assets Current assets Cash and cash equivalents 2,104 2, Trade receivables 9 15,712 18,929 6,024 8,474 Inventories 10 19,423 19,590 6,647 5,551 Derivative financial instruments Income tax receivable Inter-company advances ,839 21,532 Prepayments and other assets 1,390 1, Total current assets 38,695 43,358 35,381 36,896 Non-current assets Investments in subsidiaries ,937 22,768 Property, plant and equipment 12 4,719 6,168 3,406 4,104 Deferred tax assets 13 2,212 1, Intangible assets 14 33,592 33,025 4,893 5,046 Derivative financial instruments Total non-current assets 40,526 41,023 36,940 32,376 Total assets 79,221 84,381 72,321 69,272 Liabilities Current liabilities Trade creditors 11,433 10,695 3,865 3,565 Derivative financial instruments 11 1, Income tax payable Provisions Other creditors and accruals 4,526 5,658 1,924 2,235 Employee accruals 1,600 1, Inter-company payables Total current liabilities 19,597 18,747 7,734 7,007 Non-current liabilities Interest bearing liabilities 16 16,554 20,107 11,750 14,650 Derivative financial instruments Non-current employee accruals Total non-current liabilities 16,759 20,354 11,845 14,769 Total liabilities 36,356 39,101 19,579 21,776 Net assets 42,865 45,280 52,742 47,496 Equity Share capital 18 46,986 46,986 46,986 46,986 Reserves (10,909) (10,114) (430) (65) Retained earnings 6,788 8,408 6, Total equity 42,865 45,280 52,742 47,496 The above balance sheets should be read in conjunction with the accompanying notes.

37 Statements of changes in equity FOR THE YEAR ENDED 31 MARCH 2014 CONSOLIDATED Share based payments reserve Currency translation reserve NZ $000 Notes Share capital Hedge reserve Retained earnings Total equity Balance at 1 April ,986 (421) 10 (8,273) 9,909 48,211 Movement in foreign currency translation reserve (1,826) - (1,826) Movement in cashflow hedge reserve Movement in deferred tax on hedge reserve - (146) (146) Movement in share-based payments reserve - - (10) Profit for the year ,150 5,150 Total comprehensive income (10) (1,826) 5,160 3,730 Dividends (6,661) (6,661) Balance at 31 March ,986 (15) - (10,099) 8,408 45,280 Balance at 1 April ,986 (15) - (10,099) 8,408 45,280 Movement in foreign currency translation reserve (68) - (68) Movement in cashflow hedge reserve - (991) (991) Movement in deferred tax on hedge reserve Profit for the year ,708 4,708 Total comprehensive income - (727) - (68) 4,708 3,913 Dividends (6,328) (6,328) Balance at 31 March ,986 (742) - (10,167) 6,788 42, The above statements of changes in equity should be read in conjunction with the accompanying notes.

38 Statements of changes in equity FOR THE YEAR ENDED 31 MARCH 2014 (CONTINUED) 36 PARENT Share based NZ $000 Notes Share capital Hedge reserve payments reserve Retained earnings Total equity Balance at 1 April ,986 (185) 10 7,717 54,528 Movement in cashflow hedge reserve Movement in deferred tax on hedge reserve - (46) - - (46) Movement in share-based payments reserve - - (10) 10 - Loss for the year (491) (491) Total comprehensive income (10) (481) (371) Dividends (6,661) (6,661) Balance at 31 March ,986 (65) ,496 Balance at 1 April ,986 (65) ,496 Movement in cashflow hedge reserve - (507) - - (507) Movement in deferred tax on hedge reserve Profit for the year ,939 11,939 Total comprehensive income - (365) - 11,939 11,574 Dividends (6,328) (6,328) Balance at 31 March ,986 (430) - 6,186 52,742 The above statements of changes in equity should be read in conjunction with the accompanying notes.

39 Cashflow statements FOR THE YEAR ENDED 31 MARCH 2014 CONSOLIDATED PARENT NZ $000 Notes Cashflows from operating activities Receipts from customers 98,320 97,422 38,023 35,361 Government grants 1, , Payments to suppliers (66,225) (68,701) (21,338) (19,894) Payments to employees (19,309) (21,546) (9,461) (8,803) 13,839 7,518 8,277 7,007 Dividends received ,961 1,292 Interest received ,033 1,086 Interest paid (934) (1,210) (797) (991) Income taxes paid (2,122) (3,344) (1,306) (1,741) Net cash inflow from operating activities 25 10,792 2,984 10,168 6,653 Cashflows from investing activities Payments for property, plant and equipment, patents, trademarks and software (1,138) (2,092) (724) (1,089) Loans to subsidiaries (384) (193) Proceeds from sale of property, plant and equipment Net cash outflow from investing activities (1,132) (2,086) (1,108) (1,282) Cashflows from financing activities (Repayment of) / Proceeds from borrowings (3,875) 3,101 (2,900) 1,150 Dividends paid 19 (6,328) (6,661) (6,328) (6,661) Net cash outflow from financing activities (10,203) (3,560) (9,228) (5,511) Net decrease in cash and cash equivalents (543) (2,662) (168) (140) Cash and cash equivalents at the beginning of the financial year 2,885 5, Foreign currency translation adjustment (238) (94) - - Cash and cash equivalents at end of year 2,104 2, The above cashflow statements should be read in conjunction with the accompanying notes.

40 Notes to the financial statements FOR THE YEAR ENDED 31 MARCH General information 38 Methven Limited (the Company or the Parent ) and its subsidiaries (together Methven or the Group ) designs, manufactures and supplies showerware, tapware and water control valves. The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its registered office is 447 Rosebank Road, Avondale, Auckland. These financial statements have been approved for issue by the Board of Directors on 22 May The directors do not have the power to amend these financial statements after issuance. 2 Summary of significant accounting policies These financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP), New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). These policies have been applied consistently to all years previously presented unless otherwise stated. (a) Basis of preparation Entities reporting The financial statements are for Methven Limited and the consolidated economic entity comprising Methven Limited and its subsidiaries. Statutory base Methven Limited is a company registered under the Companies Act 1993 and an issuer in terms of the Securities Act The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act The Company and Group are designated as profit oriented entities for financial reporting purposes. During the year the Group adopted XRB A1 (For Profit Entities Update) which is applicable for years beginning on or after 1 December This has not resulted in a change in basis of preparation for the Group. Measurement base These financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets as identified in specific accounting policies below. Critical accounting estimates The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. Estimates and judgments 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 Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined in note 4. (b) Group financial statements The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Methven Limited as at balance date and the results of all subsidiaries for the year then ended.

41 2 Summary of significant accounting policies (continued) Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power 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. Subsidiaries which form part of the Group are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are eliminated unless the transaction provides evidence of the impairment of the asset transferred. Subsidiaries accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group. (c) Segment reporting An operating segment is a component of an entity that engages in business activities which earns revenue and incurs expenses and for which the chief operating decision maker (CODM) reviews the operating results on a regular basis and makes decisions on resource allocation. The Group has determined its CODM to be the Group Board of Directors, Group Chief Executive Officer and Group Chief Financial Officer on the basis that it is this group that determines the allocation of resources to segments and assesses their performance. The reportable operating segments of the Group have been determined based on the components of the Group that the CODM monitors in making decisions about operating matters. Such components have been identified on the basis of internal reports that the CODM reviews regularly in order to allocate resources and to assess the performance of the entity. A description of each operating segment within the Group is outlined in note 5. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated and parent financial statements are presented in New Zealand dollars, which is the Company s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of any net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders equity. When a foreign operation is partially disposed of or sold exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of foreign entities are treated as assets and liabilities of the foreign entities and translated at the closing rate. 39 (e) Revenue recognition Revenue comprises the fair value of the sale of goods and services in the ordinary course of the Group s activities. Revenue is shown, net of goods and service tax, rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows:

42 2 Summary of significant accounting policies (continued) (i) Sales of goods Sales of goods are recognised when risks and rewards associated with ownership of the goods have been transferred and collectability of the related receivables is reasonably assured. (ii) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. (iii) Royalty income Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements. (iv) Dividend income Dividend income is recognised when the right to receive payment is established. 40 (v) Management service fees Management service fee income is recognised when the Company has provided the services. (f) Inventories Raw materials, work-in-progress and finished goods are stated at the lower of cost and anticipated net realisable value. Cost is determined using the first in, first out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Costs of inventories includes the transfer from equity of any gains/ losses on qualifying cash flow hedges. (g) Property, plant and equipment All property, plant and equipment are stated at historical cost less depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset s carrying amount or recognised as separate assets, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the costs of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows: Motor vehicles 5-10 years Plant and equipment 3-20 years Fixtures, fittings and office equipment 3-13 years The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is less than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. (h) Intangible assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units that are expected to benefit from the business combination in which the goodwill arose. The Group allocates goodwill to the Australian, UK and the New Zealand entities (note 14). (ii) Patents and trademarks The registration cost of patents and trademarks are capitalised from the date of application. They have a definite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of patents and trademarks over their estimated useful lives (6-20 years). Capitalised costs relating to applications that are turned down are expensed immediately into the income statement. (iii) Research and development Research expenditure is recognised as an expense as incurred. Development costs are recognised as assets if the costs directly relate to new or improved products and processes, where the product or process is technically and commercially feasible with the probability of future economic benefits. Otherwise, the costs of development activities are expensed as incurred. Development costs recognised as assets are amortised over their estimated useful lives (5 years) on a straight line basis.

43 2 Summary of significant accounting policies (continued) (iv) Computer software Acquired computer software and licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (3-10 years) on a straight line basis. Costs associated with maintaining computer software programs are recognised as an expense when incurred. (v) Customer relations Customer relations acquired on business acquisition are capitalised based on the fair value of cash flows forecast to be derived from the relationship. The relationships are deemed to have a finite useful life and are carried at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight line method to allocate the cost of the asset over its useful life (10 years). (i) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. (j) Income tax The income tax expense recognised for the period is the tax payable on the current period s taxable income based on the income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments of operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. (k) Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. An estimate is made for doubtful receivables based on a review of all outstanding amounts at period end. Bad debts are written off during the period in which they are identified. The amount of the provision is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision and any write off of trade receivables is recognised in the income statement within Sales, distribution, marketing & brand development. (l) Cash and cash equivalents Cash and cash equivalents includes cash in hand, cash at bank and deposits held on call with financial institutions. (m) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 41 (n) Interest bearing liabilities Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowing using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

44 2 Summary of significant accounting policies (continued) (o) Provisions Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. i) Warranty A liability is recognised for the expected value of claims on product sales that are still under warranty at balance date. Expected costs are based on historical data relating to product returns. (p) Trade and other creditors 42 These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. Trade and other creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. The amounts are unsecured and are usually paid within 30 days of recognition. (q) Goods and Services Tax (GST) The income statement and statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the balance sheet are stated net of GST, with the exception of receivables and payables which include GST invoiced. (r) Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The rental obligations, net of finance charges, are recognised in the balance sheet. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset s useful life and the lease term. Leases where the lessor effectively retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives from the lessor) are charged to the income statement on a straight line basis over the period of the lease. (s) Investments Investments in subsidiaries are stated at cost less any impairment, in the balance sheet of the Parent. (t) Employee benefits (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave are recognised in the provision for employee benefits in respect of employees services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. (ii) Long service leave Provision for long service leave is calculated and accrued from the date of employment to the extent that it is probable that the leave entitlement will vest. In addition, the provision for sick leave, being an accumulating compensated absence, is recognised based on the expectation the Group will pay sick leave as a result of the unused entitlement that has accumulated at the balance sheet date. (iii) Termination benefits Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value. (u) Dividends Dividend distribution to the Company shareholders is recognised as a liability in the Company s and the Group s financial statements in the period in which the dividends are approved by the Directors and notified to the Company s shareholders. (v) Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company and Group by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

45 2 Summary of significant accounting policies (continued) (w) Statement of cash flows The following are the definitions of the terms used in the statement of cash flows: (a) Operating activities include revenue producing activities and all transactions and other events that are not investing or financing activities. (b) Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and investments. Investments can include securities not falling within the definition of cash. (c) Financing activities are those activities that result in changes in the size and composition of the capital structure. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. (x) Financial instruments Financial instruments comprise derivative financial instruments, trade and other receivables, cash and cash equivalents, intercompany loans, intercompany advances, interest bearing liabilities and trade creditors. Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition financial instruments are measured as described below. A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group s obligations specified in the contract expire or are discharged or cancelled. The carrying amount of financial instruments approximates their fair value. Trade and other receivables are stated initially at fair value and subsequently measured at amortised cost less provision for impairment. Interest-bearing borrowings are classified as other non-derivative financial instruments. Trade and other creditors are stated initially at fair value and subsequently measured at amortised cost. (y) Derivatives Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of risks associated with recognised liabilities and highly probable forecast transactions (cash flow hedges). The Group documents at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge 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 have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 11. (i) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss. Amounts accumulated in equity are reclassified to the profit and loss in the periods when the hedged item affects the profit and loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a nonfinancial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the profit and loss. (ii) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (iii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting is recognised immediately in the income statement. 43 (z) Government grants Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. Other grants are recognised as accrued income when there is a reasonable assurance that they will be received and that the Group will comply with the conditions associated with the Grant. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset.

46 2 Summary of significant accounting policies (continued) (aa) Borrowing costs Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Other borrowing costs are expensed. The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity s outstanding borrowings during the year. (ab) Reserves (i) Hedging reserve cash flow hedges The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge. The amounts are recognised in the income statement when the associated hedged transactions affect profit or loss, as described in note 2(y). (ii) Foreign currency translation reserve 44 The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations into New Zealand dollars, as described in note 2(d). (ac) Standards, amendments and interpretations to existing standards that are not yet effective The following relevant new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group s accounting periods beginning on or after 1 April 2014 or later periods: The standards, amendments or interpretations to existing standards which have been issued, will be adopted when effective. Apart from those listed below there are no other standards, amendments or interpretations to existing standards which have been issued, but are not yet effective, which are expected to impact the Company or Group. NZ IFRS 9 Financial Instruments (effective from 1 January 2017). The standard replaces part of NZ IAS 39 and establishes two primary measurement categories for financial assets: amortised cost and fair value, with classification depending on an entity s business model and the contractual cash flow characteristics of the financial asset. The Group is currently in the process of evaluating the potential effect of this standard on its financial assets. There will be no impact on the Group s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated as at fair value through profit or loss and the Group does not have any such liabilities. (ad) New accounting standards adopted during the year which impact the financial statements The following standards have been adopted by the Group in the current year which impact the financial statements: NZ IAS 1 Amendments Presentation of Items of Other Comprehensive Income (effective 1 July 2012) The amendment requires entities to separate items presented in other comprehensive income into two groups, based on whether they may be recycled to profit or loss in the future. This will not affect the measurement of any of the items recognised in the balance sheet or the profit or loss in the current period. NZ IFRS 13, Fair value measurement (effective from 1 January 2013) Fair value measurement guidance contained in individual IFRS is replaced with a single unified definition of fair value; it also contains guidance on the application of fair value measurement in inactive markets. No changes were made to the measurement of assets at fair value, but further disclosures have been added. Refer note 3 (f). 3 Financial risk management The Group s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, ie not as trading or other speculative instruments. Risk management is carried out based on policies approved by the Board of Directors. The Group treasury policy provides written principles for overall financial risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non derivative financial instruments. Operating units identify, evaluate and hedge financial risks within policy with review by Group Treasury. (a) Capital risk management The Group and the parent entity s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders or received from subsidiaries, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group is not subject to externally imposed capital requirements except in relation to debt covenants. The Group did not breach any debt covenants in the periods presented.

47 3 Financial risk management (continued) The split between debt and equity is as follows: CONSOLIDATED NZ $ Total interest bearing liabilities (note 16) 16,554 20,107 Less: cash and cash equivalents (2,104) (2,885) Net debt 14,450 17,222 Total equity 42,865 45,280 57,315 62,502 Equity ratio 74.8% 72.4% (b) Market risk (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, including the purchase of inventory in US dollars and Euro, translation of subsidiary results in Great Britain pounds, Australian dollars and Chinese Yuan, and in 2014 the Group entered an agreement to acquire a Chinese business and are exposed to exchange rate fluctuations. The cash component of the acquisition was hedged and the Group held an associated $395,000 derivative financial instrument liability as at 31 March 2014 (2013: nil). Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are denominated in a currency that is not the transacting entity s functional currency and net investments in foreign operations. The risk is measured using sensitivity analysis and cash flow forecasting. The Board has approved a Group treasury policy which requires all operating units including the parent, to manage their foreign exchange risk against their functional currency. The operating units are required to hedge their foreign exchange risk exposure arising from future transactions and recognised assets and liabilities using forward contracts. The Group s treasury policy is to hedge between 80%-100% of committed cash flows, between 25%-75% of forecasted cash flows falling within 0-6 months and between 0%-50% of forecasted cash flows falling within 6-12 months. The Board may from time to time approve exceptions to this policy. The cash flows hedged are mainly purchases of inventory in any major currency for the subsequent 12 months. The following table shows the fair value of the foreign exchange contracts and interest rate swaps held by the Group as derivative financial instruments at balance date: CONSOLIDATED PARENT NZ $ Buy USD / Sell NZD (247) (39) (247) (39) Sell AUD / Buy NZD Buy EUR / Sell NZD (7) (8) (7) (8) Buy USD / Sell AUD (263) (59) - - Buy USD / Sell GBP (159) Buy EUR /Sell GBP (7) (5) - - Buy CNY / Sell NZD (395) - (395) - Interest rate swaps (refer (ii) below) GBP Swap NZD Swap 3 (58) 3 (58) Total derivative financial instrument liabilities (1,023) (31) (597) (91) 45

48 3 Financial risk management (continued) (ii) Cash flow and fair value interest rate risk The main interest rate risk arises from long term interest bearing liabilities. Interest bearing liabilities issued at variable rates expose the Group to cash flow interest rate risk. Group policy maintains that interest bearing liabilities and investments, where interest rates are fixed at the date of measurement for a period greater than three months, are to be considered fixed rate. All interest bearing liabilities that are repayable in less than three months and/or interest bearing liabilities and investments where the interest rate is to be reset or re-priced within three months from the date of measurement are to be considered floating rate. Interest rate exposure is managed with the following parameters: fixed interest rate debt to total debt is to be 40% to 80% managed if interest bearing liabilities are less than 18 months and 0% to 60% between 18 and 36 months. Policy authorised hedging instruments such as interest rate swaps are to be used to manage the risk. During 2013 and 2014, the Group s interest bearing liabilities at variable rate were denominated in New Zealand and Australian dollars and Great Britain pounds. Interest on the Group loan facility is based on variable base rates plus a fixed bank margin. Interest rate swaps denominated in Great Britain pounds and New Zealand dollars are used to fix the interest on a portion of the debt denominated in those currencies. 31 MARCH MARCH 2013 Weighted average interest rate Balance $000 Weighted average interest rate Balance $000 Bank overdrafts and bank loans 5.4% 16, % 20,107 Interest rate swaps (notional principal amount) 3.4% (5,875) 3.0% (8,075) 46

49 3 Financial risk management (continued) (iii) Summarised sensitivity analysis The following tables summarise the sensitivity of the Group s and Parent s financial assets and financial liabilities to interest rate risk and foreign exchange risk. The Group s primary foreign currency exposure is each operating unit s functional currency versus the US dollar. While it is unlikely that an equal 10% movement in each operating unit s functional currency would be observed against all currencies, an overall sensitivity of 10% is reasonable given the range trading over the last six months and market expectations for potential future movements. A sensitivity of a 1% upward movement and 0.5% downward movement has been selected for interest rate risk. The sensitivity is based on reasonably possible changes over a financial year based on current announcements and market expectations. CONSOLIDATED Interest rate risk Foreign exchange risk 31 March 2014 Carrying -0.5% +1% -10% +10% NZ $000 amount Profit Equity Profit Equity Profit Equity Profit Equity Financial assets Cash and cash equivalents 2, (7) (7) Trade receivables 15, (144) (144) Derivatives - cash flow hedges* ,096 - (368) Interest rate swaps 6 - (68) Financial liabilities Derivatives - cash flow hedges* 1, ,104 - (1,133) Trade and other payables 14, (859) (859) Interest bearing liabilities 16, (83) (166) (166) Total increase/(decrease) 83 (151) (166) (109) (678) 1, (949) 47 CONSOLIDATED Interest rate risk Foreign exchange risk 31 March 2013 Carrying -0.5% +1% -10% +10% NZ $000 amount Profit Equity Profit Equity Profit Equity Profit Equity Financial assets Cash and cash equivalents 2, (69) (69) Trade receivables 18, (217) (217) Derivatives - cash flow hedges* (378) Financial liabilities Derivatives - cash flow hedges* ,563 - (932) Trade and other payables 16, (808) (808) Interest bearing liabilities 20, (100) (201) (201) Interest rate swaps 58 - (36) Total increase/(decrease) 100 (136) (201) (132) (459) 1, (935)

50 3 Financial risk management (continued) 48 PARENT Interest rate risk Foreign exchange risk 31 March % +1% -10% +10% Carrying NZ $000 amount Profit Equity Profit Equity Profit Equity Profit Equity Financial assets Cash and cash equivalents (1) (1) Trade receivables 6, (131) (131) Interest rate swaps 3 - (48) - (96) Derivatives - cash flow hedges* (1,850) Inter-company advances 21, Financial liabilities Derivatives - cash flow hedges* Trade and other payables 5, (166) (166) Interest bearing liabilities 11, (118) (118) Total increase/(decrease) (118) (214) (5) (1,855) PARENT Interest rate risk Foreign exchange risk 31 March 2013 Carrying -0.5% +1% -10% +10% NZ $000 amount Profit Equity Profit Equity Profit Equity Profit Equity Financial assets Cash and cash equivalents (4) (4) Trade receivables 8, (204) (204) Derivatives - cash flow hedges* (29) Inter-company advances 21, Financial liabilities Derivatives - cash flow hedges* (252) Trade and other payables 5, (130) (130) Interest bearing liabilities 14, (147) (147) Interest rate swaps 58 - (22) Total increase/(decrease) (147) (104) (101) (382) * These are all forward exchange contracts. There is no expected profit and loss sensitivity as forward exchange contracts are hedge accounted and 100% effective. The Group and the Parent entity hold no direct investments in equities or commodities and are therefore not subject to price risk for any recognised financial assets.

51 3 Financial risk management (continued) (c) Financial instruments by category Assets as per balance sheet NZ $000 Derivatives used for hedging Loans and receivables CONSOLIDATED At 31 March 2014 Cash and cash equivalents - 2,104 2,104 Trade receivables - 15,712 15,712 Derivative financial instruments ,816 17,885 Total At 31 March 2013 Cash and cash equivalents - 2,885 2,885 Trade receivables - 18,929 18,929 Derivative financial instruments ,814 21,967 PARENT At 31 March 2014 Cash and cash equivalents Trade receivables - 6,024 6,024 Derivative financial instruments Inter-company advances - 21,839 21, ,029 28,081 At 31 March 2013 Cash and cash equivalents Trade receivables - 8,474 8,474 Derivative financial instruments Inter-company advances - 21,532 21, ,340 30,361 49

52 3 Financial risk management (continued) 50 Liabilities as per balance sheet NZ $000 Derivatives used for hedging Other financial liabilities at amortised cost CONSOLIDATED At 31 March 2014 Trade and other payables - (14,754) (14,754) Derivative financial instruments (1,092) - (1,092) Interest bearing Liabilities - (16,554) (16,554) (1,092) (31,308) (32,400) At 31 March 2013 Trade and other payables - (16,353) (16,353) Derivative financial instruments (184) - (184) Interest bearing Liabilities - (20,107) (20,107) (184) (36,460) (36,644) PARENT At 31 March 2014 Trade and other payables - (5,388) (5,388) Derivative financial instruments (649) - (649) Interest bearing liabilities - (11,750) (11,750) (649) (17,138) (17,787) Total At 31 March 2013 Trade and other payables - (5,800) (5,800) Derivative financial instruments (112) - (112) Interest bearing liabilities - (14,650) (14,650) Inter-company payables - (201) (201) (112) (20,651) (20,763)

53 3 Financial risk management (continued) (d) Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The parent has credit exposure to intercompany advances. The maximum exposure to credit risk is represented by the carrying amount of these assets. For banks and financial institutions, only independently rated parties with a minimum rating of A are accepted. If customers are independently rated, these ratings are used in combination with management s assessment of the credit quality of the customer, taking into account its financial position, past experience and other internal and external factors. Individual risk limits are set based on internal or external ratings. The compliance with credit limits by customers is regularly monitored by management. There is a high concentration of market share and distribution reach in the buildings supply sector in our markets. This has implications for suppliers in terms of customer base concentration and credit risk. As at 31 March 2014 and 31 March 2013 the Group had one customer balance greater than 10% of total trade receivables. This customer balance comprised 11% of Group trade receivables (2013: 11%). The Group s exposure to a concentration of credit risk is reduced due to the geographical spread of the Group s operations and customers. Credit insurance is taken where economically available to cover material exposure of the Group s offshore and domestic receivables. Banks and financial institutions used by the Group have the following ratings and distribution of funds: CONSOLIDATED PARENT NZ $ Cash at bank and short term bank deposits AA A 2,104 2, Derivative financial assets AA A (e) Liquidity risk Liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available. Management monitors rolling forecasts of the Group s liquidity reserve on the basis of expected cash flow. At the reporting date, the Group held liquid assets of $2,104,000 (2013: $2,885,000) that are expected to readily generate cash inflows for managing liquidity risk. The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. At the reporting date the Group had overdraft facilities of New Zealand dollars 1.0m, Australian dollars 0.25m and Great Britain pounds 0.2m. Currently term loans are drawn down in New Zealand dollars or Great Britain pounds and have an average interest reset period of 3 months (2013: 3 months). The Group facility is reviewed every three years. Termination may result if terms of the facility agreement are breached. The Group s bank facilities expire in April 2016.

54 3 Financial risk management (continued) Maturities of financial liabilities The tables below analyse the Group s and the parent entity s financial liabilities into relevant maturity groupings. The Group s derivative foreign exchange financial instruments are gross settled and interest rate swaps are net settled. These derivatives are categorised into relevant maturity groupings based on the contractual maturity dates. The amounts disclosed in the tables below are the contractual undiscounted cash flows inclusive of interest payments. The Group s interest rates are reset monthly and as a result the contractual interest payments below have been calculated based on interest rates and debt levels that existed at balance date. CONSOLIDATED At 31 March 2014 NZ $000 Less than 6 months 6-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying amount liabilities Non-derivatives Interest bearing liabilities (422) (422) (843) (17,687) - (19,374) (16,554) Trade and other payables (15,959) (15,959) (15,959) Total non-derivatives (16,381) (422) (843) (17,687) - (35,333) (32,513) Derivatives Net settled (interest rate swaps) Gross settled (foreign exchange contracts) - inflow 25,676 5, ,028 31,028 - (outflow) (26,597) (5,460) (32,057) (32,057) Total derivatives (919) (106) (1,023) (1,023) 52 CONSOLIDATED At 31 March 2013 NZ $000 Less than 6 months 6-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying amount liabilities Non-derivatives Interest bearing liabilities (456) (456) (912) (21,374) - (23,198) (20,107) Trade and other payables (16,353) (16,353) (16,353) Total non-derivatives (16,809) (456) (912) (21,374) - (39,551) (36,460) Derivatives Net settled (interest rate swaps) (15) (15) (28) - - (58) (58) Gross settled (foreign exchange contracts) - inflow 18,217 1, ,247 19,247 - (outflow) (18,180) (1,040) (19,220) (19,220) Total derivatives 22 (25) (28) - - (31) (31)

55 3 Financial risk management (continued) PARENT At 31 March 2014 NZ $000 Less than 6 months 6-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying amount liabilities Non-derivatives Interest bearing liabilities (377) (377) (753) (11,750) - (13,257) (11,750) Trade and other payables (5,789) (5,789) (5,789) Total non-derivatives (6,166) (377) (753) (11,750) - (19,046) (17,539) Derivatives Net settled (interest rate swaps) Gross settled (foreign exchange contracts) - inflow 9,817 2, ,662 12,662 - (outflow) (10,324) (2,938) (13,262) (13,262) Total derivatives (505) (93) (597) (597) 53 PARENT At 31 March 2013 NZ $000 Less than 6 months 6-12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying amount liabilities Non-derivatives Interest bearing liabilities (411) (411) (822) (15,472) - (17,116) (14,650) Trade and other payables (5,800) (5,800) (5,800) Total non-derivatives (6,211) (411) (822) (15,472) - (22,916) (20,450) Derivatives Net settled (interest rate swaps) (15) (15) (28) - - (58) (58) Gross settled (foreign exchange contracts) - inflow 4,953 1, ,983 5,983 - (outflow) (4,976) (1,040) (6,016) (6,016) Total derivatives (38) (25) (28) - - (91) (91)

56 3 Financial risk management (continued) (f) Fair value estimation The Group categorises financial instruments that are measured at fair value on the balance sheet into the following three levels of fair value hierarchy: Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices (level 2) Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3) For the year ended 31 March 2014 and year ended 31 March 2013 the Group s assets and liabilities that are measured at fair value were all included in level 2. The level 2 assets and liabilities were all used for hedging, being interest rate swaps, and forward exchange contracts. The table below shows level 2 financial instruments carried at fair value. CONSOLIDATED PARENT Assets Derivatives - cash flow hedges Interest rate swaps Liabilities Derivatives - cash flow hedges 1, Interest rate swaps The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-specific estimates. Specific valuation techniques used to value financial instruments include: Quoted market prices or dealer quotes for similar instruments The fair value of interest rate swaps is calculated as the present value of the estimated future cashflows based on observable yield curves The fair value of forward exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value Other techniques, such as discounted cashflow analysis The carrying amount of the following financial assets and liabilities is considered a reasonable approximation of fair value: Cash and cash equivalents Trade receivables Trade and other payables Interest bearing liabilities

57 4 Critical accounting estimates and judgments The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. Estimates and judgments 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. (i) Goodwill impairment The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated. The recoverable amounts of cash-generating units have been determined based on value in use calculations. These calculations require the use of estimates, refer note 2h(i). Refer to note 14 for details of these assumptions and the potential impact of changes to the assumptions. (ii) Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision in income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination are made. Refer to note 8. (iii) Customer relations The valuation of the customer relations which were acquired in the United Kingdom business combination were determined based on future sales and margins expected to be generated from the customer relations. These calculations require the use of estimates. Customer relations are tested for impairment at least annually or when there is a trigger event indicating a potential impairment. Refer to note 14. (iv) Deferred tax assets Judgement is also required in relation to the recognition of carried forward tax losses as deferred tax assets. The Group assesses whether there will be sufficient future taxable profits to utilise the losses based on a range of factors, including forecast earnings and expected changes to tax groupings. Refer to note Segment information 55 (a) Description of segments The Group operates in one industry segment, being the design and supply of shower, tapware and water control valves. Management has determined the operating segments based on the reports reviewed by the Group Board of Directors, Group Chief Executive Officer and Group Chief Financial Officer collectively for the purpose of allocating resources, assessing performance and making strategic decisions. New Zealand The home country of the Parent is the base for new design and technology development, strategic and management support, sales and marketing of shower and tapware and water control valves in New Zealand and Pacific Islands. Products are both manufactured in New Zealand and sourced from China. Australia Comprises sales and marketing operations in Australia supplying shower and tapware and domestic water control valves. Products are sourced from both New Zealand and China. United Kingdom Comprises sales and marketing operations in the United Kingdom and the Middle East, supplying shower and tapware. Products are sourced from both New Zealand and China. Other Comprises: China operation providing quality control and sourcing services in Asia for the Group, along with sales and marketing operations in China supplying shower and tapware, Administration costs of the United States of America operation (non-trading). Once a reportable segment becomes material and enhances the evaluation of business activities in the Group, the segment will be reported separately. Profit is before inter segmental dividends as this is the way it is viewed by the chief operating decision maker.

58 5 Segment information (continued) 56 Intersegment 2014 NZ $000 New Zealand Australia UK Other Total eliminations/ unallocated Total Sales revenue from external trade customers 33,702 39,505 23, ,720-96,720 Sales revenue from internal customers 1, ,437 (1,437) - Total sales revenue 35,054 39,523 23, ,157 (1,437) 96,720 Adjusted EBITDA * 6,950 3,324 1,133 (206) 11, ,273 Non-operating foreign exchange gain/(loss) (111) 13 Inter-segmental charges (228) 141 (249) Earnings before interest, tax, depreciation, amortisation and 6,846 3, ,325 (39) 11,286 impairment Write back of impairment of investment in subsidiary 5, ,169 (5,169) - Depreciation and amortisation (1,574) (656) (953) (39) (3,222) - (3,222) Interest received/(paid) 236 (347) (793) - (904) - (904) Profit before income tax 10,677 2,462 (862) 91 12,368 (5,208) 7,160 Income tax (expense)/credit (1,697) (747) 63 (82) (2,463) 11 (2,452) Profit/(loss) for the year 8,980 1,715 (799) 9 9,905 (5,197) 4,708 Other segmental items Assets 72,321 18,209 37, ,902 (49,681) 79,221 Liabilities (19,579) (13,551) (26,396) (391) (59,917) 23,561 (36,356) Acquisitions of property, plant and equipment and intangibles (10) 1,150-1,150

59 5 Segment information (continued) Intersegment 2013 NZ $000 New Zealand Australia UK Other Total eliminations/ unallocated Total Sales revenue from external trade customers 33,513 41,827 22, ,420-98,420 Sales revenue from internal customers 1, ,474 (1,474) - Total sales revenue 34,896 41,898 22, ,894 (1,474) 98,420 Adjusted EBITDA * 8,161 4, (335) 12,641 (31) 12,610 Non-operating foreign exchange gain/(loss) (1,377) (1,377) 1,221 (156) Inter-segmental charges (135) (68) (204) Earnings before interest, tax, depreciation, amortisation and 6,649 4,720 (177) 72 11,264 1,190 12,454 impairment Impairment of investment in subsidiary (5,169) (5,169) 5,169 - Depreciation and amortisation (1,893) (830) (906) (45) (3,674) - (3,674) Interest received/(paid) 95 (406) (879) - (1,190) - (1,190) Profit/(loss) before income tax (318) 3,484 (1,962) 27 1,231 6,359 7,590 Income tax (expense)/credit (1,466) (1,047) 416 (12) (2,109) (331) (2,440) Profit/(loss) for the year (1,784) 2,437 (1,546) 15 (878) 6,028 5, Other segmental items Assets 69,272 21,980 37,547 1, ,852 (45,471) 84,381 Liabilities (21,776) (15,143) (25,998) (648) (63,565) 24,464 (39,101) Acquisitions of property, plant and equipment and intangibles 1, ,092-2,092 * Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, impairment, non-operating foreign exchange gain/(loss) and inter segmental charges.

60 5 Segment information (continued) (b) Notes to and forming part of the segment information Revenue from the Group s top 5 customers comprises 45% (2013: 46%) of the total Group revenue. Revenue from the top 5 customers is spread across our New Zealand and Australia segments. The Group s largest customer accounts for 13% of the Group s revenue (2013: 14%) and is spread across the New Zealand and Australia segments. The total non-current assets, other than financial instruments and deferred tax assets, located in New Zealand is $36,236,000 (2013: $31,918,000), Australia $1,148,000 (2013: $1,775,000) and the UK $27,015,000 (2013: $26,368,000). Significant items included in the inter-segment elimination of assets and liabilities were the elimination of parent investments in subsidiaries of $27,937,000 (2013: $22,768,000) and elimination of parent advances to subsidiaries $21,839,000 (2013: 21,331,000). (c) Non GAAP measures Methven comments on non-gaap measures to provide data that is useful in understanding the underlying and on-going operations of the Group. 58 Reconciliation between earnings before and after significant items CONSOLIDATED NZ $000 EBITDA NPAT EBITDA NPAT Reported earnings 11,273 4,708 12,610 5,150 Merger and Acquisition costs Earnings excluding significant items 12,002 5,366 12,926 5,466 Significant items Merger and Acquisition costs relate to the agreement to acquire the business assets of premium tapware manufacturer Invention Sanitary. For further information refer to note 27. These have been incurred by the New Zealand entity. Reconciliation of Net Debt to the consolidated balance sheet NZ $ Cash and cash equivalents 2,104 2,885 Non-current interest bearing liabilities (16,554) (20,107) Net Debt (14,450) (17,222)

61 6 Revenue CONSOLIDATED PARENT NZ $000 Notes Sale of goods 96,720 98,420 35,054 34,896 Other income Interest ,033 1,086 Dividends ,961 1,292 Management fee Royalty income Government grants ,855 4,358 59

62 7 Expenses CONSOLIDATED PARENT NZ $000 Notes Depreciation 12 2,066 2,412 1,232 1,411 Amortisation 14 1,156 1, (Write back)/impairment of investment in subsidiary (5,169) 5, Inter-group fee charged Loss on asset disposal Foreign exchange (gains) losses (180) 1,354 Interest and finance charges paid/payable 934 1, Rental expense relating to operating leases Minimum lease payments 1,742 1, Sundry expenses Donations Directors' fees Bad and doubtful debts (recovery)/expense (3) Merger and acquisition costs Employee benefit expense Wages, salaries and short term benefits 19,225 20,435 8,847 7,913 Termination benefits Remuneration of auditors Audit of financial statements Audit and review of financial statements (i) Other services Due diligence (ii) Other services (iii) Total other services Total fees paid to auditor (i) The audit fee includes the fees for both the annual audit of the financial statements and agreed upon procedures for interim financial statements. (ii) Due diligence includes fees related to the acquisition of premium tapware manufacturer Invention Sanitary. (iii) Other services include technical acquisition accounting services in relation to the acquisition of Invention Sanitary, agreed upon procedures associated with grant compliance reporting and services related to the liquidation of UK subsidiary Windsor Water Fittings Limited. The Group s auditor independence policy requires that in a financial year, fees paid to the Group s external audit provider for non-audit related services should not exceed 25% of all fees paid to that provider. During the year ended 31 March 2014 an exception to this policy was approved by the Board of Directors in relation to due diligence costs for the acquisition of Invention Sanitary, resulting in fees paid to PricewaterhouseCoopers for non-audit related services being 31% of total fees paid. Non audit related services excluding due diligence costs were 12% of the total fees paid to PricewaterhouseCoopers.

63 8 Income tax expense CONSOLIDATED PARENT NZ $ (a) Income tax expense Current tax expense: Current tax 2,555 2,909 1,775 1,545 Adjustment for prior year 54 (12) 25 (12) 2,609 2,897 1,800 1,533 Deferred tax expense (note 13) Origination and reversal of temporary differences (272) (498) (97) (79) Reduction in company tax rates Adjustment for prior year (11) 9 (6) 12 (157) (457) (103) (67) Income tax expense 2,452 2,440 1,697 1,466 (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit before income tax expense 7,160 7,590 13, Tax at 28% (2013: 28%) 2,005 2,125 3, Tax effect of amounts which are not deductible (taxable) in calculating taxable income (1,298) 1,555 Difference in overseas tax rates Adjustment for prior year 43 (3) - Tax exempt income - - (823) (362) Reduction in company tax rates Income tax expense 2,452 2,440 1,697 1,466 The weighted average effective tax rate for the Group was 34.2% (2013: 32.1%). With effect from 1 April 2014, the company tax rate for the United Kingdom reduced from 23% to 21%. This resulted in a decrease of deferred tax assets which have been expensed to the income statement. 61

64 9 Current assets - Trade receivables CONSOLIDATED PARENT NZ $ Trade receivables* 15,972 19,373 6,024 8,474 Provision for doubtful receivables (260) (444) ,712 18,929 6,024 8,474 The fair value of trade receivables approximates their carrying value. No interest has been charged on trade receivables. *Within Parent trade receivables are current related party receivables of $1,150,000 (2013: $2,118,000) as per note The carrying amounts of the Group s trade receivables are denominated in the following currencies: CONSOLIDATED PARENT NZ $ NZD 4,187 5,632 6,024 8,474 AUD 7,107 8, GBP 3,794 3, CNY ,712 18,929 6,024 8,474 Receivables past due date As at 31 March 2014, Group trade receivables of $1,077,000 (2013: $3,291,000) were past due but not considered doubtful. These relate to a number of accounts for which there is no recent history of default. The ageing of these receivables is as follows: CONSOLIDATED PARENT NZ $ to 6 months 1,033 3, ,348 Over 6 months ,077 3, ,379 As at 31 March 2014, Group trade receivables of $260,000 (2013: $444,000) were considered doubtful and provided for. These are mainly due to debtors who are experiencing financial difficulties or outstanding disputes. The ageing analysis of these doubtful trade receivables is as follows: CONSOLIDATED PARENT NZ $ to 6 months Over 6 months

65 9 Current assets - Trade receivables (continued) Movements in the provision for doubtful receivables are shown below: CONSOLIDATED PARENT NZ $ Opening balance Provision for doubtful receivables (144) Receivables written off during the year (40) (59) - - Recoveries received during the year - (11) The creation and release of the provision for doubtful receivables has been included in sales and distribution expenses in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The maximum exposure to credit risk at the reporting date is the fair value of receivables mentioned above. The Group does not hold any collateral as security. For a description of the Groups exposure to credit risk refer to note 3(d). 10 Current assets - Inventories 63 CONSOLIDATED PARENT NZ $ Raw materials and components 4,219 3,150 4,214 3,150 Consumables Work in progress Finished goods 16,648 17,631 2,910 2,860 Provision for inventory obsolescence (1,539) (1,273) (572) (541) Net inventories 19,423 19,590 6,647 5,551 Group inventories recognised as an expense (within cost of sales) during the year ended 31 March 2014 amounted to $49,472,000 (2013: $49,116,000), Parent $16,557,000 (2013: $16,497,000). The Group recognised a net increase of $266,000 (2013: increase $102,000) in respect of the movement in provision for inventory obsolescence and adjustment of inventories to net realisable value. The provision movements are included in cost of sales in the income statement. No other movements have been recognised in the income statement in respect of inventory written down to net realisable value.

66 11 Derivative financial instruments 64 CONSOLIDATED PARENT NZ $ Current assets Interest rate swap contracts - cash flow hedges Forward foreign exchange contracts (ii) Interest rate swaps - fair value hedges (i) Total current derivative financial instrument assets Non-current assets Interest rate swaps - cash flow hedges (i) Total non-current derivative financial instrument assets Current liabilities Forward foreign exchange contracts (ii) (1,092) (126) (649) (54) Interest rate swaps - cash flow hedges (i) - (30) - (30) Total current derivative financial instrument liabilities (1,092) (156) (649) (84) Non-current liabilities Interest rate swaps - cash flow hedges (i) - (28) - (28) Total non-current derivative financial instrument liabilities - (28) - (28) Total derivative financial instruments (1,023) (31) (597) (91) Instruments used by the Group The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates and foreign exchange rates in accordance with the Group s financial risk management policies (note 3). (i) Interest rate swap contracts - cash flow hedges Bank loans of the Group carried an average variable interest rate of 5.4% (2013: 5.7%). It is Group s policy to protect part of the loans from exposure to increasing interest rates. Accordingly, the Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates. Swaps currently in place cover approximately 36.2% (2013: 22%) of the loan principal outstanding. The contracts require settlement of net interest receivable or payable quarterly. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts are settled on a net basis. The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and reclassified into profit and loss when the hedged interest expense is recognised. Any ineffective portion is recognised in the income statement immediately. There has been no ineffectiveness during the current or prior year. (ii) Forward exchange contracts - cash flow hedges In order to protect against exchange rate movements, the Group has entered into forward exchange contracts and options to purchase foreign currency. These contracts and options are hedging highly probable forecasted purchases for the ensuing financial year. These financial instruments are timed to mature when payments for major shipments of component parts are scheduled to be made. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by the related amount deferred in equity. Any ineffective portion is recognised in the income statement immediately. There has been no ineffectiveness hedging during the current or prior year.

67 12 Non-current assets - Property, plant and equipment CONSOLIDATED NZ $000 Capital work in progress Plant, fixtures, fittings and equipment Motor vehicles At 1 April 2012 Cost , ,233 Accumulated depreciation - (14,015) (156) (14,171) Net book amount 986 6, ,062 Total Year ended 31 March 2013 Opening net book amount 986 6, ,062 Effect of movement in exchange rates - (60) (2) (62) Additions ,621 Transferred completed work in progress (1,230) 1, Depreciation charge - (2,364) (48) (2,412) Disposals - (41) - (41) Closing net book amount 692 5, ,168 At 31 March 2013 Cost , ,489 Accumulated depreciation - (16,106) (215) (16,321) Net book amount 692 5, , Year ended 31 March 2014 Opening net book amount 692 5, ,168 Effect of movement in exchange rates - (177) (3) (180) Additions Transferred completed work in progress (839) Depreciation charge - (2,030) (36) (2,066) Disposals - (25) - (25) Closing net book amount 387 4, ,719 At 31 March 2014 Cost , ,743 Accumulated depreciation - (16,794) (230) (17,024) Net book amount 387 4, ,719 There are no finance leased assets included within property, plant and equipment at 31 March 2014 or 31 March 2013.

68 12 Non-current assets - Property, plant and equipment (continued) PARENT NZ $000 Capital work in progress Plant, fixtures, fittings and equipment Motor vehicles At 1 April 2012 Cost , ,667 Accumulated depreciation - (11,085) (2) (11,087) Net book amount 986 3, ,580 Total 66 Year ended 31 March 2013 Opening net book amount 986 3, ,580 Additions Transferred completed work in progress (1,229) 1, Depreciation charge - (1,409) (2) (1,411) Disposals Closing net book amount 692 3, ,104 At 31 March 2013 Cost , ,260 Accumulated depreciation - (12,152) (4) (12,156) Net book amount 692 3, ,104 Year ended 31 March 2014 Opening net book amount 692 3, ,104 Additions Transferred completed work in progress (839) Depreciation charge - (1,230) (2) (1,232) Disposals - (1) - (1) Closing net book amount 387 3, ,406 At 31 March 2014 Cost , ,032 Accumulated depreciation - (12,620) (6) (12,626) Net book amount 387 3, ,406 During the year ended 31 March 2014 no property, plant and equipment impairment losses were recognised (2013: $nil).

69 13 Non-current deferred tax CONSOLIDATED PARENT NZ $ (a) The balance comprises temporary differences attributable to: Depreciation Provisions and accruals Customer relations (426) (591) - - Tax losses 1,134 1, Derivative financial instruments ,212 1, (b) Movements: Opening balance at 1 April 1,830 1, Credited (charged) to the income statement (note 8) Credited (charged) to equity 264 (146) 142 (46) Movement between current and deferred tax balance 21 (4) - - Foreign exchange differences (60) (62) - - Closing balance at 31 March 2,212 1, (c) Income/(expense) recognised in income statements Depreciation Provisions and accruals (6) (118) 29 (11) Customer relations Tax losses (166) Other (20) 11 - (1) In respect of each temporary difference, the table above summarises the amount of income/(expense) recognised in the income statements. The Group has recognised tax losses only if it is probable that future taxable income will be available to utilise those losses. CONSOLIDATED PARENT NZ $ Deferred tax asset to be recovered after more than 12 months 1,620 1, Deferred tax asset to be recovered within 12 months Total deferred tax assets 2,607 2, Deferred tax liability to be recovered after more than 12 months (392) (618) - - Deferred tax liability to be recovered within 12 months (3) (113) - - Total deferred tax liabilities (395) (731) - - Net deferred tax assets 2,212 1,

70 14 Non-current assets - Intangible assets CONSOLIDATED NZ $000 Goodwill Software Patents & trademarks Customer relations At 1 April 2012 Cost 29,568 3,309 1,370 7,917 42,164 Accumulated amortisation - (1,222) (694) (4,540) (6,456) Net book amount 29,568 2, ,377 35,708 Total 68 Year ended 31 March 2013 Opening net book amount 29,568 2, ,377 35,708 Effect of movement in exchange rates (1,637) (55) (9) (191) (1,892) Additions Amortisation charge - (548) (96) (618) (1,262) Closing net book amount 27,931 1, ,568 33,025 At 31 March 2013 Cost 27,931 3,538 1,483 7,382 40,334 Accumulated amortisation - (1,757) (738) (4,814) (7,309) Net book amount 27,931 1, ,568 33,025 At 31 March 2013 New Zealand 3, ,045 Australia 1, ,015 United Kingdom 22, ,568 25,965 Net book amount 27,931 1, ,568 33,025 Year ended 31 March 2014 Opening net book amount 27,931 1, ,568 33,025 Effect of movement in exchange rates 1, ,449 Additions Amortisation charge - (429) (104) (623) (1,156) Disposals - - (54) - (54) Closing net book amount 29,196 1, ,099 33,592 At 31 March 2014 Cost 29,196 3,637 1,609 7,799 42,241 Accumulated amortisation - (2,106) (843) (5,700) (8,649) Net book amount 29,196 1, ,099 33,592 At 31 March 2014 New Zealand 3, ,892 Australia 1, ,957 United Kingdom 23, ,099 26,743 Net book amount 29,196 1, ,099 33,592

71 14 Non-current assets - Intangible assets (continued) PARENT NZ $000 Goodwill Software Patents & trademarks At 1 April 2012 Cost 3,504 2,217 1,278 6,999 Accumulated amortisation - (985) (639) (1,624) Net book amount 3,504 1, ,375 Total Year ended 31 March 2013 Opening net book amount 3,504 1, ,375 Additions Amortisation charge - (397) (85) (482) Closing net book amount 3, ,046 At 31 March 2013 Cost 3,504 2,285 1,363 7,152 Accumulated amortisation - (1,382) (724) (2,106) Net book amount 3, ,046 Year ended 31 March 2014 Opening net book amount 3, ,046 Additions Amortisation charge - (260) (83) (343) Disposal - - (12) (12) Closing net book amount 3, ,893 At 31 March 2014 Cost 3,504 2,343 1,495 7,342 Accumulated amortisation - (1,642) (807) (2,449) Net book amount 3, ,893 69

72 14 Non-current assets - Intangible assets (continued) (a) Impairment test for customer relations At balance date the Group has assessed the recoverable amount of intangible assets attributable to Customer Relations which were acquired through Windsor Water Fittings Limited (formerly Deva Tap Company Limited) on 31 August The recoverable amount has been determined on a value in use basis and has resulted in no impairment charge for the year (2013: Nil). The Group considered a reassessment of the recoverable amount was required in light of impairments booked in 2011 and due to soft economic conditions experienced in the UK and the related impact on demand for shower and tapware products. The recoverable amount uses cash flow projections based on management forecasts through to March The basis for using these forecasts is they reflect management s experience of past performance adjusted for the expectations of future events, including expectations of future market conditions. Cash flows beyond March 2017 are extrapolated using estimated growth rates of 3% (2013: 2%) for the balance of the valuation model. The key assumptions in the forecasts are growth through: Higher sales volumes of tap and showerware utilising value end Deva branded product and the benefits of Methven proprietary product through existing and new channels. Volume growth will be driven by new marketing investment in brand equity and online, along with a renewed focus on untapped distribution; Pull through sales strategy to hotel and other commercial institutions through the existing customer relationships; Modest margin improvements; and Overhead cost reductions. A discount rate used of 9.0% (2013: 9.0%) has been used in the impairment test of customer relationships. This assumption was calculated with reference to externally sourced market information specific to the United Kingdom adjusted upward to recognise the risk of growth strategies in the current economic climate. The customer relations value at balance date of $2,099,000 (2013: $2,568,000) is amortised on a straight line basis with a remaining amortisation period of 3 years and 5 months. Management does not expect a reasonably possible change in key assumptions would reduce the recoverable amount of customer relations below its carrying amount. 70

73 14 Non-current assets - Intangible assets (continued) (b) Impairment tests for goodwill The recoverable amount of the assets attributable to goodwill is determined based on value in use calculations for each Cash Generating Unit (CGU) that the intangible asset relates to. The CGUs equate to the segments in the table below. The calculations use cash flow projections based on management forecasts to March 2017 (UK) and March 2015 (New Zealand and Australia). The forecasts are based on past performance adjusted for expectations of future events, including expectations of future market conditions. The key forecast assumptions are consistent with those used in the customer relations impairment test. Cash flows beyond March 2017 (March 2015 for New Zealand and Australia) are extrapolated using the estimated growth rates in the table below. The growth rates have been derived with reference to externally sourced growth forecasts of GDP and CPI in the respective markets. The discount rates used in the impairment tests have been calculated with reference to externally sourced market information specific to each region and in the case of the UK market, adjusted upward to recognise the risk of growth strategies in the current economic climate. The tests did not indicate any impairment as at 31 March No impairment has been recognised in any of the prior periods presented. A cash generating unit level summary of the goodwill allocation and key impairment assumptions are presented below: 2014 New Zealand Australia UK Total Goodwill NZ$000 3,504 1,874 23,818 29,196 Terminal growth rate 3.0% 3.0% 3.0% Discount rate 8.7% 8.5% 9.0% 2013 New Zealand Australia UK Total Goodwill NZ$000 3,504 1,882 22,545 27,931 Terminal growth rate 3.0% 3.0% 2.0% Discount rate 8.1% 8.2% 9.0% In addition to the assumptions presented above Management are forecasting for sales growth in the UK to March 2017 of between 6-9% above GDP growth rates. This growth is driven by the full year impact of customer gains captured in this financial year and activity described in note 14 (a) that includes new marketing investment in the UK market. The breakeven sales growth is 4.9% above GDP growth rates, below which an impairment would be required. Management does not expect reasonably possible changes in key assumptions would reduce the recoverable amount of the New Zealand or Australia CGU below its carrying amount. In respect of the UK CGU it is reasonably possible that outcomes within the next financial year that are different from the key assumptions could require a material adjustment to the carrying amount which may result in an impairment. Set out below are reasonably possible changes in key assumptions as applied to the UK goodwill balance. Key Assumptions Variation UK Goodwill Impairment NZ$000 Terminal year sales growth (percentage points) - 1% No impairment Discount rate (percentage points) +2% No impairment Gross margin (percentage points) -3% No impairment Sales growth rate -50% 3,644 71

74 15 Current liabilities - Provisions CONSOLIDATED PARENT NZ $ Service warranties Provision is made for the estimated warranty claims in respect of products sold which are still under warranty at balance date. The majority of these claims are expected to be settled in the next financial year but this may be extended into the following year if claims are made late in the warranty period and are subject to confirmation by suppliers that component parts are defective. Management estimates the provision based on historical warranty claim information and any recent trends that may suggest future claims could differ from historical amounts. (a) Movements in warranty provisions CONSOLIDATED PARENT NZ $ Current Carrying amount at start of year Additional provisions recognised Provision used during the year (160) (193) (161) (193) Carrying amount at end of year

75 16 Interest bearing liabilities Currency CONSOLIDATED PARENT Current Non current Current Non current Facility limit (000's) Expiry NZ $000 NZ $000 NZ $000 NZ $000 As at 31 March 2014 Bank facility - BNZ loan NZD $24,000 Apr ,750-11,750 Bank facility - Yorkshire Bank loan GBP 3,500 Apr , ,554-11,750 CONSOLIDATED PARENT Current Non current Current Non current Currency Facility limit (000's) Expiry NZ $000 NZ $000 NZ $000 NZ $000 As at 31 March 2013 Bank facility - BNZ loan NZD $24,000 Apr ,650-14,650 Bank facility - Yorkshire Bank loan GBP 3,500 Apr , ,107-14,650 Both the BNZ and the Yorkshire Bank are part of the National Australia Bank Group. Security The bank facilities are secured by way of a general security agreement over the Parent s assets with supporting guarantees from all material subsidiaries, and have been advanced to the Group subject to compliance with the following financial covenants: (a) the interest cover ratio for the Group shall not be less than 2.5 times. As at 31 March 2014 the Group complied with this covenant with an interest cover of 10.1 times (31 March 2013: 8.7 times). (b) the gearing ratio for the Group (net debt divided by EBITA) shall not exceed 3.5 times. As at 31 March 2014 the Group complied with this covenant with a gearing ratio of 1.5 times (31 March 2013: 1.7 times). (c) the Guaranteeing Group holds not less than 95% of total assets and earns not less than 95% of total revenue and EBITDA. As at 31 March 2014 the Group complied with this covenant with 99% of total assets, 100% of total revenue and 100% of EBITDA (31 March 2013: 99% of total assets, 100% of total revenue and EBITDA). The Guaranteeing Group comprises the Parent and all subsidiaries excluding Methven (Xiamen) Trading Co Ltd. Group compliance has been maintained during the financial year and prior year. Interest rates The weighted average effective interest rate on borrowings was 5.4% (2013: 5.7%). 73

76 17 Imputation credits Through shareholding in parent company NZ $ Imputation credits available for use in subsequent periods 430 (130) 18 Share capital Number of shares 2014 Shares CONSOLIDATED AND PARENT 2013 Shares 2014 NZ $000 Share capital 2013 NZ $000 Opening and closing balance of ordinary shares issued 66,606,265 66,606,265 46,986 46,986 All shares on issue are fully paid. All ordinary shares rank equally with one vote attached to each fully paid ordinary share and have equal dividend rights. All shares are non-par value shares Dividends 2014 Cents per share CONSOLIDATED AND PARENT 2013 Cents per share NZ $000 NZ $000 Interim dividend for the year ended 31 March ,331 - Final dividend for the year ended 31 March ,997 - Interim dividend for the year ended 31 March ,998 Final dividend for the year ended 31 March , ,328 6, The interim dividend paid during the year was imputed at a rate of 16%. The 2013 final dividend paid during the year was imputed at a rate of 14%. Supplementary dividends of $15,642 (2013: $25,271) were also provided to shareholders not tax resident in New Zealand, for which the Group received a Foreign Investor Tax Credit entitlement.

77 20 Contingencies The Group has contingencies in respect of litigation threatened by a former service provider. The Directors are vigorously defending the claim and believe the Group is in a strong position. While it is not possible to predict with certainty whether the Group will be successful in defending the claim it is not anticipated that any material liabilities will arise. The Parent and the Group had no other contingent liabilities or assets as at 31 March 2014 (2013: Nil). 21 Commitments As at 31 March 2014 the Parent and Group had no capital commitments (2013:$Nil). (i) Operating leases The Group has operating leases for premises, vehicles, plant and equipment. There are no options to purchase in respect of these leases. There are no sub-leases from the above. The future aggregate minimum lease payments under the non-cancellable operating leases are as follows: CONSOLIDATED PARENT NZ $ Within one year 957 1, One to two years Two to five years Later than five years ,164 3, (ii) Finance leases For the year ended 31 March 2014 the Group has no finance leases (2013: Nil).

78 22 Related party transactions (a) Equity interests in subsidiaries Subsidiaries over which the Group has the power to govern as described in note 2(b) are disclosed in note 23. (b) Key management personnel compensation 76 CONSOLIDATED PARENT NZ $ Salaries and other short term employee benefits 1,436 1, Director fees ,632 1, Key management personnel did not receive and are not entitled to receive any post employment or long term benefits. (c) Other parties All transactions between the Group and related parties were in the normal course of business and provided on commercial terms. There are no outstanding balances at year end (2013: Nil). (d) Transactions between the parent and subsidiaries The Parent has entered into certain transactions in the form of recharging of expenses and overheads with its subsidiaries and the sale of inventory. During the current year, service fees were charged by the Parent to subsidiaries for work performed by Methven Limited relating to the operations of its subsidiaries and marketing support charges paid by the parent to one of its subsidiaries. In presenting the financial statements of the Group, the effect of transactions and balances between subsidiaries and those with the Parent have been eliminated. Related party loans are unsecured advances from the Parent to its wholly owned subsidiaries, representing funding for no fixed term and bear interest rates between 4% and 8% (2013: between 4% and 8%). These have been classified as current in the balance sheet as they can be called at any time. All transactions between the Parent and related parties were in the normal course of business and provided on commercial terms. Movements in loans to related parties during the year include Parent advances to (or repayment from) Methven Australia Pty Limited to fund working capital requirements, and repayment of advances to Methven (Xiamen) Trading Co Ltd.

79 22 Related party transactions (continued) PARENT NZ $ Sales of goods and services Sales of inventory to Methven Australia Pty Limited 1,082 1,278 Sales of inventory to Methven UK Limited Sales of inventory to Methven (Xiamen) Trading Co Ltd ,351 1,383 Royalties Royalties paid by Methven Australia Pty Limited Royalties paid by Methven (Xiamen) Trading Co Ltd Marketing support fees Marketing support fees paid to Methven (Xiamen) Trading Co Ltd (399) (582) Service fees Service fees paid (to)/by Methven Australia Pty Limited (141) 68 Service fees paid by Methven UK Limited Service fees paid by Methven (Xiamen) Trading Co Ltd Loans to/(from) related parties Methven Australia Pty Limited 4,872 5,689 Methven UK Limited 16,851 15,731 Methven USA Inc Methven (Xiamen) Trading Co Ltd 5 (201) 21,839 21,331 Interest expense Paid by Methven Australia Pty Limited Paid by Methven UK Limited ,033 1,079 Dividend revenue Paid by Methven Australia Pty Limited 2,961 1, Current receivables (sales of goods and services) Methven Australia Pty Limited Methven UK Limited 295 1,015 Methven (Xiamen) Trading Co Ltd ,150 2,118 No provisions for doubtful debts have been recognised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties.

80 23 Investments in subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2(b): 78 Name of entity Country of incorporation Activities Equity holding 2014 % 2013 % Methven Australia Pty Limited Australia Shower and tapware supplier Methven Hotel Solutions Pty Limited Australia Non-trading Methven UK Limited UK Shower and tapware supplier The Deva Tap Company Limited UK Dormant Windsor Water Fittings Limited UK In Liquidation Howard Bird & Company Limited UK Dormant Methven (Xiamen) Trading Co Ltd China Quality control and sourcing services, Shower and tapware supplier Methven USA Inc USA Non-trading Equity interests in subsidiaries Methven Australia Pty Limited 3,840 3,840 Methven USA Inc. 1 1 Methven UK Limited 23,439 18,270 Methven (Xiamen) Trading Co Ltd ,937 22,768 All subsidiaries have a balance date of 31 March. Management have undertaken an impairment review of the investment in the United Kingdom subsidiary. Due to changes in the GBP/NZD rate, UK corporate tax rates, and Bank of England projected GDP growth, there has been a write-back of an impairment of $5,169,000 in the Parent company to the value of its investment in the United Kingdom subsidiary (2013: $5,169,000 impairment recognised in the Parent company). 24 Events occurring after the reporting period The following events have occurred subsequent to 31 March 2014: The Board of Directors resolved to pay a final dividend of 4.5 cents per share or $3.0 million. The dividend will be paid on 30 June 2014 to all shareholders on the Company s register at the close of business on 20 June There have been no other events occurring after balance date which would materially affect the accuracy of these financial statements. Refer to note 27 in respect of the agreement to acquire Invention Sanitary.

81 25 Reconciliation of profit after income tax to net cash inflow from operating activities CONSOLIDATED PARENT NZ $ Profit/(loss) for the year 4,708 5,150 11,939 (491) Depreciation 2,066 2,412 1,232 1,411 Amortisation of intangible assets 1,156 1, Impairment of investment in subsidiary - - (5,169) 5,169 Net loss on disposal of assets (1) - Net exchange differences - - (124) 1,377 Impact of changes in working capital items Trade receivables 1,719 (568) 2, Inventories (746) (513) (1,100) (386) Prepayments and other assets (1) (23) 198 (512) Trade creditors 1,383 (4,165) 300 (218) Employee accruals 83 (413) (10) (176) Provisions, other creditors and accruals (150) 140 Tax (payable)/receivable 517 (455) 494 (208) Deferred income tax (187) (450) (103) (67) Net cash inflow from operating activities 10,792 2,984 10,168 6,653 79

82 26 Earnings per share CONSOLIDATED (a) Basic earnings per share Net profit attributable to shareholders ($000) 4,708 5,150 Weighted average number of ordinary shares on issue 66,606,265 66,606,265 Basic earnings per share (cents) (b) Diluted earnings per share Net profit attributable to shareholders ($000) 4,708 5,150 Weighted average number of ordinary shares for diluted earnings per share 66,606,265 66,606,265 Diluted earnings per share (cents) Basic earnings per share is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares on issue during the year. Diluted earnings per share is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares on issue during the year adjusted to assume conversion of dilutive potential of ordinary shares as a result of the issue of share options when the average market price of ordinary shares during the period exceeds the exercise price of the share option. 27 Agreement to acquire Chinese manufacturer In July 2013 the Group announced they had entered into an agreement to acquire the business assets of premium tapware manufacturer Invention Sanitary, and all the shares in its New Zealand based related company Plumbing Supplies (NZ) Limited. Transfer of the ownership and control of Invention Sanitary s business and assets and of the shares in Plumbing Supplies (NZ) Limited will take effect on 30 June Merger and acquisition costs incurred during the year ended 31 March 2014 were $729,000 (31 March 2013: $316,000). Methven will pay an initial purchase price on completion based on a multiple of four times the Net Profit After Tax (NPAT) earned by the business in the 12 months ended 30 June 2014, up to a maximum of NZD$10 million if NPAT reaches USD$2 million (NZD$2.5 million). The initial purchase price will be settled by payment of CNY25 million (NZD$5 million) in cash, and up to NZD$5 million in the issuance of new shares in Methven. The cash consideration will be paid in CNY and Methven has entered into a CNY/NZD hedging arrangement to fix the NZD cash consideration at NZD$5 million. In addition to the initial purchase price, the vendor will be eligible to earn an uplift to the purchase price of four times the amount by which NPAT exceeds USD$2 million (NZD$2.5 million) per annum, up to a maximum of CNY 12 million (NZD$2.5 million) over the two years ending 30 June 2016.

83 General Disclosures Directors remuneration Remuneration and other benefits received, or due and receivable during the year by the Directors of Methven Limited were as follows: 31 March 2014 $000 Phil Lough Independent Chairman 72 Rick Fala Non-Executive (Executive until 31 December 2013) Richard Cutfield Independent 36 Peter Stanes Independent 43 Alison Taylor Independent Directors of subsidiaries All directors of subsidiaries are employees of the Methven Group. No employee appointed as a director of a subsidiary receives any remuneration or other benefits in his or her role as a director of that subsidiary. The remuneration of such employees that receive more than $100,000 as a result of employee remuneration (and other benefits) is included in the Remuneration of Employees table on page 82. ENTITY Methven Australia Limited Methven Hotel Solutions Pty Limited Methven USA Inc. Methven UK Limited Deva Tap Company Limited Windsor Water Fittings Limited (Under Liquidation) Howard Bird & Company Limited (Dormant Company) Methven (Xiamen) Trading Co Ltd CURRENT DIRECTORS David Banfield, Mark Bejatovic David Banfield, Mark Bejatovic David Banfield David Banfield, Steve Lee, Nigel Darbyshire David Banfield, Nigel Darbyshire David Banfield, Nigel Darbyshire David Banfield, Nigel Darbyshire David Banfield, Maggie Zheng, Deidre Campbell 81 Methven Annual Report 2014

84 Directors shareholdings in Methven Limited 31 March March 2013 Directors of Methven Limited Rick Fala* 3,166,930 3,166,930 Phil Lough* 211, ,301 Richard Cutfield* 150, ,000 Peter Stanes* 70,000 70,000 Directors of Subsidiaries Stephen Lee 300, ,000 Nigel Darbyshire 90,297 90,297 Deidre Campbell 94,930 94,930 *Each director s interest in the Company s shares is held through a discretionary trust of which that director is a potential beneficiary. Phil Lough, Richard Cutfield, Rick Fala, and Peter Stanes are also trustees of their relevant trusts. Methven Annual Report 2014 Directors insurance The Group has arranged Directors and Officers Liability insurance, which ensures that Directors will incur no monetary loss as a result of actions undertaken by them as Directors provided they act within the law. 82 Remuneration of employees The number of employees (not being Directors of Methven Limited) who s annual remuneration and the value of other benefits exceeded $100,000 is as follows: $ $ $ Offshore remuneration has been converted into New Zealand dollars at the average exchange rate used for translating the operating results, specifically; Australia and UK

85 Share dealings by directors During the year the Board received no disclosures of acquisitions or disposals of relevant interests in the Company from any of the Directors. Disclosure of interests by directors The Directors named below have made a general disclosure of interest to the Board and have entered the interest in the Company s interest register. Phil Lough Director and Chairman of Director of Shareholder in* Quotable Value Limited Fisher & Paykel Appliances Holdings Limited Livestock Improvement Corporation Limited Port Nelson Limited Methven Limited Rick Fala Shareholder in* Methven Limited Richard Cutfield Director of and Shareholder in Director of Shareholder in* Most Excellent Holdings Limited (and subsidiaries including Phil and Teds Most Excellent Buggy Company Limited) Formway Furniture Limited Goodnature Limited Watson Brew Limited (and subsidiaries) Methven Limited Peter Stanes Alison Taylor Director and Chairman of Shareholder in* Director of Shareholder in Rembrandt Suits Limited Methven Limited Griffin's Foods Limited NZ Snack Food Holdings Limited Stephen Lee Shareholder in Methven Limited Nigel Darbyshire Shareholder in Methven Limited Deidre Campbell Shareholder in Methven Limited *Each director s interest in the Company s shares is held through a discretionary trust of which that director is a potential beneficiary. Phil Lough, Richard Cutfield, Rick Fala and Peter Stanes are also trustees of the relevant trust. 83 Methven Annual Report 2014 Gender composition The Company has a formal Workplace Relations policy which supports equal opportunity for all employees. Methven will consider all employees and prospective employees according to their qualifications, expertise and experience to attract the best people for the job. As at 31 March 2014, the gender balance of the Company s directors and officers is as follows Directors Officers Female 1 2 Male 4 5 Total 5 7

86 Shareholder information The details set out below were as at 22 May Methven Annual Report 2014 Principal shareholders Ordinary shares % Tea Custodians Limited 5,770, Cogent Nominees Limited 4,655, Superlife Trustee Nominees Limited 3,649, Richardson M Fala & Megan R Fala Smith & Lance F Hirst 3,166, BT NZ Unit Trust Nominees Ltd 2,152, Guardian Nominees Ltd A/C Westpac NZ Shares 2002 Wholesale Trust 1,588, Forsyth Barr Custodians Limited 1-33 A/C 1,492, New Zealand Superannuation Fund Nominees Limited 1,272, FNZ Custodians Limited 1,196, Accident Compensation Corporation 1,180, Custodial Services Limited 3 A/C 1,024, Forsyth Barr Custodians Limited A/C 739, NZPT Custodians (Grosvenor) Limited 630, National Nominees New Zealand Limited 484, Forsyth Barr Custodians Limited 1-30 A/C 471, Investment Custodial Services Limited 463, Custodial Services Limited 2 A/C 412, New Zealand Permanent Trustees Limited 343, Custodial Services Limited 18 A/C 321, Custodial Services Limited 4 A/C 287, Size of holding Number of holders % Securities % Issued Capital 1-1, , ,001-5,000 1, ,326, ,001-10, ,064, ,001-50, ,286, , , ,070, ,001 and over ,659, , ,606, Substantial security holders Pursuant to section 26 of the Securities Markets Act 1988, the following shareholders have filed notices with the Company that they are Substantial Security Holders in the Company as at 22 May 2014 (there being a total of 66,606,265 shares on issue at that date): Ordinary shares AMP Capital Investors (New Zealand) Limited 5,874,373 Milford Asset Management Limited 5,359,656 Superlife Trustee Nominees Limited 3,473,952 Salt Funds Management Limited 3,339,035

87 Directory Registered Office of Methven Limited Private Bag Avondale Auckland 1746 New Zealand 447 Rosebank Road Avondale Auckland 1026 New Zealand Telephone Facsimile Methven Australia Pty Limited 16 Gipps Street Collingwood Victoria 3066 Australia Telephone Facsimile Methven USA Inc. c-/ Private Bag Avondale Auckland 1746 New Zealand Telephone Facsimile Methven Uk Limited Brooklands Mill English Street Leigh Lancashire WN7 3EH United Kingdom Telephone Facsimile Methven Xiamen Trading Co. Ltd. Suite 7B No.625 Sishuidao Huli District Xiamen Fujian China Telephone Facsimile Auditors PricewaterhouseCoopers PricewaterhouseCoopers Tower 188 Quay Street Private Bag Auckland 1142 New Zealand Solicitors Simpson Grierson Lumley Centre 88 Shortland Street Private Bag Auckland 1141 New Zealand Share Registry Link Market Services Level 7, Zurich House 21 Queen Street PO Box Auckland 1142 New Zealand Bankers Bank of New Zealand Deloitte Centre 80 Queen Street Private Bag Auckland 1142 New Zealand Yorkshire Bank 1st Floor, The Chancery 58 Spring Gardens Manchester M2 1YB United Kingdom National Australia Bank Level 1/99 Bell Street Preston Victoria 3072 Australia 85 Methven Annual Report 2014

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