Methven was founded in New Zealand in 1886 as a manufacturer of high quality brassware. Over the years we have learned a lot about water, how to

Transcription

1 Interim Report 2014

2 Methven was founded in New Zealand in 1886 as a manufacturer of high quality brassware. Over the years we have learned a lot about water, how to treat this precious natural resource with care and harness its power to cleanse, calm, refresh and invigorate. MGroup Interim Report indd 2 2/12/2014 4:07:47 p.m.

3 Contents Financial 04 Summary 14 Outlook Summary Report Financial Statements 16 Directory

4 Financial Summary FOR THE SIX MONTHS ENDED 30 SEPTEMBER Sept 2014 Constant currency 4 30 Sept 2013 Variance % Variance % Sales revenue 48,751 49, % 0.1% EBITDA 1 6,244 6, % 1.0% NPAT reported 2,898 2, % 5.7% Net Cash / (Debt) (19,931) (14,420) 38.2% EBITDA 1 excluding significant items 2 6,735 6, % 3.1% NPAT excluding significant items 2 3,300 3, % 6.8% Methven Interim Report Satisfactory first half earnings with modest 3.4% NPAT increase

5 Summary Report FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 Net profit after tax (NPAT) increased 3.4% over the same period last year. Excluding significant items 2 NPAT was up 4.8%. We believe this is a satisfactory performance given that comparative prior year sales ultimately proved to have been boosted through overstocking by key customers. Improved visibility of customer sell through and associated stock holding underpins our confidence that this is not being repeated in the current period. In addition, we have been able to pass on price increases in Australia to largely offset the significant impact of the weakening Australian dollar to the US dollar (AUD/USD). Our UK business continued to improve performance with earnings before interest, tax, depreciation and amortisation (EBITDA) increasing by 324%. We have made solid progress on our three core areas of focus; Thinking and acting like a market leader; Knowing the consumer better than anyone else; and Giving the organisation clarity over our focus and priorities over the next three years. These activities will underpin our aim to deliver long term sustainable growth. The Net debt 3 increase on last half year and on prior year end reflects settlement of our recently acquired premium Chinese manufacturing business, along with associated inventory and increased product development investment. Given the first half results, we are comfortable that we are on track to finish the year at the higher end of previously stated NPAT guidance of up 15% to 25% on prior year. Financial Highlights Reported Group sales were down 1.4% on the same period last year. However on a constant currency basis underlying sales were flat. Given the high sell-in that resulted in customer overstocks in the first half of last year, we believe this to be a reasonable result. EBITDA 1 excluding significant items 2 increased 1.6% despite the negative AUD/USD currency impact (A$1.1 million) and increased investment in our marketing and operational capabilities. The reported NPAT increased 3.4% on the prior corresponding period. Excluding significant items 2 NPAT was up 4.8% and on like-for-like currency basis up 6.8%. As expected, earnings from the China acquisition will start to be realised in the second half of this year. 5 Methven Interim Report 2014 Net debt 3 of $19.9 million increased 38.2% on 30 September 2013 and 37.9% on 31 March 2014 reflecting the China acquisition settled in this period and increased product development investment. The Directors declared a fully imputed interim dividend of 4.0 cents per share payable on 31 December EBITDA is earnings before interest, tax, depreciation, amortisation, impairment and non-operating foreign exchange gains/ (losses). Refer to note 4 of the financial statements. 2 Refer to the reconciliation between earnings before and after significant items in note 4(b) of the financial statements. 3 Refer to the reconciliation of Net debt to the consolidated balance sheet in note 4(b) of the financial statements. 4 Variance when foreign subsidiary results are translated into New Zealand Dollars at the same foreign exchange rate as the prior year.

6 Business Review What we said at the ASM: How are we tracking: Deliver US$2 million annualised NPAT from Heshan On track Launch our new showering system and tapware in all markets in early 2015 On track Launch our new website On track Achieve double-digit growth in the UK Earnings on track Methven Interim Report Revenue and profit growth in Australia Activity based on sell through Build a business that delivers long term sustainable earnings growth On track for second half Good progress Satisfactory progress

7 At the Annual Shareholders Meeting (ASM), in July 2014 we outlined the key deliverables necessary to underpin long term profitable earnings growth and we are making progress on achieving all these. METHVEN HESHAN ON TRACK TO DELIVER EARNINGS TARGET During the period we completed the acquisition of premium tapware manufacturer Invention Sanitary, now Methven Heshan, which is on track to exceed our US$2.0 million annualised NPAT contribution target. As expected, the earnings benefit will be realised from October 2014 as we have now sold through the majority of pre-acquisition stock. LAUNCH BREAKTHROUGH SHOWERING SYSTEM AND TAPWARE Our new breakthrough showering system and tapware range is on track to launch to consumers in March The range reveals industry firsts with new spray technology (and global IP), new revolutionary form and first in market materials that further enhance our positioning as market leader. We are excited and encouraged by the response received from previews to our customers in our three core markets. NEW GLOBAL WEBSITE Enhanced digital capability remains a major opportunity for us. Our new global website will go live as expected before Christmas enabling us to tell our Methven story and share our product expertise to new consumers around the world. UK EARNINGS GROWTH The contribution of our UK operation continued to grow, reporting EBITDA 1 growth of 324%. We now have sound foundations on which to improve and accelerate our top line growth. AUSTRALIAN EARNINGS SUBDUED BY CURRENCY HEADWIND Our Australian operation also continued topline growth however profit was heavily impacted by negative AUD/USD movement. This was anticipated, and actions implemented to reduce import costs, improve mix and pass on customer price increases have significantly mitigated the impact. We expect positive profit growth to be restored in the second half of the year. UNDERSTANDING CONSUMER DEMAND As reported previously, the high sell-in in the first half of last year and subsequent customer de-stocking we experienced in the second half of last financial year, highlighted the need for visibility of our customers sell through to understand true consumer demand. A key focus in all markets has been to improve this visibility. We have made good progress and now have access to sell out data representing around 40% of total Group Revenue. As we accumulate this data, assess trends, test and learn, we will be able to optimise sell through activity and minimise stock holdings to the benefit of ourselves and our customers. GAINING CONSUMER INSIGHTS Consumer insight remains a key differentiator versus our competitors and in the first half of this year, we conducted consumer research in all of our core markets resulting in even better understanding of current and future product requirements, purchase intentions and triggers and barriers to purchase. INTERIM DIVIDEND Your Directors have declared a fully imputed interim dividend of 4.0 cents per share to be paid on 31 December We remain confident in the soundness and prospects for the business and the ability of the Company to pay sustainable dividends over the longer term. 7 Methven Interim Report 2014

8

9 On 12 March, shower design evolves into art form.

10 Market Review NEW ZEALAND 30 Sept Sept 2013 Variance % Sales revenue 17,115 17, % EBITDA 1 3,167 3, % EBITDA % of revenue 18.5% 18.5% What we said at the ASM: How are we tracking: Methven Interim Report Regain lost market share Deliver incremental growth in Christchurch Successful launch of new shower system incremental to Satinjet Good progress On track On track Invest in brand equity Ongoing Win online On track for website launch pre-christmas

11 AUSTRALIA AU $ Sept Sept 2013 Variance % Sales revenue 17,609 17, % EBITDA 1 1,496 1, % EBITDA % of revenue 8.5% 9.3% What we said at the ASM: How are we tracking: Profitable revenue growth Price increases implemented to offset currency impact Successful launch of new shower system incremental to Satinjet Tapware share growth Invest in brand equity Win online On target Not in line with expectation Ongoing On track for website launch pre-christmas 11 Methven Interim Report 2014

12 Market Review (CONTINUED) UNITED KINGDOM GB Sept Sept 2013 Variance % Sales revenue 5,965 5, % EBITDA % EBITDA % of revenue 6.2% 1.5% What we said at the ASM: How are we tracking: Methven Interim Report 2014 Strong revenue and earnings growth Successful launch of new shower system incremental to Satinjet Earnings on track On track 12 Complementary positioning for Methven and Deva ranges On track Invest in brand equity Deferred to second half Win online On track for website launch pre-christmas

13 CHINA AND OTHER CN Sept Sept 2013 Variance % Sales revenue 954 1, % EBITDA 1 (820) (357) % EBITDA % of revenue -86% -20% 30 Sept Sept 2013 Variance % Sales revenue % EBITDA 1 (157) (72) % EBITDA % of revenue -86% -20% What we said at the ASM: Very strong revenue and earnings growth from a low base Invest in brand equity How are we tracking: Projects completing in second half On track 13 Methven Interim Report 2014 Win online On track for website launch pre-christmas

14 Outlook for the full year to 31 March 2015 Methven Interim Report We are comfortable that we are on track to finish the year at the higher end of previously stated NPAT guidance of up 15% to 25% on prior year. Our focus remains on building profitable long term growth and we expect to reinvest incremental margin to achieve this by: building our brand and promoting our premium product ranges more effectively in core markets and on-line; improving the retail experience for our consumers; delivering the potential that our breakthrough new showering and tapware range promises. Net debt 3 is expected to remain at a similar level as present and comfortably within banking covenants.

15 MGroup Interim Report indd 15 2/12/2014 4:08:01 p.m.

16 Financial Statements FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 The Directors have pleasure in presenting the interim financial statements of Methven Limited, set out on pages 17 to 30, for the half year ended 30 September The Directors authorised these financial statements for issue on 25 November Phil Lough Chairman Peter Stanes Director

17 Consolidated income statement FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 Notes 6 mths ended 30 Sept 14 6 mths ended 30 Sept mths ended 31 Mar 14 Audited Sales revenue 4 48,751 49,427 96,720 Cost of sales (27,670) (27,808) (55,533) Gross profit 21,081 21,619 41,187 Other income Expenses Research, design and engineering (1,386) (1,418) (2,865) Sales, distribution, marketing and brand development (10,364) (11,172) (21,719) Administration and other expenses (4,969) (4,702) (9,330) Finance costs (595) (508) (934) Profit before income tax 4,147 4,219 7,160 Income tax expense (1,249) (1,417) (2,452) Net profit attributable to shareholders of the parent 4 2,898 2,802 4,708 Earnings per share for profit attributable to the shareholders of the parent: Basic earnings per share (cents) Diluted earnings per share (cents) Methven Limited Financial Statements For the six months ended 30 September 2014 The above consolidated income statement should be read in conjunction with the accompanying notes.

18 Consolidated statement of comprehensive income FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 Methven Limited Financial Statements For the six months ended 30 September mths ended 30 Sept 14 6 mths ended 30 Sept mths ended 31 Mar 14 Audited Profit for the period 2,898 2,802 4,708 Items that may be reclassified subsequently to profit or loss Movement in foreign currency translation reserve 2, (68) Movement in cashflow hedge reserve 2,115 (356) (991) Income tax relating to items that may be reclassified Total items that may be reclassified subsequently to profit or loss Other comprehensive income for the period net of tax Total comprehensive income for the period attributable to the shareholders of the parent (588) , (795) 3, (795) 6,812 3,227 3, The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

19 Consolidated balance sheet AS AT 30 SEPTEMBER 2014 Notes As at 30 Sept 14 As at 30 Sept 13 As at 31 Mar 14 Audited Assets Current assets Cash and cash equivalents 2,804 1,796 2,104 Trade receivables 16,880 17,321 15,712 Inventories 23,754 19,979 19,423 Derivative financial instruments 1, Income tax receivable Prepayments and other assets 1,965 1,845 1,390 Total current assets 46,629 41,288 38,695 Non current assets Property, plant and equipment 6,005 5,250 4,719 Deferred tax assets 1,944 1,981 2,212 Intangible assets 43,652 34,421 33,592 Derivative financial instruments Total non current assets 51,601 41,652 40,526 Total assets 98,230 82,940 79,221 Liabilities Current liabilities Trade creditors 10,049 12,853 11,433 Derivative financial instruments ,092 Income tax payable 1, Provisions Other creditors and accruals 7,191 4,680 4,526 Deferred purchase consideration 6 1, Employee accruals 2,062 1,746 1,600 Total current liabilities 22,314 21,023 19,597 Non current liabilities Interest bearing liabilities 22,735 16,216 16,554 Derivative financial instruments Non current employee accruals Deferred purchase consideration 6 1, Total non current liabilities 24,119 16,407 16,759 Total liabilities 46,433 37,430 36,356 Net assets 51,797 45,510 42,865 Equity Share capital 8 52,080 46,986 46,986 Reserves (6,972) (9,689) (10,909) Retained earnings 6,689 8,213 6,788 Total equity 51,797 45,510 42, Methven Limited Financial Statements As at 30 September 2014 Net tangible assets per security (cents) The above consolidated balance sheet should be read in conjunction with the accompanying notes.

20 Consolidated statement of changes in equity FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 Methven Limited Financial Statements For the six months ended 30 September 2014 Share capital Hedge reserve Sharebased payments reserve Currency translation Retained reserve earnings Total equity Balance at 1 April ,986 (742) - (10,167) 6,788 42,865 Shares issued 5, ,094 Movement in foreign currency translation reserve ,387-2,387 Movement in cashflow hedge reserve - 2, ,115 Movement in deferred tax on hedge reserve Movement in share-based payments reserve - (588) (588) Profit for the period ,898 2,898 Total comprehensive income 5,094 1, ,387 2,898 11,929 Dividends (2,997) (2,997) Balance at 30 September , (7,780) 6,689 51, Share capital Hedge reserve Sharebased payments reserve Currency translation Retained reserve earnings Total equity Balance at 1 April ,986 (15) - (10,099) 8,408 45,280 Movement in foreign currency translation reserve Movement in cashflow hedge reserve - (356) (356) Movement in deferred tax on hedge reserve Profit for the period ,802 2,802 Total comprehensive income - (285) ,802 3,227 Dividends (2,997) (2,997) Balance at 30 September ,986 (300) - (9,389) 8,213 45,510 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

21 Consolidated statement of changes in equity (CONTINUED) Audited Share capital Hedge reserve Sharebased payments reserve Currency translation Retained reserve earnings Total equity 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 period ,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, Methven Limited Financial Statements For the six months ended 30 September 2014 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

22 Consolidated cashflow statement FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014 Methven Limited Financial Statements For the six months ended 30 September mths ended 30 Sept 14 6 mths ended 30 Sept mths ended 31 Mar 14 Audited Cashflows from operating activities Receipts from customers 48,793 50,264 98,320 Government grants ,053 Payments to suppliers (35,429) (32,390) (66,225) Payments to employees (10,252) (10,362) (19,309) 3,520 8,187 13,839 Interest received Interest paid (592) (508) (934) Income taxes paid (799) (942) (2,122) Net cash inflow from operating activities 2,134 6,746 10,792 Cashflows from investing activities Payments for property, plant and equipment, patents, trademarks and software (1,595) (389) (1,138) Payments to acquire Invention Sanitary (2,875) - - Proceeds from sale of property, plant and equipment Net cash outflow from investing activities (4,470) (389) (1,132) Cashflows from financing activities Issue of ordinary shares Proceeds from/(repayment of) borrowings 5,747 (4,285) (3,875) Dividends paid (2,997) (2,997) (6,328) Net cash inflow/(outflow) from financing activities 2,900 (7,282) (10,203) Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the period 564 (925) (543) 2,104 2,885 2,885 Foreign currency translation adjustment 136 (164) (238) Cash and cash equivalents at the end of the period 2,804 1,796 2,104 The above consolidated cashflow statement should be read in conjunction with the accompanying notes.

23 Notes to the financial statements FOR THE SIX MONTHS ENDED 30 SEPTEMBER General information 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. 2 Basis of preparation These interim financial statements for the six months ended 30 September 2014 have been prepared in accordance with Generally Accepted Accounting Practice (NZ GAAP), IAS 34 and NZ IAS 34 Interim Financial Reporting as applicable for profit-oriented entities. The interim financial statements should be read in conjunction with the Annual Report for the year ended 31 March These interim financial statements were approved for issue by the Board of Directors on 25 November Accounting policies Except as described below, the accounting policies applied by the Group in these interim financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 31 March Segment information (a) Description of segments The Group operates in one industry segment, being the design, manufacture and supply of showerware, tapware and water control valves. Inter-segment sales are on an arm s length basis. 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. Management have changed the operating segments from those previously presented in the Annual Report for the year ended 31 March 2014 and the Interim Report for the six months ended 30 September The changes have been made to align with changes to organisational responsibilities and accountabilities which looks to: enable a closer like-for-like comparison of the core trading markets of New Zealand, Australia and the United Kingdom; and, report functions providing global services and managed centrally, including the Group s manufacturing activities in New Zealand and China, within a new Group Operations segment. Group Operations Comprises the base for new design and technology research and development including global Intellectual Property, manufacturing operations in New Zealand and China, along with Group services including strategic and management support, supply chain services, marketing and brand development, IT and corporate services. The services that the Group Operations segment provides that can be reasonably attributed to the other trading segments are principally: sale of finished product at arm s length unit prices; use of intellectual property at an arm s length royalty fee basis; shared costs such as Supply Chain and Marketing attributed based on time, complexity and proximity. Methven Limited Financial Statements For the six months ended 30 September 2014

24 4 Segment information (continued) New Zealand Comprises sales and marketing operations in New Zealand supplying showerware, tapware and domestic water control valves. Products are sourced from both New Zealand and China. Australia Comprises sales and marketing operations in Australia supplying showerware, tapware and domestic water control valves. Products are sourced from both New Zealand and China. Methven Limited Financial Statements For the six months ended 30 September United Kingdom Comprises sales and marketing operations in the United Kingdom, the European Union and the Middle East, supplying showerware, tapware and domestic water control valves. China and Other Comprises China operation providing quality control and sourcing services in Asia for the Group, along with sales and marketing operations in China supplying showerware and tapware; and 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. Six months ended 30 September 2014 Sales revenue from external trade customers Sales revenue from internal customers New Zealand Australia United Kingdom China and Other Intersegment Group eliminations/ Operations unallocated Total 17,115 19,306 11, , ,174 (16,224) - Total sales revenue 17,115 19,350 11, ,466 (16,224) 48,751 Adjusted EBITDA* 3,167 1, (157) 1,898 (1,041) 6,244 Non operating foreign exchange gain/(loss) Earnings before interest, tax, depreciation and amortisation (50) 1,702 (1,615) 37 3,167 1, (207) 3,600 (2,656) 6,281 Depreciation and amortisation (271) (294) (480) (13) (486) - (1,544) Interest received/(paid) - (187) (348) - (53) (2) (590) Profit/(loss) before income tax 2,896 1,163 (95) (220) 3,061 (2,658) 4,147 Income tax (expense)/credit (811) (350) (942) 769 (1,249) Profit/(loss) for the period 2, (67) (163) 2,119 (1,889) 2,898

25 4 Segment information (continued) Six months ended 30 September 2013 New Zealand Australia United Kingdom China and Other Intersegment Group eliminations/ Operations unallocated Total Sales revenue from external trade customers Sales revenue from internal customers 17,529 19,953 11, , ,810 (9,827) - Total sales revenue 17,529 19,962 11, ,243 (9,827) 49,427 Adjusted EBITDA* 3,240 1, (72) 1, ,278 Non operating foreign exchange gain/(loss) Earnings before interest, tax, depreciation and amortisation (589) 98 3,240 1, (72) 1,707 (529) 6,376 Depreciation and amortisation (316) (355) (462) (20) (504) - (1,657) Interest received/(paid) - (173) (424) (13) (500) Profit/(loss) before income tax 2,924 1,335 (719) (92) 1,313 (542) 4,219 Income tax (expense)/credit (876) (390) (368) 152 (1,417) Profit/(loss) for the period 2, (675) (71) 945 (390) 2, Year ended 31 March 2014 Sales revenue from external trade customers Sales revenue from internal customers New Zealand Australia United Kingdom China and Other Intersegment Group eliminations/ Operations unallocated Total 32,648 39,505 23, ,054-96, ,780 (18,865) - Total sales revenue 32,648 39,523 23, ,834 (18,865) 96,720 Adjusted EBITDA* 5,909 3, , ,273 Non operating foreign exchange gain/(loss) Earnings before interest, tax, depreciation, amortisation and impairment Write back of impairment of investment in subsidiary (111) 13 5,909 3, ,596 (39) 11, ,169 (5,169) - Depreciation and amortisation (596) (656) (953) (39) (978) - (3,222) Interest received/(paid) - (348) (793) (904) Profit/(loss) before income tax 5,313 2,037 (1,148) 142 6,024 (5,208) 7,160 Income tax (expense)/credit (1,458) (747) 63 (82) (239) 11 (2,452) Methven Limited Financial Statements For the six months ended 30 September 2014 Profit/(loss) for the year 3,855 1,290 (1,085) 60 5,785 (5,197) 4,708 *Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, impairment and non-operating foreign exchange gains/ (losses).

26 4 Segment information (continued) (b) Non-GAAP measures Methven comments on non-gaap measures to provide data that is useful to understanding the underlying and on-going operations of the Group. Reconciliation between earnings before and after significant items Methven Limited Financial Statements For the six months ended 30 September 2014 CONSOLIDATED 6 mths ended 30 Sept 14 6 mths ended 30 Sept 13 EBITDA* NPAT EBITDA* NPAT Reported earnings 6,244 2,898 6,278 2,802 Merger and Acquisition costs Earnings excluding significant items 6,735 3,300 6,626 3,150 *Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, impairment and non-operating foreign exchange gains/ (losses). Significant items Merger and Acquisition costs relate to the costs to acquire the business assets of premium tapware manufacturer Invention Sanitary and transition of the operation. For further information refer to note 6. These costs have been incurred by the Group Operations entity within administration and other expenses. Reconciliation of Net Debt to the consolidated balance sheet 26 As at 30 Sept 14 As at 30 Sept 13 As at 31 Mar 14 Audited Cash and cash equivalents 2,804 1,796 2,104 Non-current Interest bearing liabilities (22,735) (16,216) (16,554) Net Debt (19,931) (14,420) (14,450)

27 5 Reconciliation of profit after income tax to net cash inflow/ (outflow) from operating activities 6 mths ended 30 Sept 14 6 mths ended 30 Sept mths ended 31 Mar 14 Audited Profit for the period 2,898 2,802 4,708 Depreciation 962 1,073 2,066 Amortisation of intangible assets ,156 Share options expensed Net loss on disposal of assets Impacts of changes in working capital items Trade receivables 261 1,342 1,719 Inventories 485 (844) (746) Prepayments and other assets (535) (478) (1) Trade creditors* (2,231) 2,537 1,383 Employee accruals Provisions and other creditors and accruals (1,149) (915) 33 Tax (payable)/receivable Deferred income tax (224) (97) (187) Net cash inflow/(outflow) from operating activities 2,134 6,746 10,792 * The negative Trade creditors movement for the 6 months ended 30 September 2014 is a result of the acquisition of premium tapware manufacturer Invention Sanitary. As expected, on acquiring the business, the 90 day terms it provides are now treated as intercompany and eliminate on consolidation. 6 Acquisition of subsidiaries On 30 June 2014 the Group acquired the business assets of premium tapware manufacturer Invention Sanitary and all the shares in its New Zealand based related company Plumbing Supplies (NZ) Limited. The acquisition will provide incremental margin, control over a key part of the Group s supply chain, allow enhancements to upstream quality controls and provides an opportunity to offer high quality China manufacturing to key strategic partners. a) Consideration transferred The following table summarises the acquisition date fair value of each major class of consideration transferred. Cash 2,875 Equity instruments (4,258,765 ordinary shares) 4,944 Contingent consideration 2,082 Escrow account 2,527 12, Methven Limited Financial Statements For the six months ended 30 September 2014

28 6 Acquisition of subsidiaries (continued) b) Contingent consideration The vendor will be eligible to earn an uplift to the purchase price of four times the amount by which NPAT exceeds CN 12.3 million (NZD$2.6 million) per annum, up to a maximum of CN 6.1 million (NZD$1.3 million) for each of the years ending 30 June 2015 and 30 June The Group had included CN 11.3 million (NZD$2.1 million) as a contingent consideration, which represents fair value at the date of acquisition based on a discount rate of 5.58%. c) Assets acquired Methven Limited Financial Statements For the six months ended 30 September The Group has provisionally recognised the following identifiable acquisition assets for the business acquired. Fair Value on Acquisition (Provisional) Inventories 3,498 Property, plant and equipment 992 Warranty provision (65) Total assets acquired 4,425 Goodwill on acquisition 8,003 Consideration 12,428 Less cash and cash equivalents acquired - Deferred purchase consideration (2,082) Equity instruments (4,944) Escrow settlement (2,527) Net cash outflow on acquisition 2,875 d) Goodwill The goodwill is attributable to the established supplier relationships, propriety processes and know-how in relation to high quality tapware. None of the goodwill recognised is expected to be deductible for tax purposes. 7 Related party transactions (a) Loans to key management In July 2014 Methven issued 458,380 treasury shares in the Company to the Group CEO at market price. The shares were issued for cash consideration of $150,000 and a limited recourse loan of $350,000. The loan bears interest at IRD determined FBT rates and is repayable over 10 years. Dividends will be used to repay interest and principal on the loan. Methven holds security over the shares until such time as the outstanding balance of the loan has been fully repaid. (b) Transactions with other parties Rent payments of $109,000 were made to Heshan City ASBF Sanitary Fitting Company Limited during the period. An immediate family member of Hui Zhuang, Director of Heshan Methven Bathroom Fittings Co. and former owner of Invention Sanitary, Ltd, has a relevant interest in this company.

29 8 Share Capital Number of shares Share capital 2014 Shares 2013 Shares Opening balance of ordinary shares issued 66,606,265 66,606,265 46,986 46,986 Issue of shares key management 458, Issue of shares - acquisition 4,258,765-4,944-4,717,145-5,094 - Closing balance of ordinary shares issued 71,323,410 66,606,265 52,080 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. During the period the Company issued 4,258,765 shares as a part of the consideration paid for the acquisition of Invention Sanitary and Plumbing Supplies (NZ) Limited (refer note 6). In July 2014 Methven issued 458,380 treasury shares under the key management share plan (refer note 7(a)). The shares issued are treasury shares because the Company has a beneficial interest in the shares until the limited recourse loan is repaid in full. 9 Goodwill 6 mths ended 30 Sept 14 6 mths ended 30 Sept mths ended 31 Mar 14 Audited Opening net book amount 29,196 27,931 27,931 Additions/acquisitions of subsidiaries Exchange differences 1,862 1,634 1,265 Closing net book amount 39,061 29,565 29,196 Goodwill acquired relates to the acquisition of Invention Sanitary and Plumbing Suppliers (NZ) Limited (refer note 6(c)). 29 Methven Limited Financial Statements For the six months ended 30 September 2014

30 10 Contingencies The Group has contingencies in respect of litigation taken by a former service provider. The Group has been awarded with a favourable judgement. The former service provider has now appealed the decision and while we continue to be in a strong position it is not possible to predict with absolute certainty the outcome of the appeal. A subsidiary of Methven Limited is subject to a tax claim which arose prior to the Company s acquisition of the subsidiary. The Group holds a warranty from the former owners for the claim and it is not therefore anticipated that any material liabilities will arise. The Parent and the Group had no other contingent liabilities or assets as at 30 September 2014 (September 2013: Nil). Methven Limited Financial Statements For the six months ended 30 September Fair value measurement The carrying value of all balance sheet financial instruments approximates their fair value. Derivatives are carried at fair value. Receivables and payables are short term in nature and therefore approximate to their fair value. Interest bearing bank deposits and bank finance facilities re-price between every 1 to 90 days and are therefore approximate to their fair value. The Group s hedging derivatives, being interest rate swaps and forward exchange contracts, are over-thecounter derivatives and are classified as tier 2 financial instruments under NZIFRS 7, meaning that their fair value is estimated using present value and other valuation techniques based on observable market rates. 12 Events occurring after the reporting period The following events have occurred subsequent to the half year end: - The Board of Directors resolved to pay an interim dividend of 4.0 cents per share. The dividend will be paid on 31 December 2014 to all shareholders on the Company s register at 12 December There have been no other events occurring after balance date which would materially affect the accuracy of these financial statements. 30

31 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 The Chancery Spring Gardens Manchester M2 1YB United Kingdom National Australia Bank Level 1/99 Bell Street Preston Victoria 3072 Australia 31 Methven Interim Report 2014

32 methven.com This Interim Report is produced using Elemental Chlorine Free (ECF) pulp sourced from farmed eucalyptus trees and manufactured under the strict ISO14001 Environmental Management System. Printed with soy-based printing inks.