3 03 AnnuAl report for methven limited for the YEar EndEd 31 march 09

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2 CONTENTS 04 Performance Highlights 05 Financial Summary 07 Directors Report 13 Group Chief Executive s Report 24 Corporate Governance 26 Methven Group Directors 28 Financial Statements 78 General Disclosures 82 Directory

3 03 Annual report for methven Limited for the YEaR ENdED 31 march 09

4 04 PErFormANCE HIgHLIgHTS Group NPAT up 3.1% from $9.8m to $10.1m in line with half year guidance Group Operating Revenue up 19.7% from $114.8m to $137.3m EBITDA up 4.4% from $18.9m to $19.8m Net Debt down 17.7% from $32.6m to $26.8m Fully imputed final dividend of 5.5 cps on 30 June 2009, down 8.3% from 6.0 cps, to bring total dividend for the year to cps Encouraging UK result with first full year revenues $57.5m and EBITDA $7.9m (GBP3.0m) in line with pre acquisition expectations, despite the depth of the recession. Promising UK exports to the Middle East of $1.7m Methven NZ sales down 10.7% to $38.1m and EBITDA down 9.5% to $11.0m but remain domestic leader with 50% plus market share and strength in renovation sector Methven Australia sales up 19.8% to $41.6m on strong growth in Satinjet shower and tapware sales but EBITDA down 26.0% as continued to build sales and distribution structure USA EBITDA loss down 28.4% to $0.9m and migrated to servicing out of New Zealand with third party warehouse and agency representation.

5 05 FINaNCIaL SUmMArY for the YEaR ENdED 31 march Change $000 $000 % TRADING RESULTS Group operating revenue 137, , EBITDA 19,752 18, Net profit after tax 10,056 9, Financial position at year end Total equity 58,008 54,931 Total assets 119, ,638 Intangible assets 45,932 46,756 Net cash/(debt) (26,840) (32,596) Capital expenditure 2,611 4,313 Equity ratio 68.4% 60.1% Shareholder statistics Number of shares 66,606,265 66,606,265 Dividend per share 11.75c 11.7c Share price at year end $1.20 $1.42 Earnings per share 15.1c 18.3c Net dividend yield 9.8% 8.2% Gross dividend yield 14.3% 12.2% Net tangible asset value per share 18.1c 12.3c

6 06 Chairman, Phil Lough

7 07 DIrECtorS REporT Methven Group has delivered a highly creditable result for the year ended 31 March 2009 maintaining bottom line profit growth while also reducing bank debt despite the incredibly difficult trading climate. The pleasing Group result demonstrates the effectiveness of Methven s global expansion strategy which seeks to spread revenue sources across diverse international markets, product ranges and price points. The result also reflects Methven s inherent competitive strengths as a design, innovation and customer led company. We have a dedicated focus on delivering unique, luxury showering experiences. Methven can turn a home shower into a home spa with its latest proprietary technology, Methven Shower Infusions, retrofit a hotel room with an energy and water efficient Satinjet shower or provide a suite of complementary bathroomware to suit an individual s taste and pocket. Importantly, in the year under review, Methven Group not only maintained its record of continuous growth but also successfully reduced its debt to $26.8 million from $32.6 million. Potential for further debt reductions leaves Methven well positioned to withstand the expected continued economic uncertainties. Financial Performance After a challenging second half, the year to 31 March 2009 ended with NPAT up 3.1% from $9.8 million to $10.1 million (including one-off UK tax credits of $636,000), in line with market guidance. 80% 70% 60% 50% 40% 30% Offshore sales as % of total Group Operating Revenue increased by 19.7% over the prior year from $114.8 million to $137.3 million, with EBITDA up 4.4% from $18.9 million to $19.8 million. This reflected the full year contribution of Deva Tap Company in the UK, which produced an outstanding result given the trading climate in one of the markets worst affected by recession. 20% 10% 0% Other AUD GBP USD As expected, New Zealand sales contracted, reflecting the slump in building permits issued over the period. However, Methven succeeded in increasing domestic market share, particularly in the renovation segment,

8 08 modifying the offering to better cater for consumers changing circumstances with a wider range of choices and price points. After good growth in Satinjet showers and tapware in the first half, the second half downturn in the Australian market meant that we did not generate the contribution targeted to cover the additional expenditure in the sales and marketing area. Methven has cut its losses from its startup venture in the United States market, now servicing the customer and distribution base from New Zealand. The Group benefited from lower brass and copper prices, tightened operating cost management, reduced capital expenditure and Deva s global sourcing expertise in costeffective product sourcing. The Group produced solid operating cash flows which enabled debt to be reduced by 17.7% from $32.6 million to $26.8 million at year end. The result has given Methven confidence that it has the right financial, strategic and management aptitudes and attitudes to manage in recessionary times and deliver the best result possible in the circumstances. 20 group EBITDA 15 $NZ million

9 09 $NZ million group Revenue Strategy Our strategy to internationalise our business is built on establishing Methven s distinction as a world-class designer known for delivering unique and luxurious showering experiences that are not only kind to the planet but also look great and work efficiently too Dividend Directors are comfortable with the strength of the balance sheet, including the prudent level of borrowings, banking covenant compliance and favourable debt financing arrangements which are in place to August However, given the continued uncertainty of the economic outlook, directors decided to be prudent and reduced the final dividend to 5.5 cps paid on 30 June 2009, down 8.3% or 0.5 cps on prior year. The gross dividend of 7.86 cps is fully imputed for New Zealand shareholders at 30.0%. For non-new Zealand resident shareholders a supplementary dividend of cps will be paid. We have a growing portfolio of branded products from premium Satinjet showerware for homes and hotels to value end Deva tapware and effective valving products. The breadth of the offering will allow Methven to cement supply arrangements with its merchant customers and prospective distributors in other parts of the globe. Our new platform HomeSpa Shower Infusions range provides the opportunity to enter additional market segments including the beauty and wellbeing segment and market through diverse channels. We operate an increasingly efficient global supply chain based on New Zealand as the centre for the design and prototyping of new products which are then manufactured in Asia by our proven, quality partners. We have confidence that Methven has a robust business model geared to international expansion, a clear and achievable strategy and a team of highly competent and dedicated people able to manage through difficult times. Covenants and cashflow positive Interest Cover (EBITA/interest) not less x 6.7x Gearing ratio (Net Debt/EBITA) not to exceed x 1.7x Facility utilisation 74% 82%

10 10 Outlook We remain confident that we can weather the current economic storm and remain on track to build profitable growth, long term. It will not be easy. Trading conditions in all Methven s key markets remain extremely challenging and directors do not expect the company to be able to replicate the first half performance of We will keep the market and shareholders informed of our progress, but given the volatility of world markets, the Board believes it would be unwise to provide any further guidance for the financial year. ACknowledgements The past year has been one of great challenge and Directors wish to extend their appreciation to Group CEO, Rick Fala, and the Methven team for producing such a good result under adverse circumstances. Not only have Methven people delivered another year of financial growth but have also continued to push ahead with internationalising the business and developing world-class design, engineering, manufacturing, supply chain, brand marketing and management competencies. We are in good health to take on the next wave of challenges and stay true to our course to be a world leader in our chosen niche delivering the ultimate shower experience. Phil Lough Chairman

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12 12 Managing Director and Group CEO, Rick Fala

13 13 GroUp CHIEf ExEcUTIvE S REPort The year was extremely testing. The achievement of continued year on year growth is a testimony to the capability of our people and the effectiveness of our strategy to push ahead with diversifying revenue sources across geographic markets and widening our product ranges to provide consumers with choices that suit the times. The Group result for the year to 31 March 2009 was in line with half year guidance, no mean feat given the conditions, and we continued to make good progress in growing our international markets. Offshore sales now account for 73.0% of our total revenues. We have also continued to build on our competitive distinctions, honing our designled edge to enhance our current proprietary showerware and tapware ranges to appeal to a wider group of consumers, including identifying new opportunities to carve a niche in the hotel room retrofit market for Satinjet showerware. We have also made careful investments in strategic developments, including our HomeSpa beauty range. This started with the launch of the Maia beauty shower which reduces the amount of chlorine in the water and has now been extended to Shower Infusions, another world first, currently being test marketed in New Zealand. We have achieved a new level of efficiency in our supply chain, leveraging the Deva global sourcing capability to reduce the cost of products and introducing selected value end Deva products into the sales mix to provide new price points that will appeal in these tough times. Our management team has responded well to the challenge of reducing costs and optimising capital expenditure and working capital levels to achieve savings, efficiencies and maintain strong positive cash flow. Their efforts are reflected in the debt reduction of 17.7% from $32.6 million to $26.8 million. We finished the year with solid results. EBITDA was up 4.4% to $19.8 million on Group revenue of $137.3 million, an increase of 19.7% over the previous year, and we achieved a net profit of $10.1 million, a modest gain of 3.1%.

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15 15 Market Overview We recorded good first half sales but the climate deteriorated in the second half. We had to quickly adapt to the new environment, instituting stricter cost control measures across the company s operations to extract the best efficiencies and returns possible. United Kingdom Operating Revenue of $57.5 million compared to $37.3 million for seven months trading in prior year EBITDA of $7.9 million (GBP3.0 million) in line with pre-acquisition expectations Middle East division sales $1.7 million The UK Deva business produced a strong result despite very poor economic conditions, achieving increased market share while reducing costs. Deva is a highly successful operator with a cost efficient business model and high service standards. The Deva management team also oversees the Group s global sourcing operations and is charged with optimising product supply costs. success already in the specifier and hotel market for Satinjet products and we are now recruiting a dedicated sales manager to drive sales of our own high end, proprietary ranges. The expansion of our UK business into the Middle East is also going relatively well with first sales recorded of $1.7 million in the United Arab Emirates. We have plans to extend our reach throughout the region where we believe our energy and water efficient ranges will give us an edge over competitors. Deva s value ranges will soon be sold in Australia to complement the branded higher end Methven products to give merchants and consumers wider choice at different price points. United Kingdom sales 60 While the outlook for the UK economy is for a long recession, we see increasing opportunity for our Satinjet products which we launched in the UK in We are using the experience gained from building the Australian market to migrate the UK product mix to include branded premium showerware and tapware alongside Deva s more generic offering. There has been modest $NZ million New Zealand Operating Revenue down 10.7% from $42.7 million to $38.1 million EBITDA down 9.5% from $12.1 million to $11.0 million (includes market development costs of the Maia beauty shower and all Group overheads) Market share increased Combined building permits down 22.4% year on year; new build down 33.9%; renovation down 9.2% Despite extremely tough trading conditions and a significant drop in the building market, Methven New Zealand continued to grow market share to consolidate its domestic leadership.

16 16 Methven is intent on retaining that leadership position and strength in the renovation segment. Merchants are reverting to trusted and credible suppliers with stock on hand and who can provide a full range of products at different price points to meet the market. Methven is ideally positioned to benefit from this flight to quality product and service. There is rigorous focus on continuing to reduce costs and leverage the savings through Group sourcing from China and elsewhere. Auckland City department store, Smith and Caughey, selected high end plumbing merchants in Auckland and Hamilton and also via Early test marketing results have been very encouraging. A key area of opportunity we have identified is extending our offer into the hotel sector where we can demonstrate attractive savings in energy and water usage through the retrofit of existing showerheads with Methven Satinjet technology. Work is continuing on developing the next generation of platform technologies but our short term focus is on releasing product range extensions. This includes introducing high end Satinjet Tahi and Kiri showerhead variants with complementary tapware. A strategic and world-first technology, the new Methven HomeSpa Shower Infusions range which delivers aromatherapy and hydrotherapy into the home shower, was released to market in May. We are selling through upmarket $NZ million New Zealand sales Australia Operating Revenue up 19.8% from $34.7 million to $41.6 million: Satinjet sales up 17% on last year Tapware sales up 53% on last year NEFA valves maintained market share but at reduced margin in intensely competitive market $NZ million Australian sales Investment in sales and marketing infrastructure continued EBITDA down 26.0% from $2.9 million to $2.1 million Australian Satinjet showerware sales reached a new record high in the year under review to confirm our position as a market leader in this segment with complementary tapware ranges adding to the Methven brand s overall appeal. NEFA held market share in the fiercely competitive valving segment, however the cost benefits from integrating distribution within Valves Shower & tapware the Methven Australia infrastructure are only now beginning to come through along with the savings from China sourcing. The market grew increasingly soft in the second half and the sales levels achieved did not deliver the contribution sought to cover the increased investment in the Australian sales and marketing infrastructure. However, we believe that this investment will support growth into the future.

17 17 We see immediate opportunity with the expansion of our tapware offering including our own premium Methven branded ranges and the addition of Deva sourced tapware. We will continue our push into the hotel market where we have retrofitted 6,000 rooms since 2005 with Satinjet showerware, based on justified energy and water saving benefits, as well as providing hotel guests with a luxurious showering experience. USA EBITDA loss down 28.4% from $1.2 million to $0.9 million and continuing to reduce Cut in-market representation and now service customers from New Zealand We have reduced the losses in this market from $1.2 million in to $900,000 in the year under review and a cost neutral position is expected at the end of the financial year as a result of exiting from direct representation. Existing customers will be serviced from New Zealand. We acknowledge our greenfield approach to developing the US market has not worked and therefore have cut our losses to focus on core markets. We will seek distributorship opportunities where there is a proven network of customers and sales support.

18 18 Opportunities for Growth While the worldwide recession demands prudence, Methven is alert to new opportunities and moving forward, rolling out a range of short and longer term initiatives. Methven aspires to be a leading global brand, recognised and loved worldwide for delivering superior, life-enhancing shower experiences, creating a sensory revolution in the shower. Consumers around the world have told us what they want from their shower: personal space, time out to relax and indulge, rejuvenate and think. At the same time they want stylish, user friendly showers and they want to know that they are energy and water efficient. Methven Satinjet showers deliver that promise. Methven s focus is on luxury showering without compromise for the planet in whichever way we can everyday. We deliver one of the world s most precious resources on the planet and so helping to preserve this is our greatest challenge. We are committed to answering: What makes the perfect shower? How much water is needed to maintain the feeling of a full flow shower? It s the unique Satinjet technology that sets us apart from conventional showers. conventional shower spray Satinjet shower spray Conventional showers use single jets of water that can produce a narrow, needle-like spray. Satinjet technology uses twin jets of water that collide and turn into thousands of tiny droplets that feel soft enough for your face, yet strong enough for your entire body. Satinjet technology can provide a luxurious feeling shower even at lower flows great for NZ specific conditions and you can also achieve water and energy savings on mains pressure installations if flow restrictors are installed.

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20 20 Methven HomeSpa Range In 2008, Methven launched the world s first beauty shower, Satinjet Maia, with a unique vitamin C cartridge to reduce the amount of chlorine in the water and better protect the face, skin and hair from drying out, as well as all over body spray and deep tissue massage features. In 2009, another world first is being trialled Methven Shower Infusions. It s a simple idea that enables an ordinary shower to be transformed into a personal home spa by introducing aromatherapy and hydrotherapy to the experience. It comes with a patented infusion pod that can be attached to an existing shower system. The pod uses cartridges that are filled with New Zealand botanicals of Harakeke, Kowhai and Kawakawa, as well as essential oils, vitamins and fragrances to transform the mood and pamper the skin. The shower infusion is released when the shower water runs through the pod. A range of Methven exclusive hand and body products has also been produced to sell alongside the Shower Infusions to create a total HomeSpa experience. At this stage the Infusions are only being test marketed in New Zealand to ensure we have a proven sales model before extending distribution. They can be purchased at Auckland s premium Smith and Caughey department store in Queen Street, selected plumbing merchants in Auckland and Hamilton and via Methven s website at Hotel Market An immediate priority for Methven is to promote to hotels the water and energy efficiencies, coupled with a luxurious shower experience, that can be gained from a simple retrofit of bathrooms with Satinjet showerware. We can demonstrate the compelling combination of delivering potential savings and luxury at the same time to hoteliers keen to find ways of offsetting falling occupancy and margins. The company has retrofitted around 6,000 rooms in Australia alone and is now targeting the hotel sector as a global marketing opportunity. Export Distributorship Model Methven is also keen to expand its geographic market reach beyond Australasia and the UK in our bid to become a globally recognised brand.

21 21 A complementary export model is being developed with dedicated expertise to seek out plumbing and DIY distributors in new markets, including Asia, South America and Europe, for Methven s wide range of showerware, tapware and valving. We view this new market development initiative as part of our diversification strategy to de-risk the business, generating fresh growth quickly and cost effectively. Range Extensions We are currently focusing more on enhancing the current Satinjet and other proprietary offerings, rather than investing heavily in developing new platform technologies. Enhancements of the premium Tahi and Kiri showerware have been launched to provide wider choice to discerning consumers and have been well received. Methven tapware ranges are also being extended to provide alternative bathroom styles and price points to appeal to the broadest possible market during the recession. Priorities for We know the going will be tough in all key markets with the first half shaping up to be lower than the same period in However, we believe we are well equipped to manage through the downturn and come out of it in a solid position, able to generate momentum for growth. Our immediate focus is on increasing margins and reducing costs while seeking to further reduce our debt levels. We will also be targeting reductions in our capital expenditure and working capital levels. This will not be at the expense of strategic investments in products like the HomeSpa Shower Infusions which will position us in the beauty and wellbeing category, broadening our direct connection to consumers and diversifying our channel and revenue sources for longer term benefits. Another priority will be to promote our Satinjet retrofit hotel offering which we think will be very attractive due to the potential significant water and energy savings that can be achieved. Developing a new export distributorship model for other markets to extend our reach utilising our broad showerware, tapware and valving offering is also a must do. We are ready to take on the challenges and the opportunities that will shape our future. Rick Fala Group CEO and Managing Director

22 22 Awards Our design, innovation and commitment to a high level of customer service has lead to the following recognition Australian International Design Award Housing and Building Category Tahi Shower System Waterwise Marque UK Award for Water Efficiency Kiri with Satinjet technology Enviro-Klick TM two-step cartridge ISO Standard for environmental management systems Awarded to The Deva Tap Company, UK INDUSTRY SUPPORT AWARD Master Plumbers, Gasfitters & Drainlayers (NZ) Inc. Industry Support Award 2008 Product Distinction Chicago Athenaeum GOOD DESIGN Awards Tahi Thermostatic Mixer Range Design in Business Award Overall winner 2008, NZ TVNZ / NZ Marketing Magazine Marketing Awards Winner of the Consumer Durables Award Maia Innovative Company of the Year TelstraClear Trans-Tasman Business Awards, NZ Australian International Design Award Winner Kiri Satinjet Shower Head DINZ BeST Design Awards, NZ Gold Award Category Graphic, Corporate Communications Designworks Methven Brand Book Silver Award Category Product, Concept/Experimental Infusions Silver Award Category Product, Consumer Tahi Silver Award Category Product, Sustainability Product Award Tahi Silver Award Category Product, Consumer Maia Bronze Award Category Product, Sustainability Product Award Maia Bronze Award Category Graphic, Graphic Design Arts Designworks Methven Best Supplier Plumbing World Awards, NZ Methven Limited Waterwise Marque UK Award for Water Efficiency Awatea with Satinjet technology Best Supplier NZ Plumbing Distributors Association Awards Methven Limited Best Sales Representative NZ Plumbing Distributors Association Awards Evan Brookie Runner-Up, Best Sales Representative NZ Plumbing Distributors Association Awards Julie Dowling Best New Product NZ Plumbing Distributors Association Awards Maia Finalist, Best Product NZ Plumbing Distributors Association Awards Tahi 2007 DINZ BeST Design Awards, NZ Silver Award Category Product Design Kiri Shower with Satinjet Technology Silver Award Category Product Design Tahi Shower Concept Best Supplier Plumbing World Awards, NZ Best Supplier NZ Plumbing Distributors Association Awards Methven Limited Runner-Up, Best Sales Representative NZ Plumbing Distributors Association Awards Julie Dowling Finalist, Best Sales Representative NZ Plumbing Distributors Association Awards Evan Brookie Finalist, Best Product NZ Plumbing Distributors Association Awards Satinjet Technology Top Three Water-Efficient Showerheads Choice.com.au, Australian Consumer Association website Futura Wall Shower with Satinjet Technology Bermuda Wall Shower with Flexispray Olympic 3000 Hi-rise Shower 2006 Best Supplier NZ Plumbing Distributors Association Awards Methven Limited Finalist, Best Product NZ Plumbing Distributors Association Awards Satinjet Technology 2005 Product Distinction Chicago Athenaeum GOOD DESIGN Awards Futura Hi-rise Shower with Satinjet Technology Commendation: Product Innovation Savewater Awards, Australia Satinjet Technology Water Smart Champion and Best Practice Award Energy and Water Green Globe Awards, Australia Methven Australia Incolink Innovative Product of the Year Award GreenPlumbers Awards, Australia Satinjet Technology Best New Bathroom Product DesignEX, Australia Futura Slide Rail Shower with Satinjet Technology DINZ BeST Design Awards, New Zealand Highly Commended Futura Slide Rail Shower with Satinjet Technology Highly Commended DINZ BeST Design Awards, New Zealand Futura Hi-rise Shower with Satinjet Technology 2002 German IF International Forum Design Competition Finalist Isis range

23 23 Design Today bathrooms are an extension of the living environment and whether it be contemporary and simple or luxurious and plush, the choice of materials and finishes is boundless. The only restraint is our imagination. Kent Sneddon Group Head of Design & Development

24 24 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: developing the strategic direction of Methven with the senior management team 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 ensuring effective policies and procedures 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, terms of reference for the Board s Audit, Compliance and Risk Management Committee and Remuneration Committee, along with policies on ethics, delegated authorities, disclosure and communications, insider trading, risk management, 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 meet the New Zealand Exchange Corporate Governance Best Practice Code and supports the Principles of Corporate Governance as published by the New Zealand Securities Commission. Board Composition The Board comprises five directors, including three non executive directors and two executive directors. The Directors considered independent by Methven are Phil Lough (Chairman), Peter Stanes and as from the 29th May 2009, Richard Cutfield. The remaining Directors, Rick Fala and Gary Nel are deemed not to be independent. 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 General Meeting. Richard Cutfield and Peter Stanes retire by rotation at the 2009 Annual General Meeting and, being eligible, offer themselves for re-election.

25 25 Audit, Compliance and Risk Management Committee The Audit, Compliance and Risk Management Committee comprises Peter Stanes (Chairman), Phil Lough, and Richard Cutfield. This committee assists the Board to fulfil its responsibilities in the areas of financial and risk management. Remuneration Committee The Remuneration Committee comprises, Richard Cutfield (Chairman), Phil Lough and Peter Stanes. 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. 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 NZSX Listing Rules, a nomination committee is therefore not necessary for Methven. Share Trading by Directors and Officers The company has formal 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. Continuous Disclosure Policy The Board has adopted a policy to ensure that it meets its obligations under the NZX continuous disclosure rules. Board and Committee meetings held during the year: Audit, Board COMPLIANCE Meetings AND Risk Remuneration Management Committee Committee Phil Lough Rick Fala 15 Gary Nel 15 Richard Cutfield Peter Stanes Total meetings held

26 26 methven group directors Phil Lough Chairman 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 a Director of Port Nelson Limited, Tatua Co-operative Dairy Company Limited, Dairy Equities Limited, Livestock Improvement Corporation Limited and is a member of the Massey University Foundation. He is the immediate 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 Richard Cutfield Non Executive Director Richard, a Methven Group Director since March 2001, and Chairman until July 2008, led the management buy-out of Methven from Australian interests. Richard is CFO and an executive director of international juvenile brand, phil&teds, which he joined early in 2009 following 15 years as an executive director of Pencarrow Private Equity Ltd, a leading New Zealand-based private equity investor. Richard also represents phil&teds on the board of HubCo Automotive, a leading supplier of roof racks and accessories to consumers and the world s largest motor vehicle companies. He is a member of the Advisory Board of Better by Design, New Zealand Trade and Enterprise s initiative to create internationally competitive design led businesses.

27 27 Rick Fala Managing Director and Group CEO Rick has been Chief Executive since 1998 and Managing Director since 2001 when he led key management team members in the MBO of the Methven business. He plays a key role in delivering sustainable earnings and devising the international export strategy to drive new growth for the Group. 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. Gary Nel Executive Director and Chief Executive Methven New Zealand Peter Stanes Independent Director 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 of Rembrandt Suits Limited and High Society Limited and is a past director of ZESPRI Group Limited, Wellington Drive Technologies Limited and Aragorn 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 and later Executive Chairman of the renamed Feltrax International Limited and held senior roles at Alex Harvey Industries Limited. Gary is Chief Executive of Methven New Zealand and a member of the Global Management Team. He is responsible for overseeing the domestic market, Methven s revenue engine room and strategic hub for development, design and prototyping. Gary was formerly Chief Operating Officer for the Group and was part of the 2001 MBO management team. Prior to joining Methven, he worked in a variety of engineering and product design roles, both in New Zealand and in his native South Africa.

28 28 financial STATEmENTS FOR ThE YEAR ENdED 31 MArCH

29 Financial statements 29 The Directors have pleasure in presenting the financial statements, set out on pages 32 to 77 of Methven Limited for the year ended 31 March The Directors authorised these financial statements for issue on 27 May Phil Lough Chairman 27 May 2009 Rick Fala Managing Director and Group CEO Financial CONTENTS 30 Auditors Report 32 Income Statements 33 Balance Sheets 34 Statement of Changes in Equity 36 Cashflow Statements 37 Notes to the Financial Statements

30 30 Auditors report auditors REpORT To the shareholders of Methven Limited We have audited the financial statements on pages 32 to 77. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 31 March 2009 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 37 to 43. Directors Responsibilities The Company s Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 31 March 2009 and their financial performance and cash flows for the year ended on that date. Auditors Responsibilities We are responsible for expressing an independent opinion on the financial statements presented by the Directors and reporting our opinion to you. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and (b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed. We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacity as auditors and providers of tax and other assurance services.

31 Auditors report 31 Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and (b) the financial statements on pages 32 to 77: (i) comply with generally accepted accounting practice in New Zealand; (ii) comply with International Financial Reporting Standards; and (iii) give a true and fair view of the financial position of the Company and Group as at 31 March 2009 and their financial performance and cash flows for the year ended on that date. Our audit was completed on 27 May 2009 and our unqualified opinion is expressed as at that date. Chartered Accountants Auckland

32 32 METHVEN LIMITED For the year ended 31 March 2009 INcOME STaTEmENTS FOR THE YEAR ENDED 31 MARCH 2009 CONSOLIDATED PARENT NZ $000 Notes Sales revenue 6 137, ,759 43,902 49,775 Cost of sales (81,627) (66,110) (23,616) (27,965) Gross profit 55,694 48,649 20,286 21,810 Other revenue , Expenses 7 Research, design and engineering (2,659) (2,566) (2,652) (2,566) Sales, distribution, marketing and brand development (29,100) (24,592) (6,387) (7,459) Administration and other expenses (7,938) (5,405) (3,167) (2,453) Finance costs (2,553) (2,006) (649) (687) Profit before income tax 13,453 14,434 9,691 9,572 Income tax expense 8 (3,397) (4,677) (2,532) (3,231) Net profit attributable to shareholders of the parent 10,056 9,757 7,159 6,341 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.

33 METHVEN LIMITED As at 31 March BaLANcE ShEEtS AS AT 31 MARCH 2009 CONSOLIDATED PARENT NZ $000 Notes Assets Current assets Cash and cash equivalents 3,732 3, Trade receivables 9 25,307 27,458 6,007 9,381 Inventories 10 31,849 30,546 6,249 9,711 Derivative financial instruments 11 1, Income tax receivable Intercompany loans 12 11,400 9,246 Prepayments and other assets 861 1, Total current assets 63,421 63,696 24,829 29,332 Non-current assets Investments in subsidiaries 26 27,385 27,280 Property, plant and equipment 13 8,444 8,640 5,470 6,106 Deferred tax assets 14 1,767 1, Intangible assets 15 45,932 46,756 4,123 3,969 Total non-current assets 56,143 56,942 37,415 38,055 Total assets 119, ,638 62,244 67,387 Liabilities Current liabilities Trade creditors 13,167 14,594 1,777 4,592 Interest bearing liabilities 17 4,045 12,634 Derivative financial instruments Income tax payable 1, Provisions Other creditors and accruals 9,886 8,377 2,455 2,882 Employee accruals 2,011 1, Total current liabilities 31,514 38,565 5,598 9,174 Non-current liabilities Interest bearing liabilities 17 26,527 23,892 5,121 6,269 Derivative financial instruments Deferred tax liabilities 14 3,353 3,159 Non-current employee accruals Total non-current liabilities 30,042 27,142 5,244 6,360 Total liabilities 61,556 65,707 10,842 15,534 Net assets 58,008 54,931 51,402 51,853 Equity Share capital 19 46,986 46,986 46,986 46,986 Reserves 20 (299) (1,479) 441 (108) Retained earnings 20 11,321 9,424 3,975 4,975 Total equity 58,008 54,931 51,402 51,853 The above balance sheets should be read in conjunction with the accompanying notes.

34 34 METHVEN LIMITED For the year ended 31 March 2009 StATEmENT of CHAnGEs IN EQUItY FOR THE YEAR ENDED 31 MARCH 2009 CONSOLIDATED Share Currency Share Hedge options Retained translation Total NZ $000 Notes capital reserve reserve earnings reserve equity Balance at 1 April ,170 (456) 42 6,378 (168) 22,966 Movement in foreign currency translation reserve 20 (1,288) (1,288) Movement in cashflow hedge reserve Deferred tax on hedge reserve 20 (172) (172) Movement in share option reserve Profit for the year 20 9,757 9,757 Total recognised income and expense for the year ,757 (1,288) 8,860 Costs attributed to raising share capital 19 (592) (592) Dividends 21 (6,711) (6,711) Share options exercised Shares issued 19 30,056 30,056 Balance at 31 March ,986 (116) 93 9,424 (1,456) 54,931 Balance at 1 April ,986 (116) 93 9,424 (1,456) 54,931 Movement in foreign currency translation reserve Movement in cashflow hedge reserve 20 1,423 1,423 Deferred tax on hedge reserve 20 (438) (438) Movement in share option reserve Profit for the year 20 10,056 10,056 Total recognised income and expense for the year , ,236 Dividends 21 (8,159) (8,159) Balance at 31 March , ,321 (1,348) 58,008 The above statement of changes in equity should be read in conjunction with the accompanying notes.

35 METHVEN LIMITED For the year ended 31 March StATEmENT of CHAnGEs IN EQUItY (continued) parent Share Share hedge options Retained Total NZ $000 Notes capital reserve reserve earnings equity Balance at 1 April ,170 (405) 42 5,345 22,152 Movement in cashflow hedge reserve Deferred tax on hedge reserve 20 (113) (113) Movement in share option reserve Profit for the year 6,341 6,341 Total recognised income and expense for the year ,341 6,596 Costs attributed to raising share capital 19 (592) (592) Dividends 21 (6,711) (6,711) Share options exercised Shares issued 19 30,056 30,056 Balance at 31 March ,986 (201) 93 4,975 51,853 Balance at 1 April ,986 (201) 93 4,975 51,853 Movement in cashflow hedge reserve Deferred tax on hedge reserve 20 (198) (198) Movement in share option reserve Profit for the year 20 7,159 7,159 Total interest recognised and expense for the year ,159 7,708 Dividends 21 (8,159) (8,159) Balance at 31 March , ,975 51,402 The above statement of changes in equity should be read in conjunction with the accompanying notes.

36 36 METHVEN LIMITED For the year ended 31 March 2009 CAsHFLoW STAtEMENTS FOR THE YEAR ENDED 31 MARCH 2009 CONSOLIDATED PARENT NZ $000 Notes Cash flows from operating activities Receipts from customers 139, ,676 47,218 48,225 Payments to suppliers (92,995) (73,769) (24,830) (30,771) Payments to employees (25,355) (20,075) (9,364) (8,956) 21,076 17,832 13,024 8,498 Dividends received 1,278 Interest received Interest paid (2,415) (1,568) (560) (635) Income taxes paid (2,123) (5,613) (2,292) (3,620) Net cash inflow / (outflow) from operating activities 28 16,547 10,809 11,627 4,691 Cash flows from investing activities Payment for purchase of subsidiary, net of cash acquired 25 (43,411) (21,102) Payments for property, plant and equipment, patent and trademarks (2,611) (4,318) (1,113) (2,914) Loans to subsidiaries (1,068) (3,855) Proceeds from sale of property, plant and equipment Capitalisation of subsidiary (105) Net cash (outflow) / inflow from investing activities (2,548) (47,065) (2,286) (27,871) Cash flows from financing activities Net proceeds from issues of shares and other equity securities 27,480 27,480 Proceeds from borrowings 18,347 2,707 Repayment of borrowings (6,092) (1,238) Dividends paid 21 (8,159) (6,711) (8,159) (6,711) Net cash (outflow) / inflow from financing activities (14,251) 39,116 (9,397) 23,476 Net (decrease) / increase in cash and cash equivalents (252) 2,860 (56) 296 Cash and cash equivalents at the beginning of the financial year 3,930 1, Foreign currency translation adjustment 54 (32) Cash and cash equivalents at end of year 3,732 3, The above cashflow statements should be read in conjunction with the accompanying notes.

37 METHVEN LIMITED 31 March NotEs to the Financial STAtEMenTS FOR THE YEAR ENDED 31 MARCH General information Methven Limited (the Company ) and its subsidiaries (together Methven or the Group ) designs, manufactures and markets shower, tapware products 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 27 May 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 ('the Parent') and the consolidated economic entity comprising Methven Limited and its subsidiaries (together Methven or the Group ). 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. 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 as at balance date and the results of all subsidiaries for the year then ended. Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully de-consolidated from the date on which control ceases. The purchase method is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. 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 cost of acquisition over the fair value of the Group s share of the identifiable net assets acquired is recorded as goodwill (refer to note 15). If the cost of acquisition is less than the fair value of the Group's share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Intercompany

38 38 METHVEN LIMITED 31 March Summary of significant accounting policies (continued) 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 A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. (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. (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: (i) Sales of goods Sales of goods are recognised when a Group entity has dispatched the goods sold. This is the point where risks and rewards associated with ownership of the goods have been transferred and collectibility of the related receivables is reasonably assured. (ii) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. (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