Delivering amazing shower experiences to the world is our passion and we are focused on harnessing the transformative power of water and its ability

Transcription

1 ANNUAL REPORT 2013

2 Delivering amazing shower experiences to the world is our passion and we are focused on harnessing the transformative power of water and its ability to refresh, restore and revitalise everybody, every day.

3 CONTENTs 03 Performance Summary 05 Financial Summary 06 Chairman & Group CEO s Review 18 Core Market Review 20 Awards 21 Acknowledgements 22 Corporate Governance 24 Methven Group Directors 26 Financial Statements 77 General Disclosures 81 Directory

4 award winning design Waipori Good design award 2012 Chicago athenaeum

5 3 PErFORmANcE summary FOr THE year ENDEd 31 march 2013 Group Financial Performance Group EBITDA excluding one-offs 1, down 3.4% from $13.4 million to $12.9 million. Group reported NPAT fell 20.3% on the prior corresponding period from $6.5 million to $5.2 million. Group NPAT excluding one-offs 3, fell 11.1% from $6.1 million to $5.5 million. Net Debt increased 46.6% from $11.7 million to $17.2 million. Underlying Net Debt 4 increased 14.8% from $15.0 million to $17.2 million. Group Operating Revenue was down 7.3% from $106.2 million to $98.4 million. Highlights New Zealand division earnings improved as market conditions improved, with EBITDA excluding one-offs 1, up 6.9% on the prior year from $7.9 million to $8.5 million. Modest recovery of the UK division with 0.2 million second half EBITDA 2 profit, reversing the first half loss. Australian division EBITDA 2 down 1.9% in weak market conditions and a 12.9% sales decline. Continued investment in R&D, augmented by Technology Development Grant of up to $2.3 million over the next three years from Callaghan Innovation. Brand reputation benefits from two new Chicago Athenaeum GOOD DESIGN Awards. Partially imputed final dividend of 4.5 cps to be paid on 28 June 2013, resulting in a total dividend for the year of 9.0 cps (LY 10.0 cps). 1 EBITDA excluding one-offs is EBITDA 2 adjusted for the impact of due diligence costs of $316,000 and, in the prior year, one-off recoveries of $425,000 relating to Focus (DIY) Limited which include the debt recovery, inventory recovery and associated one-off costs. 2 EBITDA is earnings before interest, tax, depreciation, amortisation, impairment, non-operating foreign exchange gains/(losses) and inter-segmental charges. 3 net profit after tax excluding one-offs is net profit after tax adjusted for the impact of due diligence costs of $316,000 and, in the prior year, one-off recoveries of $314,000 relating to Focus (DIY) Limited which include the debt recovery, inventory recovery and associated one-off costs. 4 underlying Net Debt is net debt adjusted for one-off extended supplier payment terms and favourable debtor collections at 2012 year end.

6 Pictured: Koha Satinjet Slide Rail Shower with Koha Shower Mixer with Fastflow and Koha Wall Mounted Mixer with Backplate

7 5 financial summary FOr THE year ENDEd 31 march 2013 NZ $ Change TRADING RESULTS Group operating revenue 98, , % EBITDA 2 12,610 13, % Net profit after tax 5,150 6, % Financial position at year end Total equity 45,280 48,211 Total assets 84,381 90,244 Intangible assets 33,025 35,708 Net cash/(debt) (17,222) (11,746) Capital expenditure 2,092 3,651 Equity ratio 72.4% 80.4% Shareholder statistics Number of shares 66,606,265 66,606,265 Dividend per share 9.00c 10.00c Share price at year end $1.29 $1.09 Earnings per share 7.7c 9.7c Net dividend yield 7.0% 9.2% Gross dividend yield 8.2% 11.3% Net tangible asset value per share 18.4c 18.8c

8 6 chairman and GrOUP ceo S review focus On cost control In TOUgH conditions The ongoing tough conditions in our major markets continued to have a significant impact on business performance, with Group EBITDA 2 for the year to 31 March 2013, down 8.6% from $13.8 million to $12.6 million. Excluding one-offs, Group EBITDA 1 for the year to 31 March 2013 was down 3.4% from $13.4 million to $12.9 million. Group NPAT for the year to 31 March 2013 fell 20.3% on the prior corresponding period from $6.5 million to $5.2 million, with Group NPAT excluding one-offs 3, down 11.1% from $6.1 million to $5.5 million. Group Operating Revenue was down 7.3% from $106.2 million to $98.4 million, reflecting the continued downturn in Australian market conditions. However, a focus on tight cost control and improved operational efficiencies throughout the Group contributed to operating costs being driven down 8.6% year on year. UK market conditions remained tough and are reflected in the modest growth in sales, up 2.4% from 11.5 million to 11.8 million. However, rigorous cost control resulted in a second half EBITDA 2 profit of around 0.2 million to deliver the anticipated breakeven result for the full year. While we expect the market to remain difficult, we are confident that the UK will continue on the profitable path established in the second half of last year. The continued rapid decline in Australian market demand impacted operations with Operating Revenue down 12.9% from A$38.0 million to A$33.1 million. While a decline in the Australian market was expected, we did not anticipate the market would contract at such a rapid rate. Once again, ongoing tight cost control measures and operational efficiencies largely offset the sales and margin decline, with EBITDA 2 down just 1.9% from A$3.9 million to A$3.8 million. In the face of these tough market conditions, our tapware growth strategy gained traction with tapware up 2%, now accounting for 24% of total Australian sales. Earnings from the New Zealand operation improved as market conditions improved. A pick up in building and renovation activity, particularly in Auckland and Christchurch, offset by lower sales in other regions and channels, resulted in domestic sales up slightly on last year, from $34.8 million to $34.9 million. Combined with continued improvements to the cost base, the operation delivered a 2.9% increase in EBITDA 2 from $7.9 million to $8.2 million. Excluding one-off acquisition costs, EBITDA 1 was up 6.9%. tight cost control and improved operational efficiencies contributed to operating costs being driven down 8.6% year on year.

9 Pictured: Kiri Basin Mixer

10 8 While our China business shows signs of promise, the increased investment in the sales team has not yet delivered a significant sales uplift, with the business delivering an EBITDA 2 loss of NZ$0.3 million compared to last year s NZ$0.2 million profit. China remains a long term growth opportunity and we remain focused on our strategy of targeting upmarket hotel refurbishments and apartment developments and expect to realise a pipeline of opportunities. Net Debt of $17.2 million increased 14.8% on last year s underlying Net Debt 4 of $15.0 million and 46.6% on the prior year s reported Net Debt. This was largely due to the higher than anticipated stock levels as a result of the reduction in Australian sales, and we expect debt levels to drop back down as our stock position normalises. Despite the increase in debt levels, we remain comfortably within our bank facility limits and covenants, and the Directors are comfortable with the business s financial position and outlook, hence our ability to maintain a healthy dividend flow. Global uncertainty continues to shape and impact markets important to Methven and the rapid decline in Australia serves to demonstrate the difficult market conditions which have weighed heavily on our ability to grow the business. While a key focus has been on cost control during these uncertain times, we remain committed to delivering our strategic initiatives to create future growth and ongoing shareholder returns. 5 DIVIDEND HISTORY 4 Dividend $NZ million FY07 HY08 FY08 HY09 FY09 HY10 FY10 HY11 FY11 HY12 FY12 HY13 FY13

11 9 TRADING RESULTS NZ $ Change % Group operating revenue 98, , EBITDA 2 12,610 13, Net profit after tax 5,150 6, Excluding one-offs EBITDA 1 12,926 13, Net profit after tax 3 5,466 6, GROUP EBITDA GROUP REVENUE $NZ million $NZ million EBITDA 2 FY13 SALES REVENUE FY13 NEW ZEALAND AUSTRALIA UNITED KINGDOM OTHER

12 10 looking TO THE future Innovative Design Thinking Methven has a strong history of innovation and investment in research and development, having already successfully developed multiple award-winning bathroom technologies including the patented Satinjet twin jet shower and Twin Lever tapware. This strong commitment and investment in research and development ensures we are at the forefront of our industry with innovative technology and product designs based on our deep understanding of water and its power to transform every day through amazing shower experiences. With several new ranges released last year, we continue to be recognised on the global design stage, most recently at the internationally renowned Chicago Athenaeum GOOD DESIGN Awards with our Koha and Waipori Satinjet Handsets. Importantly, these awards provide Methven with global brand credibility and create opportunities to drive and leverage sales across all regions. In a highly competitive market, we have a genuine point of difference to stand out from our competitors and position Methven as the brand of choice. Our investment in research and development has been bolstered by a Technology Development Grant by Crown Entity Callaghan Innovation. Supporting New Zealand businesses with a proven track record of investment in research and development, the three year grant of up to $2.3 million will enhance our ability to speed up the commercialisation of ideas already in our product pipeline and drive new technology projects.

13 Feel the difference with over 300,000 droplets per second of pure luxury.

14 12 Renewed Marketing Focus In order to realise topline growth, we are strengthening our global marketing capability. An in-depth and independent review of our marketing function has just been completed with a host of recommendations currently being adopted. Our global marketing platform will drive differentiation by building the consumer brand experience. Underpinned by our Satinjet technology, we are investing in strategic marketing initiatives to capitalise on our uniqueness to deliver amazing shower experiences. A fresh and reinvigorated globally-aligned Methven brand will be executed by further investment in marketing team capabilities at both a global and regional level. As consumers demand a higher quality online experience that meets their needs, we are improving our online capabilities to deliver an improved brand experience across all interfaces and also facilitate improved integration of social media to establish and enable more effective two way conversations to build and drive global brand positioning. We are confident that improved marketing capability and a consistent, fresh and globally-aligned brand backed by well-grounded marketing-led initiatives, will increase market share and drive new opportunities for the long term growth of the business. improved marketing capability and a consistent, fresh and globally-aligned increase market share brand and will drive growth.

15 13 New and Emerging Markets New and emerging markets continue to be a strategic focus and opportunity for growth for Methven in the longer term. We have worked hard over the past five years to develop a sound strategy and business model in China focused on the luxury hotel and apartment sector and continue to remain committed to ongoing support and investment for long term success. With an established sales team in place and an encouraging opportunity pipeline, we will continue to pursue medium and long term growth initiatives. New markets, particularly those suffering water and energy shortages, continue to present significant opportunities for our proprietary water and energy saving Satinjet technology. A major contract win to supply Satinjet handsets to a residential water and energy saving programme in South Africa highlights the potential for new markets around the world. Business Critical Basics With challenging economic times expected to continue, we will maintain our focus on stringent cost management across all regions. With operating costs down 8.6% year on year, we will continue to work hard to simplify the business through the standardisation of processes and services. SKU reduction alongside product re-engineering is expected to provide further cost competitiveness in tough market conditions and also reduce the total cost and investment in stock levels. Tight working capital management will ensure we are prepared to ride out the continued difficult trading conditions. Acquisition Opportunity We are in the final stages of due diligence for an important business acquisition and we are excited by the opportunity it represents across all facets of the business.

16 14 sustainable Dividends Despite the tough conditions and a temporary increase in Net Debt, we remain comfortably within our bank facility limits and covenants. The Directors are comfortable the underlying health of the business remains sound and are confident in the ability of the company to continue to pay sustainable dividends over the longer term and are pleased to declare a Final Dividend of 4.5 cps, payable on 28 June This maintains Methven s proud record of having never missed paying an interim or final dividend since first listing in November COVENANTS AND CASHFLOW Interest cover (EBITA/ interest) - not less than 2.5 Gearing ratio (Net debt/ EBITA) - not to exceed x 8.3x 1.7x 1.0x Pictured: Koha Wall Mounted Basin Spout

17 the OUTlOOk We have worked hard to reduce costs to ensure the business remains in a sound financial position to ride out the global financial crisis affecting our core markets. Delivering our key points of difference through innovative design and results-orientated marketing initiatives, we are confident in achieving market share gains across all markets. By building the equity in our brand we will defend and grow the core, while actively pursuing growth opportunities in new and emerging markets. With the anticipated appointment of a new Group CEO and revamped marketing approach, supported by Rick Fala s industry and institutional knowledge as a non-executive director, we expect to continue our reinvigoration of the business. As a result of returning our UK business to profitability and improving trading conditions in New Zealand, combined with our stringent cost management programme and improved marketing focus, we are targeting positive earnings growth for the new financial year. Australia While the depressed conditions are expected to persist, the business has plans in place to improve the current position. Through focusing on real growth opportunities and maintaining tight cost control, the business expects to turn around the decline in sales and resume profit growth. New Zealand With the return to more positive economic conditions, the New Zealand business is expected to continue to deliver modest topline growth. Through innovative marketing initiatives designed to strengthen market share and brand loyalty, we will capitalise on the real improvements in the Auckland and Christchurch markets, to stabilise and grow our market position. United Kingdom Despite the gloomy economic outlook, we are confident that the UK business will continue along the path of growth established in the second half of last year. With renewed vigour and enthusiasm around the Methven and Satinjet brands, key partnerships and new channel opportunities, the UK is expected to achieve top and bottom line growth. China With an experienced sales team in place and a growing opportunity pipeline, we expect to grow sales and continue to invest in market development. Our focus remains on securing four and five star hotel refurbishments and new high-end apartment developments for longer term realisation.

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19 Our vision is to be THE leading shower brand, loved worldwide for delivering superior, life-enhancing shower experiences.

20 18 core market review NEw ZEAlAND Earnings improve as market conditions improve AUSTRaLIA Stable earnings despite tough trading conditions New Zealand NZ $ Australia A $ Operating revenue 34,896 34,812 EBITDA excluding one-offs 1 8,477 7,928 EBITDA % of revenue 24.3% 22.8% Operating revenue 33,078 37,959 EBITDA 2 3,780 3,853 EBITDA % of revenue 11.4% 10.2% Total operating revenue slightly up on last year. EBITDA, excluding one-off acquisition costs 1, up 6.9% to $8.5 million. New dwelling consents showing a strong lift during the year, particularly in Christchurch and Auckland. Optimistic for continued improvements in FY14. Further international design accolades Chicago Athenaeum GOOD DESIGN awards for our Koha and Waipori Satinjet Shower Handsets. Technology Development Grant awarded reimbursing 20% of eligible R&D expenditure over three years, representing up to $2.3 million of funding. Operating revenue down 12.9% to A$33.1 million with continuing weakness in the Australian housing market. EBITDA 2 down 1.9% to A$3.8 million. Operating costs down by 17.7% ensured stable EBITDA 2 earnings despite sales decline. Decline in trading conditions driven by a rapid downturn in new dwelling consent approvals. Tapware strategy is delivering results with tapware up 2% on last year in a contracting market. New Zealand Sales FY13 Australia Sales FY13 SHOWERS TAPWARE VALVES SHOWERS TAPWARE VALVES

21 19 united kingdom Profitable second half achieves targeted breakeven EBITDA 2 United Kingdom GB Operating revenue 11,757 11,477 EBITDA excluding one-offs EBITDA % of revenue 0.1% 1.2% Operating revenue up 2.4% to 11.8 million despite depressed market conditions persisting. EBITDA 2 breakeven, down from small 0.1 million profit in the previous year, excluding one-offs. Improving performance of UK division, combined with cost saving initiatives, delivered modest second half EBITDA 2 profit of 0.2 million, reversing the first half loss. Satinjet sales increasing as a result of successes in the project sector. United Kingdom Sales FY13 SHOWERS TAPWARE VALVES Pictured: Kiri Satinjet Shower System

22 20 AwARDS 2011 Red Dot Award Product Design Winner Tahi Twin Lever Tapware 2010 Red Dot Award With Honourable Mention Tahi Satinjet Rail Shower with Shower Infusions 2012 GOOD DESIGN Award Koha Satinjet Shower Handset GOOD DESIGN Award Waipori Satinjet Shower Handset 2011 GOOD DESIGN Award Tahi Twin Lever Mixer Range 2008 GOOD DESIGN Award Tahi Thermostatic Mixer Range 2012 Australian International Design Awards Good Design Award Architectural & Interior Tahi Twin Lever Tapware 2010 Australian International Design Awards Good Design Award Housing & Building Maia Satinjet Shower with Vitamin C Dechlorination 2009 Australian International Design Awards Good Design Award Housing & Building Sector Tahi Satinjet Shower System Australian International Design Awards Good Design Award Housing & Building Sector Futura Satinjet Rail Shower DESIGN AWARDS 2011 WINNER 2011 UK Designer Magazine Design Award Gold, Product Innovation Awards: Bathroom Tahi Twin Lever Tapware 2010 UK Designer Magazine Design Award Gold, Product Innovation Awards: Bathroom Tahi Satinjet Shower System 2012 New Zealand BEST Design Awards Silver Consumer Product Koha Satinjet Range New Zealand BEST Design Awards Silver Consumer Product Waipori Satinjet Range New Zealand BEST Design Awards Silver Consumer Product Aroha Tapware Range 2010 New Zealand BEST Design Awards Gold - Sustainable Product Kiri Satinjet Ultra Low Flow New Zealand BEST Design Awards Silver Consumer Product Tahi Twin Lever Tapware 2009 New Zealand BEST Design Awards Gold Consumer Product Shower Infusions New Zealand BEST Design Awards Silver Consumer Product Tahi Thermostatic Mixer 2011 GREEN GOOD DESIGN Award Kiri Satinjet Ultra Low Flow Shower Head

23 21 acknowledgements In another challenging year, the Board would like to acknowledge the hard work and dedication of all Methven employees. It is a credit to the team that they have performed with focus and determination to ensure the underlying health of the business remains sound. In March 2013, we announced the resignation of Group CEO Rick Fala, and the Board would like to extend our sincere appreciation to Rick for his 16 years at the helm of Methven. Leading a remarkable and resilient team, he has transformed Methven from a New Zealand-centric business to a global company with operations in Australia, the United Kingdom and China. While Rick departs the business on 30 September 2013, we welcome his continued involvement, as an independent non-executive director on the Board from 1 October Phil Lough Chairman Rick Fala Managing Director and Group CEO

24 22 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, 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. Board Composition The Board comprises four non-executive Directors and one Executive Director. The Directors considered independent by Methven are Phil Lough (Chairman), Peter Stanes, Richard Cutfield and Alison Taylor. Rick Fala, Executive Director, is deemed not to be independent. 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 24 and 25. 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. In March this year Rick Fala announced his resignation as Group CEO, effective 30 September He will, however, continue to remain part of the Methven business, with the Board indicating its support of Rick taking up a role as a non-executive Director from 1 October Audit, Compliance and Risk management Committee The Audit, Compliance and Risk Management Committee comprises Peter Stanes (Chairman), Phil Lough, Richard Cutfield and Alison Taylor. This committee assists the Board to fulfil its responsibilities in the areas of financial and risk management. The Board believes that its corporate governance policies and procedures are consistent with the New Zealand Stock Exchange Corporate Governance Best Practice Code and the Principles of Corporate Governance as previously published by the New Zealand Securities Commission.

25 23 REmuneration Committee The Remuneration Committee comprises Richard Cutfield (Chairman), Phil Lough, Peter Stanes 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. 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 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. 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: Board Meetings Audit, Compliance and Risk Management Committee Remuneration Committee Phil Lough Rick Fala Richard Cutfield Peter Stanes Alison Taylor Total meetings held

26 24 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 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 ALISON TAYLOR Independent Director 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 publiclylisted 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. 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 management buy-out 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. His past directorships include Better by Design, New Zealand Trade and Enterprise, University of Auckland Business School and Youthline.

27 25 Richard Cutfield Independent Director 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 Zealandbased 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). 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 and Director 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, 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.

28 26 FINAnCIAL STATEmENTS FOR ThE YEaR ENdED 31 MArCH 2013 The Directors have pleasure in presenting the financial statements, set out on pages 28 to 76, of Methven Limited for the year ended 31 March The Directors authorised these financial statements for issue on 29 May Phil Lough Chairman Rick Fala Managing Director and Group CEO

29 27 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 28 to 76, which comprise the balance sheets as at 31 March 2013, 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 2013 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. Opinion In our opinion, the financial statements on pages 28 to 76: (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 2013, 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 2013: (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 29 May 2013 Auckland 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 and providers of other assurance services. These services have not impaired our independence as auditors of the Company and the Group.

30 28 METHVEN LIMITED Income statements FOR THE YEAR ENDED 31 MARCH 2013 CONSOLIDATED PARENT NZ $000 Notes Sales revenue 6 98, ,202 34,896 34,812 Cost of sales (55,226) (58,503) (18,655) (18,769) Gross profit 43,194 47,699 16,241 16,043 Other income ,358 8,390 Expenses 7 Research, design and engineering (2,486) (2,707) (2,486) (2,654) Sales, distribution, marketing and brand development (22,789) (26,054) (5,261) (5,018) Administration and other expenses (9,862) (9,148) (10,886) (5,719) Finance costs (1,210) (1,359) (991) (1,021) Profit before income tax 7,590 9, ,021 Income tax expense 8 (2,440) (2,548) (1,466) (1,577) Net profit/(loss) attributable to shareholders of the parent 5,150 6,462 (491) 8,444 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.

31 METHVEN LIMITED 29 statements of comprehensive Income FOR THE YEAR ENDED 31 MARCH 2013 CONSOLIDATED PARENT NZ $000 Notes Profit/(loss) for the year 5,150 6,462 (491) 8,444 Movement in foreign currency translation reserve 19 (1,826) (3,151) - - Movement in cashflow hedge reserve (89) Movement in deferred tax on hedge reserve 19 (146) (148) (46) 25 Other comprehensive income for the year net of tax (1,420) (2,803) 120 (64) Total comprehensive income for the year attributable to the shareholders of the parent 3,730 3,659 (371) 8,380 The above statements of comprehensive income should be read in conjunction with the accompanying notes.

32 30 METHVEN LIMITED As at 31 March 2013 Balance sheets AS AT 31 MARCH 2013 CONSOLIDATED PARENT NZ $000 Notes Assets Current assets Cash and cash equivalents 2,885 5, Trade receivables 9 18,929 18,802 8,474 8,718 Inventories 10 19,590 19,642 5,551 5,164 Derivative financial instruments Income tax receivable Inter-company advances ,532 23,005 Prepayments and other assets 1,646 1, Total current assets 43,358 45,889 36,896 37,730 Non-current assets Investments in subsidiaries ,768 27,937 Property, plant and equipment 12 6,168 7,062 4,104 4,580 Deferred tax assets 13 1,830 1, Intangible assets 14 33,025 35,708 5,046 5,375 Total non-current assets 41,023 44,355 32,376 38,329 Total assets 84,381 90,244 69,272 76,059 Liabilities Current liabilities Trade creditors 10,695 15,260 3,565 3,782 Derivative financial instruments Income tax payable Provisions Other creditors and accruals 5,658 5,517 2,235 2,274 Employee accruals 1,618 2, Inter-company payables Total current liabilities 18,747 24,376 7,007 7,915 Non-current liabilities Interest bearing liabilities 16 20,107 17,387 14,650 13,500 Derivative financial instruments Non-current employee accruals Total non-current liabilities 20,354 17,657 14,769 13,616 Total liabilities 39,101 42,033 21,776 21,531 Net assets 45,280 48,211 47,496 54,528 Equity Share capital 18 46,986 46,986 46,986 46,986 Reserves 19 (10,114) (8,684) (65) (175) Retained earnings 19 8,408 9, ,717 Total equity 45,280 48,211 47,496 54,528 The above balance sheets should be read in conjunction with the accompanying notes.

33 METHVEN LIMITED 31 STATEmENTS of CHAnGES IN EQuITY FOR THE YEAR ENDED 31 MARCH 2013 CONSOLIDATED NZ $000 Notes Share capital Hedge reserve Share based payments reserve Currency translation reserve Retained earnings Total equity Balance at 1 April ,986 (769) 10 (5,122) 9,442 50, 547 Movement in foreign currency translation reserve (3,151) - (3,151) Movement in cashflow hedge reserve Movement in deferred tax on hedge reserve 19 - (148) (148) Profit for the year ,462 6,462 Total comprehensive income (3,151) 6,462 3,659 Dividends (5,995) (5,995) Balance at 31 March ,986 (421) 10 (8,273) 9,909 48,211 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 19 - (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 The above statements of changes in equity should be read in conjunction with the accompanying notes.

34 32 METHVEN LIMITED STATEmENTS of CHAnGES IN EQuITY FOR THE YEAR ENDED 31 MARCH 2013 (CONTINUED) PARENT NZ $000 Notes Share capital Hedge reserve Share based payments reserve Retained earnings Total equity Balance at 1 April ,986 (121) 10 5,268 52,143 Movement in cashflow hedge reserve 19 - (89) - - (89) Movement in deferred tax on hedge reserve Profit for the year ,444 8,444 Total comprehensive income - (64) - 8,444 8,380 Dividends (5,995) (5,995) Balance at 31 March ,986 (185) 10 7,717 54,528 Balance at 1 April ,986 (185) 10 7,717 54,528 Movement in cashflow hedge reserve Movement in deferred tax on hedge reserve 19 - (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 The above statement of changes in equity should be read in conjunction with the accompanying notes.

35 METHVEN LIMITED 33 cashflow statements FOR THE YEAR ENDED 31 MARCH 2013 CONSOLIDATED PARENT NZ $000 Notes Cashflows from operating activities Receipts from customers 97, ,921 35,704 36,032 Payments to suppliers (68,701) (63,341) (19,894) (16,248) Payments to employees (21,546) (24,243) (8,803) (9,426) 7,518 20,337 7,007 10,358 Dividends received ,292 3,813 Interest received ,086 1,081 Interest paid (1,210) (1,384) (991) (1,021) Income taxes paid (3,344) (2,678) (1,741) (1,501) Net cash inflow from operating activities 26 2,984 16,300 6,653 12,730 Cashflows from investing activities Payments for property, plant and equipment, patents, trademarks and software (2,092) (3,641) (1,089) (1,937) Loans to subsidiaries (193) (4,065) Proceeds from sale of property, plant and equipment Net cash outflow from investing activities (2,086) (3,624) (1,282) (5,989) Cashflows from financing activities Proceeds from borrowings 3,101-1,150 - Repayment of borrowings - (5,190) - (488) Dividends paid 20 (6,661) (5,995) (6,661) (5,995) Net cash outflow from financing activities (3,560) (11,185) (5,511) (6,483) Net increase/(decrease) in cash and cash equivalents (2,662) 1,491 (140) 258 Cash and cash equivalents at the beginning of the financial year 5,641 4, Foreign currency translation adjustment (94) (334) - - Cash and cash equivalents at end of year 2,885 5, The above cashflow statements should be read in conjunction with the accompanying notes.

36 34 METHVEN LIMITED notes to the Financial STATEmENTS FOR THE YEAR ENDED 31 MARCH 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. These financial statements have been approved for issue by the Board of Directors on 29 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. 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. 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 which form part of the Group are consolidated from the date on which control is transferred to the Group. They are de-consolidated 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.

37 METHVEN LIMITED 35 2 Summary of significant accounting policies (CONTINUED) (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. (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. (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. (v) Management service fees Management service fee income is recognised when the Company has provided the services.