WATERCO LIMITED — Annual Report 2008

Aug 26, 2008

WATERCO LIMITED

ABN 62 002 070 733

CONSOLIDATED FINANCIAL REPORT

FOR THE YEAR ENDED 30TH JUNE 2008

Contents

Contents
Income Statement	2
Balance Sheet	3
Statement of Changes in Equity	4
Statement of Cashflows	6
Notes to the Financial Statements	7-35
Directors’ Declaration	36

THIS REPORT IS UNAUDITED

1

INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Note	Consolidated Group	Consolidated Group	Parent Entity	Parent Entity
	No.	2008	2007	2008	2007
		$	$	$	$
Revenues	2	82,323,790	82,134,285	55,589,088	55,269,527
Changes in inventories of finished goods and work inprogress		5,397,529	(559,429)	2,532,835	(31,658)
Raw Materials and consumables used		(48,288,741)	(46,041,792)	(33,201,864)	(31,369,209)
Employee benefits expense		(12,313,758)	(13,997,334)	(7,887,816)	(8,597,334)
Depreciation and impairment expense	3	(3,424,035)	(1,821,461)	(865,325)	(871,792)
Finance costs		(2,255,946)	(2,356,188)	(1,968,283)	(2,070,934)
Advertisingexpense		(1,414,654)	(1,845,207)	(768,936)	(885,068)
Discounts allowed		(1,008,646)	(1,268,893)	(999,167)	(1,260,353)
Outward freight expense		(2,542,401)	(2,419,254)	(1,621,835)	(1,589,248)
Rent expense		(3,212,535)	(2,895,726)	(1,804,498)	(1,800,021)
Contracted staff expense		(649,152)	(506,884)	(501,814)	(489,860)
Unrealised foreign exchange gains/(losses)		(2,898,836)	(2,134,358)	(2,898,836)	(2,134,358)
Warrantyexpense		(863,331)	(1,082,333)	(301,688)	(399,308)
Commission expense		(824,525)	(647,239)	(445,181)	(173,601)
Other expenses		(10,206,092)	(6,416,362)	(2,364,413)	(2,330,801)
Profit /(loss)before income tax expense	3	(2,181,333)	(1,858,175)	2,492,267	1,265,982
Income tax expense	5	1,303,113	702,409	1,343,564	998,780
Profit/(loss)for theyear		(3,484,446)	(2,560,584)	1,148,703	267,202
Profit/(loss) attributable to minorityequityinterest		73,332	53,080	-	-
Profit /(loss) attributable to members of theparent entity		(3,557,778)	(2,613,664)	1,148,703	267,202
Basic earnings per share (cents per share)	32	(12.9)	(11.5)
Diluted earnings per share (centsper share)	32	(12.9)	(11.5)
Dividends Per Share (cents per share)	31	3.00	9.0

The accompanying notes form part of these financial statements.

2

BALANCE SHEET AS AT 30 JUNE 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Note	Consolidated Group	Consolidated Group	Parent Entity	Parent Entity
	No.	2008	2007	2008	2007
		$	$	$	$
Current Assets
Cash and cash equivalents	7	2,253,863	1,296,781	333,908	34,818
Trade and other receivables	8	14,344,430	12,873,819	4,796,178	4,205,349
Inventories	9	22,476,760	29,120,819	9,405,887	12,086,064
Other current assets	10	632,927	738,766	370,461	451,177
Total Current Assets		39,707,980	44,030,185	14,906,434	16,777,408
Non-Current Assets
Trade and other receivables	11	-	-	29,889,405	30,047,586
Financial assets	12	-	-	11,128,743	10,304,244
Property, plant & equipment	14	30,401,164	33,117,063	13,052,768	13,974,234
Intangible assets	15	180,893	2,406,097	115,651	258,169
Deferred tax assets	19	1,222,698	1,318,602	565,493	603,340
Other non-current assets	16	249,519	213,924	-	-
Total Non-Current Assets		32,054,274	37,055,686	54,752,060	55,187,573
Total Assets		71,762,254	81,085,871	69,658,494	71,964,981
Current Liabilities
Trade and otherpayables	17	8,053,255	8,612,871	4,482,271	3,690,059
Financial liabilities	18	1,422,706	6,512,006	1,132,965	6,206,275
Current tax liabilities	19	361,540	(295,187)	470,566	(93,705)
Short termprovisions	20	1,576,689	1,662,708	1,530,790	1,612,769
Total Current Liabilities		11,414,190	16,492,398	7,616,592	11,415,398
Non-Current Liabilities
Trade and other Payables	21	-	-	3,032,677	3,026,151
Financial liabilities	22	20,884,305	27,548,976	17,900,338	23,914,728
Deferred tax liabilities	19	1,914,033	2,087,873	1,912,141	1,953,814
Long-termprovisions	23	282,014	294,360	282,014	294,360
Total Non-Current Liabilities		23,080,352	29,931,209	23,127,170	29,189,053
Total Liabilities		34,494,542	46,423,607	30,743,762	40,604,451
Net Assets		37,267,712	34,662,264	38,914,732	31,360,530
Equity
Issued capital	24	30,107,181	23,126,616	30,107,181	23,126,616
Reserves	25	3,693,640	3,996,856	5,694,728	5,694,728
Retained earnings	26	3,092,270	7,225,114	3,112,823	2,539,186
Parent interest		36,893,091	34,348,586	38,914,732	31,360,530
Minorityequityinterest		374,621	313,678	-	-
Total Equity		37,267,712	34,662,264	38,914,732	31,360,530

The accompanying notes form part of these financial statements.

3

STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 30 JUNE 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

Economic Entity	Note No.	Ordinary	Retained Earnings	Capital Profits Reserve	Asset Revaluation Reserve	Foreign Currency Translation Reserve	Minority Equity Interests	Total
Balance at 30/6/06		22,038,128	11,872,746	210,562	3,983,371	(552,818)	273,043	37,825,032
Issue of shares
Profit/(loss) attributable to members of parent entity			(2,613,664)					(2,613,664)
Profit/(loss) attributable to minority shareholders							53,080	53,080
Issue of shares under Waterco DRP		1,051,788						1,051,788
Revaluation Increment					1,530,931			1,530,931
Adjustment for translation of foreign controlled entities						(1,175,190)		(1,175,190)
Employee share loans		36,700						36,700
Sub-total		23,126,616	9,259,082	210,562	5,514,302	(1,728,008)	326,123	36,708,677
Dividendspaid	31		(2,033,968)				(12,445)	(2,046,413)
Balance at 30/6/07		23,126,616	7,225,114	210,562	5,514,302	(1,728,008)	313,678	34,662,264
Profit /(loss) attributable to members of parent entity			(3,557,778)					(3,557,778)
Profit/(loss) attributable to minority shareholders							73,332	73,332
Issue of shares under Waterco DRP		315,760						315,760
Issue of shares under Waterco Rights Issue Less : Expenses		6,900,791 (268,761)						6,900,791 (268,761)
Adjustment for translation of foreign controlled entities						(303,216)		(303,216)
Employee share loans		32,775						32,775
Sub-total		30,107,181	3,667,336	210,562	5,514,302	(2,031,224)	387,010	37,855,167
Dividendspaid	31		(575,066)				(12,389)	(587,455)
Balance at 30/6/08		30,107,181	3,092,270	210,562	5,514,302	(2,031,224)	374,621	37,267,712

The accompanying notes form part of these financial statements.

4

STATEMENT OF CHANGES IN EQUITY FOR YEAR ENDED 30 JUNE 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

Parent Entity	Note No.	Ordinary	Retained Earnings	Capital Profits Reserve	Asset Revaluation Reserve	Total Equity
Balance at 30/6/06		22,038,128	4,305,952	180,426	3,983,371	30,507,877
Issue of shares under Waterco DRP		1,051,788				1,051,788
Employee share loans		36,700				36,700
Profit attributable to members ofparent entity			267,202			267,202
Revaluation increment					1,530,931	1,530,931
Sub-total		23,126,616	4,573,154	180,426	5,514,302	33,394,498
Dividendspaid	31		(2,033,968)			(2,033,968)
Balance at 30/6/07		23,126,616	2,539,186	180,426	5,514,302	31,360,530
Issue of shares under Waterco DRP		315,760				315,760
Issue of shares under Waterco Rights Issue Less : Expenses		6,900,791 (268,761)				6,900,791 (268,761)
Employee share loans		32,775				32,775
Profit attributable to members ofparent entity			1,148,703			1,148,703
Sub-total		30,107,181	3,687,889	180,426	5,514,302	39,489,798
Dividendspaid	31		(575,066)			(575,066)
Balance at 30/6/08		30.107,181	3,112,823	180,426	5,514,302	38,914,732

The accompanying notes form part of these financial statements.

5

CASHFLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group	Economic	Entity
	2008	2007	2008	2007
	$	$	$	$
Cash Flows from Operating Activities
Receipts from customers	82,777,292	86,882,195	58,738,989	59,762,252
Payments to suppliers and employees	(75,281,169)	(82,562,559)	(52,590,541)	(57,096,867)
Interest received	93,508	78,804	193,802	206,802
Other Income	863,138	411,713	131,298	343,483
Finance costs	(2,255,946)	(2,356,188)	(1,968,283)	(2,070,934)
Income tax paid	(724,322)	(1,437,022)	(783,119)	(1,510,619)
Net cash provided by/(used in) operating
activities(note 36a)	5,472,501	1,016,943	3,722,146	(365,883)
Cash Flows from Investing Activities
Dividends received	180	880	842,103	15,895
Payment for property,
plant & equipment	(3,662,982)	(2,135,520)	(155,508)	(271,259)
Proceeds from sale of property,
plant & equipment	3,946,186	206,728	62,230	80,123
Proceeds from sale of business
(net of cash) (note 36b)	1,524,813	-	1,253,533	-
Payment for investments	-	-	(824,499)	-
Payments for intangibles	-	178,634	-	-
Net cash provided by/(used in)
investment activities	1,808,197	(1,749,278)	1,177,859	(175,241)
Cash Flows from Financing Activities
Proceeds from/(repayment of)
borrowings	(11,168,159)	3,318,519	(10,517,879)	4,017,878
Proceeds from issue of shares	6,947,790	1,051,788	6,947,790	1,051,788
Payment of lease liabilities	(218,033)	(237,873)	(218,033)	(237,873)
Dividends paid	(587,455)	(2,046,412)	(575,066)	(2,033,968)
Employee share plan repayments	32,775	36,700	32,775	36,700
Loans to controlled entities	-	-	164,708	(2,059,129)
Net cash provided by/(used in)
financing activities	(4,993,082)	2,122,722	(4,165,705)	775,396
Net increase/(decrease) in
cash held	2,287,616	1,390,387	734,300	234,272
Cash at beginning of the
Year	(444,160)	156,310	(1,400,392)	(1,634,664)
Effects of exchange rate
changes on balance of cash
held in foreign currencies	(879,334)	(1,990,857)	-	-
Cash at the end of the
year(Note 7)	964,122	(444,160)	(666,092)	(1,400,392)

The accompanying notes form part of these financial statements.

6

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 1: Statement of Significant Accounting Policies

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards including Australian Accounting Interpretations, and other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers the economic entity of Waterco Limited and controlled entities, and Waterco Limited as an individual parent entity. Waterco Limited is a listed public company, incorporated and domiciled in Australia. The financial report of Waterco Limited and controlled entities and Waterco Limited as an individual parent entity comply with all International Financial Reporting Standards (IFRS) in their entirety.

The following is a summary of the material accounting policies adopted by the economic entity in the preparation of the financial report. The accounting policies have been consistently applied unless otherwise stated.

Basis of Preparation

Reporting Basis and Conventions

The financial report has been prepared on an accruals basis and based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Accounting Policies

a. Principles of Consolidation

A controlled entity is any entity Waterco Ltd has the power to control the financing and operating policies of so as to obtain the benefits from its activities. A list of controlled entities is contained in note 13 to the financial statements. All controlled entities have a June financial year-end except for Waterco Guangzhou Ltd, Waterco C Ltd and PT Waterco Indonesia all of which have December financial year ends.

All intercompany balances and transactions between entities in the economic entity including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the economic entity during the year, their operating results have been included/excluded from the date control was obtained or until control ceased.

Minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

b. Goodwill

Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for ownership interest in a controlled entity exceeds the fair value attributed to its net tangible assets at date of acquisition.

Goodwill on acquisition of subsidiaries is included in intangible assets. Both purchased goodwill and goodwill on consolidation are tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Canadian Goodwill

On 17 March, 2005,Waterco Canada Inc entered into a Purchase and Sale Agreement whereby the company acquired the assets of Focus Temp International Inc. The acquisition was accounted for using the purchase method. The total purchase price paid was $C6,253,332 and of this amount, $C1,000,000 was held in trust by Focus Temp’s solicitor to provide for a possible adjustment to the purchase price based on earnings, as defined in the Purchase and Sale Agreement for the twelve 12 month period ended 17 March 2006. During 2006, Waterco Canada Inc authorised the release of $C699,274 to Focus Temp International Inc, leaving a balance of $C300,726 in trust as at 30 June 2007.

7

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

b. Goodwill (continued)

A dispute arose between the parties to the Purchase and Sale Agreement regarding the earnings for the twelve month period ended 17 March 2006, and under the terms of the Agreement, an arbitration process has been initiated with respect to the earnings calculation. Focus Temp International Inc has served formal notice to have the balance of $C300,726 released to them. Waterco Canada Inc believes that the targeted earnings have not been achieved (verified by audit), and that the full $C1,000,000 should be returned to them pursuant to the terms of the agreement. Waterco Canada Inc has served formal notice on Focus Temp International Inc for (among other things) reimbursement of the $C699,274 released to them.

Based on the Company’s assessment at 30 June 2008 of the fair value of its assets purchased under the Purchase and Sale Agreement, the Company concluded that the related goodwill has suffered a loss in value and the fair value of the related goodwill was significantly less than its carrying value. Therefore, an impairment of $CAD1,272,181 ($A1,365,697) has been recorded to bring the carrying value to nil.

USA Goodwill

In March 2005, Waterco USA Inc acquired certain operating assets and real estate of Baker Hydro Filtrations Inc for a total cash consideration of $US2.625m. Also included in the consideration was a payment for goodwill and intangibles amounting to $US375,396

Based on the Company’s assessment at 30 June 2008 of the fair value of its assets (acquired under the Purchase Agreement) and after taking into account the losses by the company for the years ending 30 June 2007 and 30 June 2008 in addition to forecasts for the next 5 years, the Company concluded that the related goodwill and intangibles has suffered a loss in value and the fair value of the related goodwill and intangibles was significantly less than its carrying value. Therefore, an impairment of $US375,396 ($A415,847) has been recorded to bring the carrying value to nil.

In total, the 2008 earnings have been effected by $A1,781,544 in goodwill impairment losses in North America.

c. Investments

Investments in controlled entities are measured on a cost basis less amounts written off for permanent diminutions in the value of the investments.

d. Leases

Leases of fixed assets where substantially all the risks and benefits incidental to ownership of the asset but not the legal ownership that is transferred to entities in the economic entity, are classified as finance leases.

Assets of the economic entity which are subject to finance lease are capitalised. The initial amount of the leased asset and corresponding lease liability is the present value of minimum lease payments. Leased assets are depreciated over the life of the assets. Lease liabilities are reduced by repayments of principal. The interest components of lease payments are charged against profits. The finance leases are in respect of motor vehicles and forklifts used by the economic entity.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor are charged as expenses in the period in which they are incurred. The leases are property leases that are subject to different terms and conditions and are all subject to renewal.

Contingent liabilities are guarantees given by the head lessor (Waterco Ltd or Swimart Pty Ltd) for shops subleased by or licensed to franchisees. These are based on the rental at the beginning of the lease adjusted for estimated future inflation movements and movements in market value.

8

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

e. Inventories

Inventories are measured at the lower of cost and net realisable value. Cost is determined on a standard cost basis. The cost of manufactured products includes direct materials , direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Net realisable value is determined as the estimated selling price less costs to sell.

f. Taxation

The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income tax legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Waterco Limited and its wholly-owned Australian Subsidiaries have formed a consolidated group for the purposes of the tax consolidation provisions of the Income Tax Assessment Act 1997. All of the deferred tax assets and liabilities of the subsidiary members have become part of the deferred assets and liabilities of Waterco Ltd. Each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the consolidated group. The group notified the ATO on 20 January 2005 that it had formed an income tax consolidated group to apply from 1 July 2003.

g. Foreign Currencies

Foreign currency transactions are converted to Australian dollars at exchange rates ruling at the dates of those transactions. Amounts payable and receivable in foreign currency at balance date are converted to Australian dollars at exchange rates ruling on that date. Exchange differences arising from short term amounts payable and receivable are brought to account in the profit from ordinary activities when the exchange rates change. Foreign controlled entities financial statements have been translated at the exchange rate current at reporting date. The assets and liabilities of the overseas controlled entities, which are self sustaining, are translated at year-end rates and operating results are translated at the rates ruling at the end of each month. Gains and losses arising on translation are taken directly to the foreign currency translation reserve.

9

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

h. Employee Benefits

Provision for employee benefits, which include long service leave, and annual leave are computed to cover expected benefits at balance date.

Employee benefits expected to be settled within one year together with benefits arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. (see note 20)

Employee benefits (long service leave) payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. (see note 23)

Contributions are made by the economic entity to an employee superannuation fund and are charged as expenses when incurred. The economic entity has no legal obligation to cover any shortfall in the funds obligations to provide benefits to employees on retirement.

i. Deferred Expenditure

Research and Development costs are charged to profit as incurred unless it is expected beyond any reasonable doubt that sufficient future benefits will be derived so as to recover these deferred costs. Other significant items of expenditure having a benefit or relationship to more than one accounting period are deferred and amortised over the periods of their expected benefit.

j. Acquisition of Assets

The cost method of accounting has been used for acquisition of all assets (including shares). Cost is defined as the fair value of the assets given up at the date of acquisition plus costs incidental to acquisition. Where goodwill arises it is brought to account on the basis described in note 1 (b) to the accounts.

k. Property, Plant and Equipment

Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation.

Property

Freehold land and buildings are measured on a fair value basis being the amount for which an asset could be exchanged between knowledgeable willing parties in an arms length transaction.It is the policy of the economic entity to have an independent valuation every three years , with annual appraisals being made by the directors. The value of the freehold land and building owned by the economic entity is based on the following independent valuation:

Land & Buildings Date of Valuation Amount Rydalmere , NSW 14 December 2006 11,200,000 Valuations were made on the basis of open value. The revaluation surplus net of applicable deferred capital gains taxes was credited to an asset revaluation reserve in shareholders’ equity.

Plant and equipment

Plant and equipment are measured on cost basis. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets employment and subsequent disposal. The expected net cash flows have not been discounted to their present values in determining recoverable amounts.

10

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

Plant and equipment (continued)

The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, and an appropriate proportion of fixed and variable overheads.

Depreciation

The depreciable amount of all fixed assets including building and capitalised leased assets, but excluding freehold land ,is depreciated over their useful lives commencing from the time the asset is ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The gain or loss on disposal of all fixed assets is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds of disposal, and is included in operating profit before income tax of the economic entity in the year of disposal.

Depreciation where applicable has been charged in the accounts so as to write off each asset over the estimated useful life of the asset concerned. Either the diminishing value or prime cost method, as considered appropriate, is used.The depreciation rates used for each class of depreciable assets are:

Class of Fixed Assets

Depreciation Rate

Buildings 1.5- 2.50% Plant and equipment 6.0-33.33% Leased plant and equipment 13.0-20.00%

k. Property, Plant and Equipment (continued)

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An assets’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These gains and losses are included in the income statement . When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

l. Revenue

Revenue from the sale of goods is recognised upon the delivery of goods to customers. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Dividend revenue is recognised when the right to receive a dividend has been established.

Rental revenue is recognised when the right to receive the rent has been established. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. All revenue is stated net of the amount of goods and services tax (GST).

m. Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cashflows are presented in the cash flow statement on a gross basis, except for the GST Component of investing and financing activities, which are disclosed as operating cash flows.

11

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

n. Impairment of Assets

At each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired.If such an indication exists, the recoverable amount of the asset , being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

o. Provisions

Provisions are recognised when the group has a legal or constructive obligation , as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

p. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, bank overdrafts and current portion of bank loans. Bank overdraft and current bank loans are shown within short-term borrowings in current liabilities in the balance sheet.

q. Borrowing Costs

Borrowing costs directly attributable to the acquisition ,construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in income in the period in which they are incurred.

r. Comparative Figures

Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year.

12

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group	Parent	Entity
	2008	2007	2008	2007
	$	$	$	$
Note 2: Revenue
Operating activities
* sales of goods	76,521,797	81,231,287	53,697,922	54,443,431
* dividend received	180	880	842,103	15,895
* interest received	93,508	78,804	193,802	206,802
* rent	149,698	204,156	133,731	179,793
* bad debts recovered	3,002	716	3,002	-
* other	863,138	411,713	131,298	343,483
	77,631,323	81,927,556	55,001,858	55,189,404
Non-operating activities
*proceeds on disposal of
property, plant and
equipment	4,692,467	206,729	587,230	80,123
	4,692,467	206,729	587,230	80,123
Total Revenue	82,323,790	82,134,285	55,589,088	55,269,527
a) Dividends received or
receivable from
*Fully-owned subsidiaries	-	-	824,497	-
*Partly-owned subsidiaries	-	-	17,426	15,015
*other persons	180	880	180	880
Total dividend revenue	180	880	842,103	15,895
b) Interest received or
receivable from
*wholly owned
controlled entities	-	-	136,648	148,499
*other persons	93,508	78,804	57,154	58,303
Total interest revenue	93,508	78,804	193,802	206,802
Note 3: Profit/(Loss) for the
Year
Profit/(loss) for the year
has been determined after:
(a)Expenses:
Cost of Sales	43,812,087	47,350,157	31,156,098	31,667,048
Finance costs:
*other persons	2,229,429	2,321,090	1,941,766	2,035,836
*finance charges
on finance leases	26,517	35,098	26,517	35,098
	2,255,946	2,356,188	1,968,283	2,070,934

13

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group		Parent Entity
	2008	2007	2008		2007
	$	$	$		$
Note 3: Profit/(Loss) for the Year
(continued)
(a) Expenses:
Depreciation of non current assets :
* buildings	195,666	164,668	195,666		164,668
* plant & equipment	1,108,522	1,140,949	479,381		506,473
* capitalised leased assets	153,230	163,604	153,230		163,604
	1,457,418	1,469,221	828,277		834,745
Impairment of non current assets:
* leasehold land	10,905	10,905	10,905		10,905
* goodwill on acquisition	1,807,575	39,154	26,143		26,142
* goodwill on consolidation	109,772	132,900	-		-
* expenditure carried forward	38,365	169,281	-	-
	1,966,617	352,240	37,048		37,047
Bad and doubtful debts
* trade debtors	337,519	24,443	65,358		19,187
Rental expense on
Operating leases
- Minimum lease payments	3,212,535	2,895,726	1,804,498		1,800,021
Research & development	686,446	1,139,859	486,509		597,731
Foreign currency translation losses/(gains)	2,898,836	2,134,358	2,898,836		2,134,358
Net Loss on disposal of
non-current assets
* property ,plant and equipment	87,224	45,092	29,955		13,968
* goodwill	8,901	-	-		-
	96,125	45,092	29,955		13,968
(b) Revenue and Net Gains
Net gain on disposal of
* Property, plant and
equipment	15,104	28,140	14,495		11,115
* goodwill	108,816	-	108,816		-
	123,920	28,140	123,311		11,115
Note 4: Auditors’ Remuneration
Auditors' Remuneration
Remuneration of the auditor
of the parent entity for:
* audit or reviewing the
financial report	134,461	112,937	134,461		111,437
Remuneration of other
auditors of subsidiaries
for:
* auditing or reviewing the
financial report of
subsidiaries	89,506	71,453	-		-

14

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group	Parent	Entity
	2008	2007	2008	2007
	$	$	$	$
NOTE 5: Income Tax Expense
(a) The components of tax
expense comprise:
Current tax	1,443,305	979,418	1,347,390	962,903
Deferred tax	(168,667)	(72,706)	(41,673)	10702
Recoupment of prior year tax losses	28,475	(177,685)	37,847	-
Under provision in respect of prior years	-	(26,618)	-	25,175
	1,303,113	702,409	1,343,564	998,780
(b) The prima facie tax on profit before income tax is reconciled to the income tax as
follows:
Profit before income tax	(2,181,333)	(1,858,175)	2,492,267	1,265,982
Prima facie tax payable on profit before income tax at 30% (2007 30%)	(654,400)	(557,453)	747,680	379,795
Add
Tax effect of:
* Depreciation of buildings	34,803	25,063	34,803	25,063
* Entertainment	1,342	2,996	854	860
* Amortisation – Goodwill	41,362	51,615	7,843	7,843
* Amortisation - Leasehold Land	3,272	3,271	3,272	3,271
* Foreign controlled entities not tax effected	1,286,137	609,202	-	-
* Unrealised foreign exchange losses/(gains)	869,651	640,307	869,651	640,307
Less
Tax effect of:
* Special building write off	1,889	1,888	1,889	1,888
* exempt income	134,326	-	-	-
* Lease premium deduction	13,244	28,180	-	-
* Effects of lower rates in overseas countries	3,966	(1,992)	-	-
* Rebateable dividends	-	694	251,218	4,580
* prior year losses now tax effected	38,386	-	-	-
* (Over)/under provision for tax in prior year	45,864	26,618	37,333	36,111
* Other	41,379	17,204	30,099	15,780
Income tax expense attributable to entity	1,303,113	702,409	1,343,564	998,780
The applicable weighted average effective tax rates are as follows:	(60%)	(38%)	54%	79%

15

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 6: Key Management Personnel Compensation

(a) Names and positions held of economic and parent entity key management personnel in office at any time during the financial year are: Key Management Person Position

Mr S S Goh Chairman & CEO Mr B Leitch Director – Executive Mr G Norman Director - Non Executive Mr B Hunt Director - Non Executive Mr S Lloyd Director - Non Executive (resigned 8 November 2007) Mr D Marginson Chief Operating Officer – Australia and New Zealand (Appointed 21 January 2008) Mr A Fisher Managing Director – Waterco (Europe) Ltd, Lacron (UK) Ltd Mr S T Lim Financial Controller Mrs B H Leo Company Secretary Mr G Doumit Chief Accountant/Company Secretary

b) Key Management Personnel Compensation

2008
Key Management	Base	Incentives	Director’s	Superannuation	Incentives**	Non Cash	Total	Performance
Personnel	Salary*	(at risk)	Fees	Contributions	(fixed)	Benefits		Related %
			**			*
Mr S S Goh	241,292	-	60,250	18,000	-	-	319,542	-
Mr B Leitch	191,926	-	-	13,129	2,724	17,861	225,640	-
Mr G Norman	-	-	43,500	3,915	-	-	47,415	-
Mr B Hunt	-	-	43,500	3,915	-	-	47,415	-
Mr S Lloyd			16,229	1,461	-	-	17,690	-
Mr A Fisher	161,165	-	-	-	-	31,004	192,169	-
Mr S T Lim	149,118	-	-	13,129	3,367	13,844	179,458	-
Mrs B H Leo	137,510	-	-	12,285	3,028	-	152,823	-
Mr G Doumit	119,191	-	-	10,620	2,528	18,265	150,604	-
Mr D Marginson	118,560	-	-	10,670	6,793	-	136,023
2007
Key Management	Base	Incentives	Director’s	Superannuation	Incentives**	Non Cash	Total	Performance
Personnel	Salary*	(at risk)	Fees	Contributions		Benefits		Related %
			**			*
Mr S S Goh	237,882	72,453	60,000	18,000	-	-	388,335	18.7
Mr B Leitch	183,167	-	-	12,686	2,647	10,824	209,324	-
Mr G Norman	-	-	43,500	3,915	-	-	47,415	-
Mr S Lloyd	-	-	43,500	3,915	-	-	47,415	-
Mr B Hunt	-	-	43,500	3,915	-	-	47,415	-
Mr A Fisher	162,493	-	-	-	-	37,851	200,344	-
Mr S T Lim	132,100	-	-	11,700	3,301	17,010	164,111	-
Mrs B H Leo	135,417	-	-	11,970	2,972	-	150,359	-
Mr G Doumit	116,393	-	-	10,350	2,472	15,213	144,428	-
Mr P Drummond	108,000	-	-	9,720	2,972	20,790	141,482	-

*Base salary includes any salary sacrifice amounts

** Incentives

i)at risk - made up of cash bonuses and the CEO Share Plan which is subject to achievement of performance hurdles (see note 35)

ii)fixed - made up of employee share plan benefits (see note 35) including interest that would have been charged (at arms length) on the employee share acquisition loans.

***Non cash benefits are made up of company vehicle benefits, life insurance premiums and salary continuance premiums

**** Director’s fees of $60,250 paid to Mr S S Goh by a subsidiary {Waterco (Far East) Sdn Bhd}. All other directors fees are paid by the parent entity

There were 26 pay periods during the year (2007: 26)

16

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 6: Key Management Personnel Compensation

c) Shareholdings

Number of Shares held by key Management	Number of Shares held by key Management	Personnel
2008
Key Management	Balance	Received as	Net Change	Balance
Personnel	1.7.07	Remuneration	Other	30.6.08
Mr S S Goh	11,614,507	-	4,338,921	15,953,428
Mr B Leitch	418,900	-	103,601	522,501
Mr G Norman	101,725	-	26,358	128,083
Mr B Hunt	194,745	-	57,436	252,181
Mr A Fisher	35,445	-	-	35,445
Mr S T Lim	121,979	2,338		124,317
Mrs B H Leo	88,362	3.137		91,499
Mr G Doumit	85,251	1,049		86,300
2007
Key Management	Balance	Received as	Net Change	Balance
Personnel	1.7.06	Remuneration	Other	30.6.07
Mr S S Goh	11,086,551	-	527,956	11,614,507
Mr B Leitch	418,900	-	-	418,900
Mr G Norman	100,000	-	1,725	101,725
Mr S Lloyd	86,000	-	2,828	88,828
Mr B Hunt	146,848	-	47,897	194,745
Mr A Fisher	35,445	-	-	35,445
Mr S T Lim	119,757	887	-	120,644
Mrs B H Leo	88,827	1,411	(1,876)	88,362
Mr G Doumit	83,103	475	1,673	85,251
Mr P Drummond	29,764	2,923	-	32,687

d)Compensation Practices

In constructing, reviewing and determining the remuneration policy for Executive Directors and the senior executive team, the Board and Remuneration Committee have considered a number of factors including: -the importance of attracting, retaining and motivating management of the appropriate calibre to further the success of the business;

-linking pay to performance by rewarding effective individual achievement as well as business performance; and

-the mix within the package which is designed to align personal reward with enhanced shareholder value over both the short and longterm.

The Executive Directors’ and the senior executive team’s package consists of two general components:

• fixed remuneration component consisting of base salary which executives may “salary sacrifice” and other benefits; and - variable or “at risk” component consisting of an annual short term incentive plan for executives and a long term incentive plan for the CEO.

Remuneration of the company’s Non-Executive Directors is determined by the Board , based on the nature of their work , responsibilities and market comparisons and approved by shareholders at the AGM.

17

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group	Parent	Entity
	2008	2007	2008	2007
	$	$	$	$
CURRENT ASSETS
Note 7 : Cash and Cash Equivalents
Cash at bank and in hand	2,253,863	1,296,781	333,908	34,818
Reconciliation of cash
Cash at the end of the year as
Shown in the statement of cash
flows is reconciled to the
Related items in the balance
sheet as follows:
Cash and cash equivalents	2,253,863	1,296,781	333,908	34,818
Bank overdraft	(269,664)	(699,023)	-	(435,210)
Bank loans	(1,020,077)	(1,041,918)	(1,000,000)	(1,000,000)
	964,122	(444,160)	(666,092)	(1,400,392)
Note 8: Trade and Other Receivables
Trade debtors	10,389,032	11,035,669	4,360,293	4,198,522
Less: provision for
impairment of receivables	445,227	246,034	-	-
	9,943,805	10,789,635	4,360,293	4,198,522
Other debtors	4,400,625	2,084,184	435,885	6,827
	14,344,430	12,873,819	4,796,178	4,205,349
Note 9: Inventories
Raw materials and stores at cost	7,955,997	9,202,527	519,625	666,967
Work in progress at cost	301,978	150,493	16,277	33,999
Finished goods at cost	13,087,013	19,280,874	8,869,985	11,385,098
Goods in transit at cost	1,131,772	486,925	-	-
	22,476,760	29,120,819	9,405,887	12,086,064
Note 10: Other Current Assets
Prepayments	632,927	738,766	370,461	451,177
	632,927	738,766	370,461	451,177
NON CURRENT ASSETS
Note 11: Trade and Other Receivables
Amount owing by controlled entities	-	-	29,889,405	30,047,586
	-	-	29,889,405	30,047,586
(a) Foreign currency Receivables
Non current assets not effectively
hedged to a date at least 12
months after balance date
- Malaysian ringgit	-	-	10,243,362	8,833,338
- United States dollars	-	-	5,943,691	6,710,736
- New Zealand dollars	-	-	1,900,215	2,011,709
- British pounds	-	-	2,892,824	4,341,466
- Chinese renminbi	-	-	213,199	77,347
- Canadian dollars	-	-	7,999,896	7,376,769
			29,193,187	29,351,365

18

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group	Parent	Entity
	2008	2007	2008	2007
	$	$	$	$
Note 12: Other Financial
Assets
a)Shares in controlled
entities at cost	-	-	11,128,743	10,304,244
	-	-	11,128,743	10,304,244

Note 13: Controlled Entities

	Country of
	incorporation		% owned
		2008		2007
Parent Entity
Waterco Limited	Australia	-		-
Controlled Entities of
Waterco Limited:
Swimart Pty Ltd	Australia	100		100
Waterco Sales &
Manufacturing Pty Ltd	Australia	100		100
Zane Solar Systems
Australia Pty Ltd	Australia	100		100
Aquaswim Australia
Pty Ltd	Australia	100		100
Watershoppe Pty Ltd	Australia	100		100
Waterco USA Inc	USA	100		100
Waterco Engineering
Sdn Bhd	Malaysia	100		100
Waterco (Far East)
Sdn Bhd	Malaysia	100		100
Watershoppe(M)Sdn Bhd	Malaysia	100		100
Lacron Filters
(Far East)Sdn Bhd	Malaysia	100		100
Waterco (NZ) Ltd	New Zealand	100		100
Swimart (NZ) Ltd	New Zealand	100		100
Watershoppe (NZ)Ltd	New Zealand	100		100
Waterco (Guangzhou) Ltd	China	100		100
	United
Lacron (UK) Ltd	Kingdom	100		100
Waterco (C) Ltd	China	100		100
	United
Waterco (Europe) Ltd	Kingdom	100		100
Waterco Canada Inc	Canada	100		100
Global Leisure Products
Sdn Bhd	Malaysia	51		51
PT Waterco Indonesia	Indonesia	51		51
Waterco International Pte
Ltd *	Singapore	100		-

Waterco USA Inc carries on business in the United States. Waterco (Far East) Sdn Bhd, Waterco (M) Sdn Bhd, Global Leisure Products Sdn Bhd, Watershoppe (M) Sdn Bhd and Lacron Filters (Far East) Sdn Bhd carry on business in Malaysia. Waterco (NZ) Ltd, Swimart (NZ) Ltd and Watershoppe (NZ) Ltd carry on business in New Zealand. Waterco (Europe) Ltd and Lacron (UK) Ltd carry on business in the United Kingdom. Waterco (Guangzhou) Ltd and Waterco (C) Ltd carry on business in China. Waterco Canada Inc carries on business in Canada.PT Waterco Indonesia carries on business in Indonesia. Waterco International Pte Ltd carries on business in Singapore.

• On 10 August 2007, Waterco International Pte Ltd issued 2 shares at $SGD1.00 ($A0.775) to Waterco Ltd

19

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

			Consolidated Group	Consolidated Group	Parent	Entity
			2008	2007	2008	2007
			$	$	$	$
Note 14: Property, Plant & Equipment
Freehold land at
- Independent valuation 2007			3,419,829	3,419,829	3,419,829	3,419,829
- Independent valuation 2005			-	-	-	-
- cost			724,439	763,762	-	-
			4,144,268	4,183,591	3,419,829	3,419,829
Freehold buildings at
- Independent valuation 2007			7,780,171	7,780,171	7,780,171	7,780,171
- Directors valuation 2006			-	-	-	-
- cost		10,737,985		10,762,646	109,315	-
Less: accumulated depreciation			285,916	-	195,666	-
		18,232,240		18,542,817	7,693,820	7,780,171
Leasehold land at cost			268,318	268,318	268,318	268,318
Less: accumulated amortisation			157,660	146,755	157,660	146,755
			110,658	121,563	110,658	121,563
Plant & equipment at cost		19,235,840		22,752,591	5,219,582	5,941,780
Less: accumulated depreciation		11,674,479		13,005,995	3,743,758	3,811,605
			7,561,361	9,746,596	1,475,824	2,130,175
Leased plant & equipment
at cost			487,837	694,313	487,837	694,313
Less: accumulated depreciation			135,200	171,817	135,200	171,817
			352,637	522,496	352,637	522,496
Total written down value		30,401,164		33,117,063	13,052,768	13,974,234
a) Movements in Carrying Amounts
				Plant &	Leased Plant &
	Freehold Land	Buildings	Leasehold Land	Equipment	Equipment	Total
Economic Entity:
Balance at the
beginning of year	4,183,591	18,542,817	121,563	9,746,596	522,496	33,117,063
Additions	(39,323)	3,306,487	-	1,293,288	83,419	4,643,871
Disposals	-	(3,322,513)	-	(1,043,228)	(100,048)	(4,465,789)
Depreciation expense	-	(294,551)	(10,905)	(2,435,295)	(153,230)	(2,893,981)
Carrying amount at	4,144,268	18,232,240	110,658	7,561,361	352,637	30,401,164
the end of year
Parent Entity
Balance at the
beginning of year	3,419,829	7,780,171	121,563	2,130,175	522,496	13,974,234
Additions	-	109,315		146,244	83,419	338,978
Disposals	-			(321,214)	(100,048)	(421,262)
Depreciation expense	-	(195,666)	(10,905)	(479,381)	(153,230)	(839,182)
Carrying amount at
the end of year	3,419,829	7,693,820	110,658	1,475,824	352,637	13,052,768

20

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated Group		Parent Entity
Note 14: Property, Plant & Equipment (continued)	2008	2007	2008	2007
	$	$	$	$
If Land & Buildings
were stated at historic
cost, amounts would be as follows:
Cost	17,746,182	17,810,165	6,393,073	6,283,757
Less: Accumulated depreciation	1,177,475	973,160	1,087,225	973,160
Net book value	16,568,707	16,837,005	5,305,848	5,310,597
Note 15: Intangibles
Goodwill (note 1b)	432,945	2,605,673	342,250	522,850
Less: accumulated
impaired losses	254,293	311,589	226,979	265,061
	178,652	2,294,084	115,271	257,789
Preliminary expenses	2241	2241	380	380
Goodwill on consolidation	778,189	778,189	-	-
Less: accumulated
impaired losses	778,189	668,417	-	-
	-	109,772	-	-
	180,893	2,406,097	115,651	258,169

Impairment Disclosures

Goodwill is allocated to cash-generating units which are based on the groups reporting segments

	2008		2007
	$		$
Manufacturing Segment		108,433	1,392,392
Distribution Segment		70,219	901,692
Total		178,652	2,294,084

The recoverable amount of each cash-generating unit above is determined based on value-in-use calculations . Value-in-use is based on the present value of cash flow projections over a 10 year period with the period extending beyond five years extrapolated using an estimated growth rate. The cash flows are discounted using the yield of 10 year government bonds at the beginning of the budget period.

The following assumptions were used in the value-in-use calculations:

Growth Rate Discount Rate Manufacturing Segment 2.5% 6.0% Distribution Segment 1.5% 6.25%

Management have based the value-in-use calculations on budgets for each reporting segment. These budgets use historical weighted average growth rates by project revenue. Costs are calculated taking into account historical gross margins as well as estimated weighted average inflation rates over the period which are consistent with inflation rates applicable to the locations in which the segments operate. Discount rates are pre-tax and are adjusted to incorporate risks associated with a particular segment.

Note 16: Other

ote 16: Other
Deferred expenditure
carried forward	249,519	213,924	-	-
	249,519	213,924	-	-
CURRENT LIABILITIES
Note 17: Trade and other Payables
Trade creditors	6,104,836	5,737,375	4,263,299	3,211,287
Sundry creditors and accrued expenses	1,948,419	2,875,496	218,972	478,772
	8,053,255	8,612,871	4,482,271	3,690,059

21

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group		Parent Entity
	2008	2007	2008		2007
	$	$	$		$
Note 18: Financial Liabilities
Bank loans – secured	1,020,077	1,041,918	1,000,000		1,000,000
Bank overdraft – secured	269,664	699,023	-		435,210
Other loans-unsecured	-	4,580,378	-		4,580,378
Lease liability	132,965	190,687	132,965		190,687
	1,422,706	6,512,006	1,132,965		6,206,275
Bank facilities of the
parent entity and subsidiaries
are secured by a first ranking
and registered fixed and
floating debenture charge
over the assets of the parent
entity, and registered
mortgages over freehold
land and buildings and
guarantees and indemnities
from subsidiaries. That part
of the facilities that
fluctuate on an annual basis,
are classified as current.

Note 19 : Taxes
a)Liabilities
Current
Income Tax	361,540	(295,187)	470,566	(93,705)
Non Current Deferred tax liability
comprises:
Tax allowances relating to property,
plant & equipment	86,044	259,657	85,538	125,598
Revaluation adjustments taken
direct to equity	1,824,765	1,824,765	1,824,765	1,824,765
Other	3,224	3,451	1,838	3,451
	1,914,033	2,087,873	1,912,141	1,953,814
b)Assets
Deferred tax assets comprises:
Provisions	604,433	659,604	585,265	633,654
Future income tax benefits
attributable to tax losses	528,025	1,600,792	-	-
Tax allowances relating to
property,plant & equipment	8,031	(1,013,461)	-	-
Other	82,209	71,667	(19,772)	(30,314)
	1,222,698	1,318,602	565,493	603,340
c)Reconciliations
1)Gross Movements
The overall movement in
the deferred tax account
is as follows:
Opening balance	(769,271)	(452,064)	(1,350,474)	(658,484)
(Charge)/Credit to income statement	77,936	338,906	3,826	(36,603)
Transfer to parent entity	-	-	-	726
(Charge)/credit to equity	-	(656,113)	-	(656,113)
Closing Balance	(691,335)	(769,271)	(1,346,648)	(1,350,474)

22

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated Group	Consolidated Group	Parent	Entity
	2008	2007	2008	2007
Note 19 : Taxes (cont)	$	$	$	$
c)Reconciliations (cont)
11)Deferred Tax Liability
The movement in deferred tax liability for each
ttemporary difference during the year is as follows:
Tax allowances relating to property, plant & equipment
Opening balance	259,657	351,405	125,598	118,225
charged to income statement	(173,613)	(91,748)	(40,060)	7,373
(Charge)/credit to equity	-	-	-	-
Closing balance	86,044	259,657	85,538	125,598
Property revaluation adjustments taken direct to equity
Opening balance	1,824,765	1,168,652	1,824,765	1,168,652
Net revaluations during current period	-	656,113	-	656,113
Closing balance	1,824,765	1,824,765	1,824,765	1,824,765
Other
Opening balance	3,451	122	3,451	122
Charged to income statement	(227)	3329	(1,613)	3,329
Closing balance	3,224	3,451	1,838	3,451
111)Deferred Tax Assets
The movement in deferred tax asset for each
temporary difference during the year
Is as follows:
Provisions
Opening balance	659,604	691,649	633,654	658,624
Charged to income statement	(55,171)	(32,045)	(48,389)	(24,970)
Closing balance	604,433	659,604	585,265	633,654
Income tax losses
Opening balance	1,600,792	1,019,395	-	-
Charged to income statement	(1, 072,767)	581,397	-	-
Closing balance	528,025	1,600,792	-	-
Tax allowances relating to
Property plant & equipment
Opening balance	(1,013,461)	(714,802)	-	-
Charged to income statement	1,021,492	(298,659)	-	-
Closing balance	8,031	(1,013,461)	-	-

23

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group	Parent	Entity
	2008	2007	2008	2007
	$	$	$	$
Note 19 : Taxes (cont)
c)Reconciliations (cont)
Other
Opening balance	(30,333)	(30,127)	(30,314)	(30,109)
Charged to income statement	10,542	(206)	10,542	(205)
Closing balance	(19,791)	(30,333)	(19,772)	(30,314)
d)Deferred tax assets not
brought to account the benefits
of which can only be realised
in if the conditions for
deductibility set out in
note 1f) occur -tax losses
- Operating losses	2,663,814	1,163,460	-	-
	2,663,814	1,163,460	-	-
Note 20: Short-term provisions
Employee Benefits (see note 1h)
Opening Balance 1 July 2007	1,662,708	1,590,734	1,612,769	1,541,333
Additional provisions	477,177	848,968	475,351	749,682
Amounts used	(563,196)	(776,994)	(557,330)	(678,246)
Balance at 30 June 2008	1,576,689	1,662,708	1,530,790	1,612,769
NON-CURRENT LIABILITIES
Note 21: Trade and Other Payables
Amounts payable to controlled entities	-	-	3,032,677	3,026,151
	-	-	3,032,677	3,026,151
Note 22: Financial Liabilities
Bank loans – secured	20,733,967	27,321,748	17,750,000	23,687,500
Lease liability	150,338	227,228	150,338	227,228
	20,884,305	27,548,976	17,900,338	23,914,728
Note 23 Long-term provisions
Employee Benefits (see note 1h)
Opening balance 1 July 2007	294,360	283,851	294,360	283,851
Additional provisions	13,797	10,509	13,797	10,509
Amounts used	(26,143)	-	(26,143)	-
Balance at 30 June 2008	282,014	294,360	282,014	294,360
a)Aggregate employee entitlement liability	1,858,703	1,957,068	1,812,804	1,907,129
b)Number of employees at year end	548	526	129	133

24

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Note No	Consolidated	Group	Parent	Entity
		2008	2007	2008	2007
		$	$	$	$
Note 24 Issued Capital
23,002,634 ordinary shares
fully paid at beginning of
the year (2007 22,599,650)		23,126,616	23,448,028	23,126,616	23,448,028
On 28/9/07, 5,750,659 shares
were issued at $1.20 each under
a Waterco Rights Issue		6,900,791		6,900,791
Less expenses of issue		(268,761)		(268,761)
On 18 December 2007 292,370
shares wee issued at $1.08 each
under the Waterco Limited Dividend
Reinvestment Plan (DRP)		315,760		315,760
On 8 December 2006 402,984
ordinary shares were issued at
$2.61 each under the Waterco
Limited Dividend Reinvestment
Plan(DRP)			1,051,788		1,051,788
Employee Share Plans		32,775	(1,373,200)	32,775	(1,373,200)
29,045,663 ordinary shares
fully paid at the end of
the year (2007 23,002,634)		30,107,181	23,126,616	30,107,181	23,126,616
The company has authorised
share capital amounting to
200,000,000 ordinary shares
of 50 cents each. Ordinary
shares participate in dividends
and the proceeds on winding
up of the parent entity in
proportion to the number of
share held.At the shareholders
meetings, each ordinary share
is entitled to one vote when
a poll is called , otherwise each
shareholder has one vote on
a show of hands.
Note 25 Reserves
a)Capital profits		210,562	210,562	180,426	180,426
The capital profits reserve
Relates to non taxable profits
on sale of property.
b)Foreign currency translation		(2,031,224)	(1,728,008)
----------------------------
The foreign currency translation
reserve records exchange
differences on translation of
Foreign controlled subsidiaries
c)Asset revaluation reserve
----------------------------
Balance at the beginning of the year		5,514,302	3,983,371	5,514,302	3,983,371
Net revaluation increment/(decrement) on
Revaluation of land and buildings		-	1,530,931	-	1,530,931
Balance at end of year		5,514,302	5,514,302	5,514,302	5,514,302
The asset revaluation reserve records
the revaluation of non current assets
		3,693,640	3,996,856	5,694,728	5,694,728
Note 26 : Retained Earnings
Opening retained earnings		7,225,114	11,872,746	2,539,186	4,305,952
Net profit/(loss) attributable to the
members of the parent entity		(3,557,778)	(2,613,664)	1,148,703	267,202
Dividends paid	31	575,066	2,033,968	575,066	2,033,968
Closing retained earnings		3,092,270	7,225,114	3,112,823	2,539,186

25

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Note No.	Consolidated	Group	Parent	Entity
		2008	2007	2008	2007
		$	$	$	$
Note 27 Lease Commitments
Finance leases
Lease expenditure contracted
and provided for:
not later than one year		151,149	214,891	151,149	214,891
later than one year but not
later than five years		160,018	243,943	160,018	243,943
Total minimum lease commitments		311,167	458,834	311,167	458,834
Future finance charges		27,864	40,919	27,864	40,919
Lease liability		283,303	417,915	283,303	417,915
Current portion	18	132,965	190,687	132,965	190,687
Non-current portion	22	150,338	227,228	150,338	227,228
		283,303	417,915	283,303	417,915
Finance leases of 3 or 4 years
are taken out on motor vehicles
and forklifts, with an option to
purchase the asset at the end of
the lease term at a residual of
30% to 45% depending on the asset.
Operating lease payable:
Non-cancellable operating leases
contracted but not capitalised in
the financial statements
not later than one year		1,608,768	2,123,145	1,283,936	1,736,697
later than one year but not
later than five years		3,829,701	4,050,919	3,024,434	3,262,985
		5,438,469	6,174,064	4,308,370	4,999,682
Operating leases ranging from 4 to 10 years
(with options and an annual CPI increase
and market appraisal at the end of the lease
terms in the case of property leased) are taken
out on the rental of offices ,warehouses, motor
vehicles and office equipment.
ote 28: Contingent Liabilities
Estimate of the maximum amount
of contingent liabilities that
may become payable
(a) Guarantees of leases of
premises subleased to franchisees		7,418,570	7,120,516	3,058,541	3,374,084
		7,418,570	7,120,516	3,058,541	3,374,084

Note 28: Contingent Liabilities

26

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated Group	Consolidated Group	Parent	Entity
	2008	2007	2008	2007
	$	$	$	$
Note 29: Related Parties
Transactions between related parties are on normal commercial terms and conditions unless
otherwise stated. Related parties of Waterco Limited fall into the following categories.
(A) Transactions with director
related parties
(i) Payments made to Goh Lai Huat
and Sons Sdn Bhd for rental
of land by :
Waterco (Far East) Sdn Bhd.
Mr SS Goh, a director, has
significant influence over
Goh Lai Huat & Sons Sdn Bhd.	200,896	217,148	-	-
(ii)Sales made to Asiapools (M) Sdn
Bhd. Mr S S Goh, a shareholder
has significant influence over
Asiapools(M)Sdn Bhd.	226,597	255,489	-	-
(iii) Payments made to Mint Holdings
Pty Ltd for rental of
warehouses and offices.
Mr S S Goh is a director and
shareholder of Mint Holdings
Pty Ltd.	681,663	790,653	681,663	790,653
(iv) Payment of interest to GSS Holdings Pty Ltd
on a loan provided to Waterco Ltd:
Mr S S Goh is a director and shareholder of GSS Holdings Pty Ltd	37,973	-	37,973	-
(B)Loans to Directors
Loans provided to directors
In relation to acquisition of
shares under :
1)Waterco Employee Share Plan.
This is an interest free loan
and is payable within ten years
Of the share issue date.
11)CEO Share Plan
This is an interest chargeable
loan and is payable within five
years of the share issue date
(See also Note 35)
Advanced
Mr S S Goh	1,175,000	1,175,000	1,175,000	1,175,000
Mr B I Leitch	21,750	22,250	21,750	22,250
	1,196,750	1,197,250	1,196,750	1,197,250
Opening Balance	1,197,250	1,199,500	1,197,250	1,199,500
Repaid
Mr S S Goh	-	-	-	-
Mr B I Leitch	500	2,250	500	2,250
	500	2,250	500	2,250
Closing balance	1,196,750	1,197,250	1,196,750	1,197,250

27

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 30:Segment Reporting

a)Business Segments

The economic entity operates predominantly in one industry ,being the manufacture and wholesale of swimming pool chemicals, accessories and equipment, manufacture and sale of solar pool heating systems and as a franchisor of swimming pool outlets retailing swimming pool accessories and equipment.

b)Geographical Segments

	2008	2008	2008	2008	2008	2008
	REVENUE SALES TO CUSTOMERS OUTSIDE THE ECONOMIC ENTITY INTERSEGMENT SALES UNALLOCATED REVENUE TOTAL REVENUE SEGMENT RESULT UNALLOCATED EXPENSES NET OF UNALLOCATED REVENUE PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE PROFIT AFTER INCOME TAX SEGMENT ASSETS SEGMENT LIABILITIES DEPRECIATION & AMORTISATION ACQUISITION OF NON CURRENT SEGMENT ASSETS	AUSTRALIA 2008 $ 51,090,490 2,753,398 53,843,888 4,390,798 71,357,166 30,652,869 867,281 338,978	S.E.ASIA 2008 $ 3,712,846 8,422,014 12,134,860 4,312,189 24,644,561 17,607,421 184,528 4,556,925	NEW ZEALAND 2008 $ 4,772,994 17,764 4,790,758 421,153 2,861,167 2,523,561 69,040 (19,593)	NORTH AMERICA 2008 $ 9,859,173 1,662,507 11,521,680 (4,006,886) (2,639,146) 2,400,900 2,085,236 (218,377)	OTHER 2008 $ 7,086,294 3,276,707 10,363,001 454,395 8,347,030 3,351,506 108,178 (14,062)	ELIMINATION 2008 $ (16,132,390) (16,132,390) (1950,989) (32,808,524) (22,041,715) 109,772 -	CONSOLIDATED GROUP 2008 $ 76,521,797 - 5,801,993 82,323,790 3,620,660 (5,801,993) (2,181,333) (1,303,113) (3,484,446) 71,762,254 34,494,542 3,424,035 4,643,871

	2007	2007	2007	2007	2007	2007
	REVENUE SALES TO CUSTOMERS OUTSIDE THE ECONOMIC ENTITY INTERSEGMENT SALES UNALLOCATED REVENUE TOTAL REVENUE SEGMENT RESULT UNALLOCATED EXPENSES NET OF UNALLOCATED REVENUE PROFIT BEFORE INCOME TAX INCOME TAX EXPENSE PROFIT AFTER INCOME TAX SEGMENT ASSETS SEGMENT LIABILITIES DEPRECIATION & AMORTISATION ACQUISITION OF NON CURRENT SEGMENT ASSETS	AUSTRALIA 2007 $ 52,813,353 1,762,045 54,575,398 2,100,661 73,665,609 40,520,083 873,748 533,091	S.E.ASIA 2007 $ 4,030,884 10,078,821 14,109,705 (427,541) 23,169,468 15,727,331 130,041 3,113,263	NEW ZEALAND 2007 $ 5,533,261 35,098 5,568,359 82,818 2,699,344 2,227,677 121,947 122,248	NORTH AMERICA 2007 $ 10,929,202 3,474,870 14,404,072 (2,618,660) 2,625,934 3,849,903 311,799 (75,465)	OTHER 2007 $ 7,924,587 3,153,613 11,078,200 445,755 7,947,455 3,288,014 251,026 (223,414)	ELIMINATION 2007 $ (18,504,447) (18,504,447) (538,210) (29,021,939) (19,189,401) 132,900 -	CONSOLIDATED GROUP 2007 $ 81,231,287 - 902,998 82,134,285 (955,177) (902,998) (1,858,175) (702,,409) (2,560,584) 81,085,871 46,423,607 1,821,461 3,469,723

28

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

Consolidated Group Parent Entity 2008 2007 2008 2007 $ $ $ $

NOTE 30: Segment Reporting (continued)

c )The pricing of intersegment transactions is at rates comparative with amounts charged to parties outside the economic entity after taking into account the value and terms of these transactions.

Business Segments and Geographical Segments

Business Segments The economic entity has two business segments: -Manufacturing division manufactures pool and spa equipment and chemicals as well as water treatment equipment. -Distribution division wholesales a wide range of pool and spa equipment, chemicals and water treatment equipment and is a franchisor of pools shops.

Geographical Segments The economic entity’s business segments are located in Australia with the manufacturing and distribution divisions also having operations in Malaysia, China, United Kingdom, USA and Canada. The economic entity also has distribution divisions in New Zealand and Indonesia

Impairment Losses {See Note 4{a)}

NOTE 31: Dividends Paid or Proposed

Final fully franked ordinary
Dividend of 2c per share
(2007: 9c) franked at the tax
rate of 30% paid	575,066	2,033,968	575,066	2,033,968
	575,066	2,033,968	575,066	2,033,968
Proposed final fully franked
ordinary dividend of 3c per share
franked at the tax rate of 30%	856,370	575,065	856,370	575,065
Balance of franking account at
year end adjusted for franking
credits arising from payment of
income tax payable, payment of
Proposed dividends and franking
credits not available for
distribution.	2,256,453	1,964,121	2,256,453	1,964,121

29

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group		Parent Entity
	2008	2007	2008		2007
	$	$	$		$
NOTE 32: Earnings Per
Share
a)Reconciliation of Earnings
to Net Profit/(Loss)
Net Profit/(Loss)	(3,484,446)	(2,560,584)
Net profit/(Loss) attributable
to outside equity interest	73,332	53,080
Earnings used in the calculation
of basic EPS	(3,557,778)	(2,613,664)
Earnings used in the calculation
of diluted EPS	(3,557,778)	(2,613,664)
a)Weighted average number
of ordinary shares
outstanding during the year
used in calculation of
basic EPS	27,511,479	22,825,983
b)Weighted average number
of ordinary shares
outstanding during the year
used in calculation of
diluted EPS	27,511,479	22,825,983

NOTE 33: Events Subsequent to Reporting Date

On 1 July 2008,the company repurchased the 500,000 shares issued to Mr S S Goh at $2.35 each under the CEO Plan in accordance with the terms of the plan and has cancelled these shares effective 7th July 2008.

There were no other reportable events subsequent to balance date.

30

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 34: Financial Instruments

(a)Interest Rate Risk

The economic entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and liabilities, is as follows:

	Weighted Average Effective Interest Rate	Weighted Average Effective Interest Rate	Floating Interest Rate	Floating Interest Rate	Within 1 Year	Within 1 Year	1 to 5 Years	1 to 5 Years	Non-interest Bearing	Non-interest Bearing	Total	Total
	2008	2007	2008	2007	2008	2007	2008	2007	2008	2007	2008	2007
	%	%	$	$	$	$	$	$	$	$	$	$
Financial Assets
Cash	4.99	4.15	2,253,863	1,296,781							2,253,863	1,296,781
Receivables									14,344,430	12,873,819	14,344,430	12,873,819
Total Financial Assets			2,253,863	1,296,781					14,344,430	12,873,819	16,598,293	14,170,600
Financial Liabilities
Bank overdraft	10.24	9.61	269,664	699,023							269,664	699,023
Bank loans	8.21	7.36	21,754,044	28,363,666							21,754,044	28,363,666
Other loans	-	8.5		4,580,378							-	4,580,378
Trade& sundry Creditors									8,053,255	8,612,871	8,053,255	8,612,871
Lease Liabilities	8.00	7.42			132,965	190,687	150,338	277,228			283,303	417,915
Total Financial Liabilities			22,023,708	33,643,067	132,965	190,687	150,338	277,228	8,053,255	8,612,871	30,360,266	42,673,853

(b) Credit Risk

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statements.

Credit risk for derivative financial instruments arises from the potential failure by counter parties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts and interest rate swaps is the net fair value of these contracts as disclosed in (c).

The economic entity does not have any material credit risk exposure to any single debtor or group of debtors under financial instruments entered into by the economic entity.

(c)Net Fair Values

The net fair value of bank overdrafts, bank loans and lease liabilities is determined by discounting the cash flows, at market interest rates of similar borrowings ,to their present value. Their net fair value is adjusted for any costs involved in settling the instrument.

		2008			2007
	Carrying		Net Fair	Carrying		Net Fair
	Amount		Value	Amount		Value
	$		$	$		$
Financial Liabilities
Bank Overdraft	269,664		272,361	699,023		706,013
Bank Loans	21,754,044		21,971,584	28,363,666		28,647,303
Other Loans	-		-	4,580,378		4,580,378
Lease Liabilities	283,303		297,468	417,915		438,811
	22,307,011		22,541,413	34,060,982		34,372,505

For financial assets and other liabilities, the net fair value approximates their carrying value. Financial assets where the carrying amount exceeds the net fair values have not been written down as the economic entity intends to hold these assets to maturity.

31

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 35 : Employee Benefits

Employee Share Plans

The following is a summary of the existing employee share plans.

1)Waterco Employee Share Plan

The plan was approved by shareholders at the 1996 Annual General Meeting.

Its objective is to encourage full-time and part-time employees of the Waterco Group to acquire ordinary shares in the company in order to promote the long term success of the company as a goal shared by the employees.

All full-time and part-time employees are invited by the Board to subscribe for ordinary shares in the company at the market price at the time of invitation (being the weighted average price over the 3 preceding trading days on ASX subject to adjustment by the board if it believes the price is distorted) but not less than twenty cents The company may extend an interest free loan to acquire the shares which is repayable within ten years or immediately if the employee leaves the company. The security given for the loan is the pledge of the shares and a charge over any benefits generated by those shares including dividends and bonus shares etc. The proceeds of these benefits are used to reduce the borrower’s indebtedness to the company.

The loans are limited recourse loans meaning that if the shares are sold and the proceeds are not sufficient to meet the loan balance outstanding, the company cannot recover the difference from the borrower.

Any ordinary shares issued during the year under this plan are shown in the balance sheet as issued capital with the resulting debt to the company shown as non current receivables. Any residual loan amounts written off are expensed during the year. During the year no shares were issued under this plan while debts of $32,775 (2007: $36,700) were repaid.

2)Deferred Employee Share Plan and Exempt Employee Share Plan

The objective of these plans is to provide incentive to employees to acquire ordinary shares in the company by way of salary sacrifice thus leading to an alignment of the interests of the participants with those of other shareholders. These plans which are offered to all employees, replace the Waterco Share Acquisition Plan.

a)Deferred Employee Share Plan

Under this plan, employees are invited to contribute a minimum of $2,000 (and up to a maximum of 30% of their salary) per annum to purchase shares. Waterco contributes a matching $1,000 per annum toward the purchase of shares on behalf of each employee who takes up the offer. Share acquired under this plan must be held for at least two years unless the employee leaves and is therefore entitled to withdraw the shares from the plan.

During the year , the company contributed $23,280 (2007 $37,453) for the purchase of 24,058 (2007 :17,558) shares under this plan

b)Exempt Employee Share Plan

Under this plan, employees are invited to salary sacrifice a minimum of $500 per annum to purchase shares. Waterco contributes a matching $500 towards the purchase of shares for employees who take up this offer. Shares acquired under this plan must be held for at least three years unless the employee leaves and is therefore entitled to withdraw the shares from the plan. During the year, the company contributed $17,680(2007 $20,380) for the purchase of 18,334 (2007: 9,515) shares under this plan.

All costs associated with purchasing the shares under both Plans are borne by the company. However, a fee of $55.00 is payable (by the employee) for the transfer of the shares to the employee either at the end of the restriction period or early withdrawal (on resignation). These plans have been suspended for the 2008/9 Year.

The closing share market price of an ordinary share of Waterco Limited on the Australian Stock Exchange at 30 June 2008 was $0.61 (30 June 2007 $1.63)

32

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 35 Employee Benefits (continued)

3)CEO Share Plan

Shareholder approval was given at the Annual General Meeting of the Company held on 20 October 2006 to offer 500,000 Plan Shares (see below) to the CEO as part of the LTI component of the CEO’s total remuneration for the 2006/07 financial year using the criteria and performance hurdles as was used for the 2003/04 CEO Plan (see below).

This plan, originally set up in 2003 (and approved at the Annual General Meeting held on 17 November 2003) resulted in the issue of 500,000 shares at $2.35 to Mr S S Goh on 5 December 2003 under the delayed loan repayment terms of this plan. Under this plan, Mr S S Goh is entitled to withdraw and deal with these shares if the following criteria has been satisfied:

1)Minimum Employment Period

Mr S S Goh must continue to be employed as CEO of the company for 36 months following the issue of the shares. If this is not satisfied, the CEO will forfeit the shares.

11)Performance Hurdles

The company must meet the targeted earnings per share (EPS) growth as follows: a)Growth in EPS of less than 15% per year compounded over the Targeted EPS Period results in 0% of the shares being available to be withdrawn from the Plan; and b)Growth in EPS of 15% or greater each year compounded over the Targeted EPS Period results in 50% of the shares being available to be withdrawn from the Plan plus 10% of the shares for every 1% growth in EPS greater than 15% over the targeted EPS Growth Period , up to a maximum of 100% of the shares.

This loan is an interest chargeable loan and the amount of interest payable is equivalent to the dividends paid on these shares. During the year, a total of $45,000 (2006 :$85,000) in interest was received on this loan.

The minimum EPS to be achieved at 30 June 2009 is 28.29 cents.

The company has repurchased the 500,000 shares under the CEO Plan at the issue price of $2.35 on 1 July 2008 in accordance with the terms of the plan and has cancelled these shares effective 7th July 2008.

4)Waterco Limited Directors and Senior Executives Option Plan

This plan was approved by an Extra Ordinary General Meeting held on 18 December 1998 and amended by the Board on 7 May 2008.

Its objective is to encourage Directors and Senior Executives of the Waterco Group to acquire ordinary shares in the company in order to promote the long term success of the company.

During the period, 300,000 options were granted at no cost to Mr David Marginson (Chief Operating Officer). These options are split into three equal tranches of 100,000 each and may be exercised at a price of $1.35 each over the following periods:

Tranche Exercise Period Tranche 1 the period beginning on 22 January 2010 and ending on 22 January 2013. Tranche 2 the period beginning on 22 January 2011 and ending on 22 January 2013. Tranche 3 the period beginning on 22 January 2012 and ending on 22 January 2013.

During the exercise period some or all of the options can be exercised but only in multiples of 100

33

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

	Consolidated	Group		Parent Entity
	2008	2007	2008	2007
	$	$	$	$
NOTE 36 Cash Flow Information
a)Reconciliation of cash
flows from operations
With profit from ordinary
activities after income tax.
Profit from ordinary
activities after income tax	(3,448,446)	(2,560,584)	1,148,703	267,202
Non-cash flows in profit
from ordinary activities
Depreciation	2,759,673	2,885,647	828,277	834,745
Impairment/Amortisation	1,928,252	182,959	37,048	37,047
(Profit)/Loss on sale of
non current assets	(27,795)	16,952	(93,356)	2,853
Changes in Assets and
Liabilities:-
Trade debtors	646,637	(3,235)	(161,771)	159,712
Provision for doubtful debts	199,193	(100,007)	-	(150,000)
Other debtors	(2,316,441)	401,949	(429,058)	(3,132)
Inventories	5,774,463	1,856,284	1,895,359	(33,826)
Prepayments	105,839	118,841	80,716	88,176
Deferred tax assets	95,904	(250,487)	37,847	25,175
Expenditure carried forward	(35,595)	16,097	-	-
Trade creditors	367,461	(1,753,982)	1,052,012	(1,052,253)
Other creditors	(927,077)	609,032	(259,801)	(70,618)
Provision for employee benefits	(96,274)	82,483	(94,325)	81,945
Provision for tax	656,727	(395,707)	564,271	(547,716)
Provision for deferred tax	(173,840)	(88,419)	(41,673)	10,702
Cashflow – Non Operating
Activities :
Dividends Received	(180)	(880)	(842,103)	(15,895)
Cash Flows provided by/
(used in) operations	5,472,501	1,016,943	3,722,146	(365,883)
b)During the financial year,
The parent entity sold its Bankstown
Chemical division and a controlled entity franchised
two company owned shops
1)Sale of Bankstown Chemical Division
Disposal price	1,253,533	-	1,253,533	-
Cash portion of that price	1,253,533	-	1,253,533	-
Net assets and liabilities disposed:
Inventory	784,818	-	784,818	-
Plant ,equipment & intangibles	468,715	-	468,715	-
	1,253,533	-	1,253,533	-
11)franchise of two company owned shops
Disposal price	271,280	-	-	-
Cash portion of that price	271,280	-	-	-
Net assets and liabilities disposed:
Inventory	84,778	-	-	-
Plant ,equipment & intangibles	186,502	-	-	-
	271,280	-	-	-

34

Notes to the Financial Statements for the year ended 30 June 2008 WATERCO LIMITED AND CONTROLLED ENTITIES

NOTE 36 Cash Flow Information

c)Non Cash Financial and Investment activities

1)Property, Plant and Equipment During the year, the economic entity acquired plant and equipment with an aggregate fair value of $83,421 (2007:$188,560) by means of finance leases. This acquisition is not reflected in the statement of cash flows.

d)Financing Facilities The following lines of credit were available at balance date: Multiple Advance/Fully Drawn Advance Facilities Master lease facilities Amount utilised Amount unutilised

23,837,930	29,518,334	19,750,000	25,687,500
1,050,000	1,350,000	1,050,000	1,350,000
24,887,930	30,868,334	20,800,000	27,037,500
(21,837,474)	(28,002,482)	(18,721,892)	(25,505,520)
3,050,456	2,865,852	2,078,108	1,531,980

The Multiple Advance Facility is is due to expire on 30 November 2009 The Fully Drawn Advance Facility is due to expire on 27 June 2010 The parent entity expects to renew these facilities on expiry date.

NOTE 37 Company Details

The registered office of the company is: Waterco Limited 36 South Street Rydalmere NSW 2116

35

DIRECTORS’ DECLARATION

The directors of the company declare that:

1. the financial statements and notes, as set out on pages 2 to 35 , are in accordance with the Corporations Act 2001:

2. (a) comply with Accounting Standards and the Corporations Regulations 2001 and

3. (b) give a true and fair view of the financial position as at 30 June 2008 and of the performance for the year ended on that date of the company and economic entity;

4. the Chief Executive Officer and Chief Finance Officer have each declared that:

5. (a) the financial records of the company for the financial year have been properly maintained in

   • accordance with section 286 of the Corporations Act 2001;

6. (b) the financial statements and notes for the financial year comply with the Accounting Standards; and (c) the financial statements and notes for the financial year give a true and fair view.

7. 3 in the director’s opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the directors by:

==> picture [105 x 50] intentionally omitted <==

Soon Sinn Goh

Managing Director

Dated at Sydney this 26[th] day of August 2008

36