WATERCO LIMITED - Annual Report 2012

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WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 1

paper available. 2 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

04 | Company Profile

14 | Board of Directors

06 | Economic Entity Financial Highlights
16 | Statement of Corporate Governance Practices
07 | Chief Executive Officer’s Review of Operations
22 | Directors’ Report

Waterco’s head office, located in Sydney, Australia.

32 | Auditor’s Independence Declaration
79 | Shareholder Information

80 | Corporate Directory

33 | Consolidated Financial Report

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 3

Company Profile

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Waterco is an Australian publicly listed company involved in the manufacture and distribution of:

Pool and spa equipment
Pool and spa chemicals
Domestic water filters, softeners and purifiers
Commercial water treatment equipment

Distributor to Manufacturer

Waterco commenced business in 1981 as a distributor of PVC pipes for swimming pools and spas. Since then, through a series of acquisitions as well as internal growth, the company has expanded into the manufacture and distribution of a comprehensive range of swimming pool and spa products and water treatment equipment.

Manufacturing Power House

Waterco’s research & development team has created an innovative range of award winning products. The company’s advanced fibreglass winding and pioneering plastic moulding techniques have delivered premium quality products to over 40 countries.

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4 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

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AUSTRALIA - Sydney, Brisbane, Melbourne, Adelaide, Perth Research and Development, Manufacturing, Warehousing, Sales and Distribution.

UK - Kent Manufacturing, Warehousing, Research and Development, Sales and Distribution. FRANCE - Saint Priest Warehousing, Sales and Distribution.

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USA - Augusta Research and Development, Manufacturing, Warehousing, Sales and Distribution.

CANADA - St-Hyacinthe Manufacturing, Warehousing, Research Development, Sales and Distribution. NEW ZEALAND - Auckland Warehousing, Sales and Distribution.

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CHINA - Guangzhou Manufacturing, Chemical Packing, Warehousing, Sales and Distribution. MALAYSIA - Kuala Lumpur Research and Development, Manufacturing, Warehousing, Sales and Distribution. INDONESIA - Jakarta Warehousing, Sales and Distribution. SINGAPORE Sales and Administrative Office.

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Swimart is Australia’s premium pool and spa specialist group. With over 30 years’ experience and 66 outlets across Australia and New Zealand, the vast majority of Swimart stores are owned and operated by independent franchisees. Swimart also operates a fleet of over 200 reliable mobile service vans, led by highly-trained and experienced technicians.

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Zane Solar Systems consists of a 34-strong dealer network throughout Australia. Trained dealers install solar pool heating systems for both domestic and commercial applications using Zane’s award winning solar absorber.

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In certain regions of Malaysia, residents experience water discolouration caused by rust from unlined galvanised pipes. To capture this market Waterco has set up a dealer network of 11 Watershoppes selling Waterco’s range of water filters and drinking water purifiers.

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WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 5

Economic Entity Financial Highlights

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	2012	2011	2010	2009	2008
	$	$	$	$	$
Operating revenue ($million)	66.56	68.20	71.47	72.32	77.63
Sales revenue ($million)	66.14	67.74	70.88	71.57	76.52
Earnings Before Interest and Tax (EBIT) ($million)	4.54	6.07	6.64	5.14	2.97
EBIT / Sales Revenue	6.9%	9.0%	9.4%	7.2%	3.9%
Proft/(Loss) before income tax ($million)	2.90	4.48	5.33	3.56	0.72
Net proft /(Loss) attributable to Members of the Parent Entity ($million)	2.03	3.20	3.70	2.31	(0.66)
Total assets ($million)	74.15	72.50	78.78	73.57	71.20
Equity ($million)	41.82	40.11	46.44	40.63	37.27
Basic Earnings per share	6.1 cents	9.8 cents	12.3 cents	8.0 cents	(2.4) cents
Dividend per share	7.0 cents	9.0 cents	8.0 cents	5.0 cents	3.0 cents
Net Tangible Assets per share	$1.23	$1.21	$1.43	$1.36	$1.28

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Chief Executive Officer’s Review of Operations

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REVENUE AND PROFITABILITY

The Group reported a Net Profit After Tax (NPAT) of $2.09 million, registering a decrease of 34% on the previous corresponding period (PCP). The main contributory factor to this is the decrease in turnover, as a result of adverse weather events across Australia. The trend of wet weather during the year was reported to be one of the wettest since records began. However the weather conditions had improved during the last quarter of the year, enabling sales in Australia operations to better those of the PCP. A significant decline

in performance in North America and Europe, as a result of continuing poor market sentiments and the European Debt crisis, also contributed to the decline in the Group’s performance.

Although the NPAT was below the PCP, it is slightly ahead of the last profit guidance and significantly better than the expectations in early May, not long after the start of the last quarter of the financial year.

In line with the drop in NPAT, Earnings Before Interest and Tax (EBIT) for the year (before foreign exchange adjustments on intercompany

loans) fell 25% to $4.54 million from $6.07 million and Sales Revenue fell 2% to $66.1 million from to $67.7 million.

In the Australian division, which accounts for a major portion of the profitability of the Group, Chemical sales to the retail sector accounted for most of the decline in sales.

DIVISIONAL EBIT PERFORMANCE

The breakdown of EBIT contributions (after consolidation adjustments for unrealised forex gains/losses on intercompany loans and intercompany dividends) by division is as follows:

	FY12	FY11
	($000)	($000)	% Change
Australia and New Zealand	4,195	5,639	-26%
North America and Europe	(1,466)	211	-794%
Asia	1,810	220	+721%
Consolidated Reported EBIT	4,539	6,070	-25%

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AUSTRALIA AND NEW ZEALAND

Australian and New Zealand operations, predominantly in the domestic swimming pool industry, form the majority of the Group’s activities. As well as selling a wide range of products, including chemicals for swimming pool water treatment, Waterco, as franchisor of the Swimart chain of pool stores, has acquired an extremely good understanding of the factors driving consumer demand in the after-market. The franchise programme has been developed in-house since 1984, with the opening of our first company-owned pool shop in Sydney. Very soon thereafter, the Company converted this to the franchised Swimart Pool and Spa retail system. As a result of this solid foundation, this division has maintained an acceptable, albeit lower, level of profitability through the difficult times of the last few years. The Company is confident that this wealth of knowledge and experience will enable us to emerge stronger in the marketplace, when the business environment and consumer confidence return to better levels.

It has also, in recent years, enabled Waterco to increase sales of the larger filters, for public pools, aquaculture and industrial water treatment,

strengthening Waterco’s presence beyond and cushioning the significant drop in sales to the domestic swimming pool sector.

Waterco is proud that the Company’s Air Scour Filtration system was chosen by Glen Eira Sports and Aquatic Centre, which features five separate pools, two water slides, and a fully equipped aquatic wellness area. Glen Eira City Council required the very best in commercial swimming pool filtration technology to maximise water and energy savings and chose Waterco, after an extensive selection process. The project was the largest-ever capital works project embarked upon by Glen Eira City Council. The $41.2 million facility has been designed to provide aquatic, recreation and well-being opportunities for all segments of the community.

Waterco’s Air Scour Filtration system provides extremely uniform air scour distribution resulting in a saving of between 25 and 35 per cent of the backwash water for all filters. Installed by WJ Pratt Pty Ltd, the filtration system consisted of air scour filters which included nine units of Micron Air Scour Deep Bed Vertical Nozzle Plate filters and 12 units of Micron Air Scour Deep Bed

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Swimart pool and spa stores – 2 stores were added to the Swimart network, Winston Hills and Gladesville, both located in New South Wales. Swimart is Australia’s largest swimming pool and spa specialist group. With over 30 years experience and 66 outlets across Australia and New Zealand, Swimart is the trusted expert in pool and spa care.

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Hydron split tank filters – Ideal for Retrofitting, Hydron split-tank filters are specifically designed to fit through existing standard size plant room doors. Built using the latest in gel coated fibreglass technology, the filter can be delivered in two parts and assembled on site in the plant room.

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Glen Eira Sports and Aquatic centre – Located in the Melbourne suburb of Bentleigh East, the Glen Eira Sports and Aquatic centre features five separate pools, two water slides, and a fully equipped aquatic wellness area with a spa, sauna and steam room.

8 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

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Admiral Ultra Robotic cleaner – Independent to your pool’s pump and filter system, Admiral Ultra is self-driven by three internal motors. Replicating your pool’s filtration system, Admiral Ultra vacuums in water, dirt and debris via an internal pump and filters the water via its inbuilt filtration system.

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Vladivostok desalination plant – There was a requirement for corrosion resistant, pre-filters for a desalination project, which will purify over 10 million litres of seawater per day. Waterco was awarded the contract to provide 12 Micron MD10,000 horizontal filters. These 7-bar rated filters are made using the latest in fibreglass winding technology and use the highest grade of non-corrosive materials.

Horizontal filters, which are the first Horizontal Air Scour filters manufactured by Waterco.

In the domestic pool sector, some successful new products, including a wider range of LED underwater lights, the MultiCyclone Plus (which is an integrated cartridge filter combined with Waterco’s award-winning MultiCyclone system) and a robotic cleaner for domestic pools, enabled us to contain the impact on our results.

Unfortunately, our efforts were insufficient to counter the full effects of the weather conditions, which were adverse during the peak of the trading season. This division, therefore, saw a drop in EBIT of 26%, from a reduction in sales revenue of 3%.

NORTH AMERCIA AND EUROPE

Waterco North America and Europe comprises the Group’s operations in the USA, Canada, UK and France.

The US market is the largest in the world and Waterco USA has made a substantial investment through its acquisition of Baker Hydro in March 2005. Our operations in Augusta, Georgia manufacture larger filters and assemble commercial pumps.

In the United States, sales were flat in local currency terms,

with expected improvements from the commercial water treatment market not occurring in the financial year. Waterco USA recorded a higher loss this financial year compared with PCP as a result of this shortfall in the water-treatment industry.

However, sales of watertreatment products are considered promising, with Waterco USA currently having a large quote register, which are expected to result in some sales being realized in the new financial year. Of significance is a small desalination plant project requiring a high pressure seven-bar rated nozzle-plate filter of three metre diameter, which is expected to be delivered in the new financial year. This supply contract was awarded following a successful commissioning of another small desalination plant using a horizontal high pressure seven bar rated filter in Vladivostok.

Waterco Canada (WCI)

manufactures and distributes heat pumps mainly into the swimming pool industry. Drawing from a successful history spanning 20 years, including several years prior to WCI’s acquisition in 2005, this restructured entity, with a new research and development laboratory and assistance from our research and development

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 9

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division in Sydney, has improved performance of its products in both quality and cost. This was instrumental in the improvement of the results of WCI over the past two years. Under the Waterco umbrella, WCI celebrated the milestone of producing the 50,000th heat pump produced by the business before and after our acquisition. The conversion to the new environmentally friendly refrigerant has been completed. WCI completed the development of the first commercial-rated heat pump and successfully launched this new range in Canada.

For this financial year, sales in WCI declined, as a result of customers clearing inventory held over from the previous season. WCI has had a change in management during the year and it is expected that this will contribute to a reversal of this decline in the new financial year.

Waterco Europe (WEL), combining an entity set up in 2003 and the acquisition of Lacron in 2004, enjoys a continuous and successful history of almost 40 years in manufacturing fibreglass filters. The renown of the Lacron name for quality filters, coupled with progressive manufacturing techniques – which were introduced after the acquisition - has enabled WEL to bring to

the market filters of quality at acceptable prices. As a result, both the Lacron and the Waterco brands are now wellrecognised as quality products in Europe. This recognition continues, even after the manufacturing operations have been transferred to Malaysia and China, because the same high standards have been maintained.

Waterco France (WFR) was set up, as the thrust into Europe from the UK base could be best achieved with complementary facilities in France. WFR is located in Lyon, which is in the heart of the French swimming pool market, with access to convenient transport links. France is one of the largest market in Europe, reputed to have a market value double that of Australia’s. This new office will allow the European base to grow our market share through recognised distribution centres throughout France, as well as service surrounding countries, predominantly those located in Southern Europe. The expenses for establishing an outlet in France were substantial and were written off as they were incurred, in accordance with accounting principles. However, the benefits are expected to be realised from the next financial year.

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Electroheat PRO commercial heat pump – The Electroheat Pro commercial range incorporates the latest innovations in heat pump technology and is built with ozone friendly R410A refrigerant. Its 96kW nominal heating capacity enables it to heat a pool up to 250,000 litres in size.

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Waterco France – Situated in the heart of the French swimming pool market with access to valuable transport links, Waterco’s new office will allow the company to offer an efficient service to not only the French market but also its neighbouring countries.

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ISO 9001:2008 certification – With ISO9001:2008 certification, international customers are able to appreciate that Waterco Far East’s management system is up to an international standard.

Waterco Far East’s manufacturing plant spans more than 22,500 square metres and provides for global manufacturing, design and product development divisions and Waterco’s R&D operations all under one roof.

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Waterco Oxygen cones – The correct combination of oxygen, fresh water and food is essential for fish production, and maintaining water oxygen levels is a careful balancing act. With this in mind, Waterco China has developed a specially-designed oxygen cone for the burgeoning international aquaculture market.

Sales in WEL and WFR for the year were around the same level as PCP, despite extremely tough trading conditions. This was achieved through various strategic efforts, including improved sales in the Commercial Pool sector, particularly in Eastern Europe.

Together, the EBIT in the North America and Europe Division showed a significant loss of $1.47m compared with PCP’s profit of $211,000.

ASIA

Waterco Far East in Malaysia (WFE) was borne out of Waterco’s familiarity with the Southeast Asian market. WFE was initially, a sales operation designed to service Waterco Australia’s Southeast Asian customer base. In 1991 WFE added manufacturing operations to its undertakings in Kuala Lumpur, Malaysia. As well as bringing the Group closer to its markets in Southeast Asia, this also gave it cost-efficiency in its manufacturing operations. Since then, WFE has become the principal manufacturing facility for pumps and filters for the Waterco Group. This year, WFE delivered several new products, notably, the LED Underwater Lights and MultiCyclone Plus, which helped the Australian business cushion the decline of the market in general.

WFE manufactured the commercial filtration equipment recently installed in the Glen Eira Sports and Aquatic Centre.

WFE recently achieved ISO9001:2008 certification, the internationally recognised standard for the quality management of businesses and demonstrates the existence of an effective and welldesigned quality management system, which satisfies the rigours of an independent and external audit. A key criterion of this standard is that the management system can provide confidence in creating products that meet expectations and requirements.

Waterco in China commenced operations in 2000, delivering advantages of low operational costs and a foothold into the huge local market. Today, these operations manufacture filters primarily for the European and the Australian markets. High manufacturing standards have been maintained, further enhancing the acceptance of filters made by Waterco in China, with the Waterco brand, in these markets.

Waterco China has also achieved an internationally recognised quality assurance certificate.

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Waterco International in

Singapore (WI) focuses on sales in Asia other than Malaysia and China, where we have our own trading entities. WI also provides technical assistance to our Indonesian entity and has been able to contribute to the growth of the latter.

The Asia Division achieved a significantly improved EBIT, through the improvement of sales into local markets, as well as increased manufacturing activity, through intercompany demands.

PRODUCT DEVELOPMENT AND WATER TREATMENT

The company continued to put resources into research and development, expanding further into high pressure filters suitable for water treatment. During the year, following the successful commissioning of the multiple large composite filters installed for pre-filtration of seawater for a desalination plant in Iraq, another set of composite horizontal filters of high-pressure seven-bar rating filter were successfully commissioned in Vladivostok, Russia, extending the acceptance of Watero filters for use in desalination plants. This is encouraging and signifies progress in Waterco’s thrust into this relatively new market. Waterco has recently made a new breakthrough

with the range of nozzle plate filters, employing unique manufacturing techniques to further strengthen its nozzle plate design, allowing the manufacture of Nozzle plate filters up to 3 meters in diameter, which can flex on both the horizontal and vertical axes. Waterco is currently patenting the process internationally, ensuring that Waterco will be in the unique position of being able to manufacture the world’s largest fibreglass wound nozzle plate filters, giving Waterco’s filters a distinct advantage over steel filters, which are less enduring to the degree of flexing experienced.

The patent for MultiCyclone was approved in the previous year, by European authorities; following that, formal acceptances of the patent in Australia and China are now in place. This will further reinforce our marketing of this product globally.

Waterco embraces the growing trend towards energy conservation. To this end, during the year Waterco introduced a power-conserving pump to the market. In addition, Waterco has made available glass beads as filtration media, which, together with progressive design of the internal components (laterals),

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Nozzle plate MKII filter – The nozzle plate system also allows the introduction of pressurised air directly into the bottom of the filter media. Uniform introduction of air and water through the nozzle plate provides vigorous agitation and filter media bed expansion required for an effective air/water backwash leading to reduced backwashing times and up to 25% reduction in volumes of water.

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MultiCyclone Ultra centrifugal filter – A revolution in pool filtration, MultiCyclone Ultra combines centrifugal and cartridge filtration into one streamline housing, creating an ultra compact filtration system that can be vertically installed on a pool pump, enabling a significant reduction in the pool equipment’s footprint.

12 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

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Hydrostorm Eco pump – The 6-star rated Hydrostorm Eco, available, has a three speed motor which allows pool owners to set the pump at a low, energy saving flow rate. The pump uses almost 70% less energy than a similar sized standard pool pump.

which guide water through the filter, enables users to conserve water during the filter cleaning or backwashing process. The new MultiCyclone Plus also conserves water through reducing the need for backwashing or cleaning of filter elements. Waterco has won several awards for environmental consciousness in this product design.

return to normal levels, with the North America and Europe Division incurring an EBIT loss. However, Waterco has been working hard to mitigate the effects of adverse conditions and remains profitable. Waterco believes that trading conditions globally and the weather conditions in Australia will improve, facilitating better performance ahead.

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Hydrogen Peroxide – a chlorine and bromine free alternative sanitiser for swimming pools and spas. Hydrogen peroxide is a powerful yet versatile oxidant that is both safe and effective.

The company has also invested in a new patent for measuring Hydrogen Peroxide in pool water, thus automating the process for using a nonchlorine method for sanitizing water for the swimming pool industry as well as the water treatment industry. Before this, the absence of a reliable method of controlling the level of Hydrogen Peroxide has limited the use of Hydrogen Peroxide as a pool sanitation agent. Hydrogen Peroxide is preferred to chlorine for sanitizing pool water as it is more environmentally friendly, decomposing into water and oxygen on being applied. It also offers an alternative to swimmers who are sensitive to chlorine.

Accordingly, Waterco declares a final dividend payment of 4 cents per share, payable to shareholders on 14 December 2012. This brings the total dividend payout to 7 cents per share for the year, a satisfactory outcome in the environment of poor global economic conditions.

The Board will provide a profit guidance at a later stage for the financial year ended 30 June 2013, as more information becomes available during the year.

DIVIDEND AND OUTLOOK

The results for the year are disappointing. It is recognised that profitability has yet to

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 13

Board of Directors

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SOON SINN GOH FCPA Chairman/CEO

Mr. Goh is the founder of Waterco Limited. He has been a member of the Board since the Company’s incorporation in February 1981. Prior to the inception of Waterco, he was the Managing Director of a company specialising in the construction of water and sewage treatment facilities. His extensive experience in the water treatment industry is instrumental to the success of Waterco.

He held no other listed company directorships during the past three financial years.

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BRYAN GOH B ECON Group Marketing Director

Mr. Goh was appointed to the Board on 2 June 2010.

He is the Group Marketing Director of Waterco. Mr. Goh has overall responsibility for business development in Australia and oversees the marketing activities of Waterco’s overseas subsidiaries.

Mr. Goh was on the board of directors of The Swimming Pool & Spa Association of New South Wales Ltd (from February 2005 to February 2009), a nonprofit organisation dedicated to maintaining and improving standards within the industry for the betterment of consumers, pool builders and suppliers.

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GARRY NORMAN B COM CA Non-Executive Director

Mr. Norman was appointed to the Board as a Non-Executive Director in October 1993. He is the principal of the chartered accountancy firm G R Norman & Co. He has a solid background in accountancy, having worked for fourteen years with Duesburys Chartered Accountants, where prior to his departure, in order to establish his own firm, he was a manager of the Business Services Division. He is the Chairman of the Audit Committee and a member of the Remuneration Committee.

He held no other listed company directorships during the past three financial years.

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BEN HUNT PHD (ANU) Non-Executive Director

RICHARD CHENG FAH LING B COM, CA Non-Executive Director

Dr. Hunt was appointed to the Board as a Non-Executive Director in June 1998. His most recent academic appointment was as the Head of the Graduate School of Business and Associate Dean of the Faculty of Business and an Associate Professor of Finance at the University of Technology, Sydney (UTS).

He has a doctorate from the Australian National University. Although Dr. Hunt has written extensively on Australian financial markets (he is the coauthor of the text Australian Institutions and Markets, 6th Ed.), his knowledge extends to the South East Asian region. He is a regular presenter of financial seminars in Hong Kong and Singapore for UK publishing and training company Euromoney. He is the Chairman of the Remuneration Committee and a member of the Audit Committee.

Mr. Ling was appointed to the Board as a Non-Executive Director on 8 May 2009.

He holds a Bachelor of Commerce degree from the University of Newcastle, Australia. He is a member of the Institute of Chartered Accountants in Australia and the Malaysia Institute of Accountants. He worked in companies based in Australia as Financial Controller, Company Secretary and Senior Manager from 1980 to 1989. In 1992, Mr. Ling was appointed Group General Manager of Tiong Nam Logistics Holdings Berhad, a public company listed on the Main Board of Bursa Malaysia (Malaysian Stock Exchange). The company has operations in Malaysia, Singapore and Thailand. In 2001, Mr. Ling joined the Board of Tiong Nam Logistics Holdings Berhad as Executive Director, and is a member of the Audit Committee.

Mr. Ling has a good understanding of corporate finance, with experience in raising funds for companies in Australia and has sought funds via the capital markets in Asia, for Tiong Nam Logistics Holdings Berhad.

Mr. Ling is a member of the Audit Committee and a member of the Remuneration Committee.

He held no other listed company directorships during the past three financial years.

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Statement of Corporate Governance Practices

This statement sets out the corporate governance practices that the Company had in place during the financial year ended 30 June 2012.

In compliance with ASX Listing Rule 4.10, this statement:

discloses the extent to which the Company has followed the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Recommendations) during the financial year; and
identifies those recommendations that have not been followed, and the reasons for not following them.

PRINCIPLE 1

LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

Role of the Board

The Board oversees the business and operations of the Company directly or through its Committees with particular focus on and responsibility for:

developing and approving strategies designed to ensure the controlled growth and success of the entity;
the monitoring of Key Management Personnel’s strategy implementation and performance;
ensuring that the necessary resources are available to allow effective strategy implementation by Key Management Personnel;
the appointment, evaluation and removal of the CEO and where appropriate, ratifying the appointment and removal of Key Management Personnel;
monitoring of the Company’s control and accountability systems;
reviewing and adopting annual budgets for the financial performance of the Company and monitoring the results on a regular basis;
monitoring and approving any other necessary reporting, financial or otherwise;
reviewing, ratifying and monitoring systems of internal controls, risk management and legal compliance; and
approving and supervising significant capital expenditure, capital management and acquisitions and divestments.

Some responsibilities and authorities have been delegated to Key Management Personnel for the purposes of operating the Company’s day to day activities.

In accordance with the ASX Recommendations, some further responsibilities have been delegated to the Company’s Committees. Satisfaction of these responsibilities is monitored by the Board by way of established lines of communication between the Board and the Committees.

The Board Charter is published on the Company’s website www.waterco.com

Performance of Key Management Personnel

The Board is committed to an ongoing internal process of performance evaluation of Key Management Personnel to ensure the diligent and effective discharge of their responsibilities. Key Management Personnel participate in an annual individual evaluation.

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PRINCIPLE 2 STRUCTURE THE BOARD TO ADD VALUE

Board Composition

The Board of Directors comprises an Executive Chairman who is also the Chief Executive Officer, an Executive Director and three Non-Executive Directors. The Board views each of the three Non-Executive Directors as being independent.

The Board’s membership is reviewed periodically as deemed necessary to ensure that it maintains an appropriate mix of skills, qualifications and experience. In particular the Board has identified the importance of skills and experience in corporate finance, international trade, marketing, accounting, the water treatment and pool industries, and international business environments. Although currently all male, the Board composition represents diversity in age, ethnicity and background. At each Annual General Meeting (AGM) one third of the directors (excluding the Chief Executive Officer) and any director appointed to fill a casual vacancy since the previous AGM must retire but may stand for re-election.

The Board’s preferred position is that it will comprise at least five directors at any time, and will maintain a majority of Non-Executive (and, where possible, independent) Directors.

Directors

The names of the directors in office during and since the end of the financial year are:

Soon Sinn Goh
Bryan Goh
Garry Norman
Ben Hunt
Richard Ling

The details of the Directors’ skills, experience and expertise, along with the period for which they have held office are included in the Board of Directors section of the Company’s Annual Report.

Independent Directors

A majority of the Board - Garry Norman, Ben Hunt and Richard Ling - are independent directors, taking into account the factors relevant to “independence” under the ASX guidelines.

The Company’s materiality threshold for assessing the materiality of Directors’ other relationships with the Company is considered on a case by case basis by the Board. Where an entity associated with a Director provides services to the Company, the Board uses a threshold of $100,000 in fees in a financial year as a guideline. However the Board does not follow an inflexible set of criteria but considers whether the relationship in question is reasonably likely to interfere with that Director’s independent judgement.

Further details as to how the Board assesses independence can be found in the Board Charter published on the Company’s website.

The Company’s Directors have the right to seek independent legal and other professional advice, at the Company’s expense, concerning any aspect of the Company’s operations or undertakings in order to fulfil their duties and responsibilities as Directors. This right is subject to prior approval of the Chairman. In light of the fact that all Directors are aware of this right, the Board is of the opinion that a more formal procedure for Directors to seek independent legal advice need not be established at this time.

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Chairperson of the Board

The roles of Chairperson and Chief Executive Officer are both held by Mr. S S Goh. The Board believes that Mr. Goh brings a vital level of experience in relation to the industry and the operations of the Company itself to both of these roles. Also, as the major shareholder of the Company, Mr. Goh’s commitment to the success of the Company is unquestionable. Therefore, it is the Board’s opinion that it is appropriate in the Company’s circumstances that the two roles be combined. With the majority of the Board’s Directors being independent, and with Independent Directors chairing the Audit and the Remuneration Committees, the Board is also of the opinion that it is not necessary that the office of Chairperson be held by an independent Director.

Nomination Committee

The Company has not established a Nomination Committee. The ASX Recommendations acknowledge that such committees may not be required for smaller boards. The Board is of the opinion that it is appropriate in a company the size of Waterco for the Board as a whole to fulfil this role and the Board has processes in place which raise the issues that would otherwise be considered by the Nomination Committee.

Performance of the Board

The Board is committed to an ongoing internal process of performance evaluation of the Board, its Committees and individual Directors to ensure the diligent and effective discharge of responsibilities and a consistent mindset of improving corporate governance practices.

PRINCIPLE 3

PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING

A Code of Conduct for Directors, Key Management Personnel and Employees that addresses the issues referred to in the ASX Recommendations is published on the Company’s website.

In addition to the Code of Conduct:

there is a published policy within the organisation on accepting gifts;
employees’ letters of appointment emphasise their obligations to protect the Company’s confidential information, not to misuse Company property, to act responsibly in matters of health and safety and to conduct themselves ethically and lawfully;
the Company’s Audit Committee has responsibility for encouraging the reporting by employees of matters of concern; and
these matters are reinforced in the Company’s induction processes for employees.

The Company has a Diversity Policy which includes requirements for the Board to establish measurable objectives for achieving gender diversity for the Board to assess annually both the objectives and progress in achieving them.

The Board has set the following measurable objectives for achieving gender diversity in accordance with the Diversity Policy:

Details of the Diversity Policy are addressed in induction processes for new employees;
Recruiting agencies are mandated to provide a gender balance of suitable, qualified, shortlisted candidates for interview;
Senior executives are required to address gender balance of women in succession plans; and
Flexible working arrangements are offered to encourage women to return to the workforce after maternity leave.

18 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

With respect to the achievement of these objectives, the Board notes as follows:

As at 30 June 2012:

31% of employees in the company were women;

14% of senior executive positions were held by women; and

There were no women on the Board.

PRINCIPLE 4

SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

Audit Committee

The Audit Committee operates under the Audit Committee Charter which is published on the Company’s website.

The role of the Audit Committee is to oversee the existence and maintenance of internal controls, accounting systems, and the financial reporting process. The Committee also nominates external auditors, reviews existing audit arrangements and co-ordinates external and internal auditing functions. In addition, the Audit Committee examines any other matters referred to it by the Board.

Throughout the last financial year (and to the date of this report) the Audit Committee was headed by an independent Chairperson not holding the position of Chairperson of the Board.

The members of the Audit Committee during the last financial year were:

Garry Norman – Chairman
Ben Hunt
Richard Ling

The number of Audit Committee meetings and details of Committee members’ attendance are included in the Directors’ Report.

PRINCIPLE 5

MAKE TIMELY AND BALANCED DISCLOSURE

The Company’s Continuous Disclosure Policy is published on its website. This policy sets out the rules and responsibilities for Waterco’s officers and employees in promoting timely and balanced disclosure of all material matters concerning the Company.

As detailed in the Continuous Disclosure Policy, the Board has delegated responsibility for compliance with disclosure requirements to the Company Secretaries, who work in conjunction with the Company’s Key Management Personnel to ensure ASX Listing Rule disclosure requirements are satisfied.

The Company Secretaries are required to:

keep themselves informed and up to date regarding the type of information that must be disclosed;
notify Key Management Personnel of any developments in disclosure requirements;
promote an understanding of disclosure requirements within the Company;
monitor and note compliance with disclosure requirements;
monitor and review the safeguarding of Company information to avoid premature disclosure; and
monitor and/or manage external communication lines such as media releases and shareholder queries.

The Board undertakes to provide the Company Secretaries and Key Management Personnel with the necessary resources to allow all disclosure requirements to be met in a timely and balanced manner.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 19

PRINCIPLE 6

RESPECT THE RIGHTS OF SHAREHOLDERS

A communications strategy entitled “Shareholder Communication Policy” is published on the Company’s website. This policy details the mechanisms put in place to ensure that the rights of shareholders are respected and to facilitate the effective exercise of those rights.

All disclosures made to the ASX and all information provided to analysts or the media during briefings are promptly posted on the Company’s website after they have been released to the ASX.

The external auditor attends the Annual General Meeting (AGM) for the purpose of answering shareholder questions regarding the conduct of the audit and the preparation and content of the audit report, and to facilitate the rights of shareholders to ask certain questions of the auditor in writing in advance of the AGM.

PRINCIPLE 7

RECOGNISE AND MANAGE RISK

The Company’s Risk Management Policy is summarised and published on the Company’s website as “Summary of Risk Management Policy.”

Management are required to design and implement the risk management and internal control system to manage the Company’s material business risks. The Audit Committee is responsible for overseeing the effectiveness of the Company’s risk management systems.

The Committee has appointed the Head of the Group Corporate Advisory and Assurance Department as the Risk Manager. A Risk Register is maintained. Risks identified and actions taken are reported to the Committee.

Management has reported to the Board that the Company is effectively managing its material business risks in accordance with the risk management and internal control system.

The Chief Executive Officer and Chief Financial Officer advised the Board in writing that they were satisfied that:

the Company’s financial reports presented a true and fair view, in all material respects, of the Company’s financial condition and the operational results and that they had been prepared in accordance with the relevant accounting standards; and
the Company’s financial reports were founded on a system of risk management and internal compliance and control which implements the policies adopted by the Board, and that this system is operating efficiently and effectively in all material respects.

PRINCIPLE 8

REMUNERATE FAIRLY AND RESPONSIBLY

Remuneration Committee

The Remuneration Committee is responsible for making recommendations to the Board of Directors on remuneration packages and policies for the Executive Directors and the Key Management Personnel. The Remuneration Committee Charter is published on the Company’s website.

20 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Remuneration Committee Composition

Throughout the last financial year (and to the date of this report), the Remuneration Committee consisted of three independent Non-Executive Directors and was headed by an independent Chairperson not holding the position of Chairperson of the Board.

The members of the Remuneration Committee during the year were:

Ben Hunt – Chairman
Garry Norman
Richard Ling

The number of Remuneration Committee meetings and details of Committee members’ attendance are included in the Directors’ Report.

The Remuneration Report sets out:

Information about the Remuneration Policy developed by the Remuneration Committee and adopted by the Board, and
details of remuneration of the Directors and Key Management Personnel (including options issued to Key Management Personnel).

Remuneration of Directors -v- Non-Executive Directors

In line with the ASX Recommendations, remuneration of the Company’s Non-Executive Directors operates on different principles to the remuneration of Executive Directors. No equity-based remuneration or other performance-based remuneration was offered to Non-Executive Directors in the financial year just ended, nor is there any proposal to do so this year. Non-Executive Directors receive fixed fees, and are not entitled to any retirement benefits other than statutory superannuation.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 21

Directors’ Report

Your directors present their report on the company and its controlled entities for the financial year ended 30 June 2012.

Directors

The names of directors in office during or since the end of the financial year are:

Soon Sinn Goh
Bryan Goh
Garry Norman
Ben Hunt
Richard Ling

All directors have been in office since the start of the financial year.

For details of the directors’ qualifications and experience, refer to the Board of Directors which is to be read as part of this report.

Company Secretaries

The following persons held the position of joint company secretary throughout the financial year:

Bee Hong Leo

Mrs Leo was appointed Company Secretary on 3 March 1983. She has been employed by Waterco since March 1981 performing management roles in the administration and legal divisions.

Gerard Doumit CPA

Mr Doumit was appointed Joint Company Secretary on 22 July 1991. He has been employed by Waterco since January 1987 as an Accountant and is currently Chief Accountant and Joint Company Secretary.

Principal Activities

The principal activities of the consolidated group during the financial year were:

Wholesale, export and manufacture of equipment and accessories in the swimming pool, spa pool, spa bath, rural pump and water treatment industries;
Manufacture and sale of solar heating systems for swimming pools and pre-heat industrial solar systems;
Franchise of retail outlets for swimming pool equipment and accessories; and
Packing and distribution of swimming pool chemicals to independent pool stores and stores in its Swimart Franchise Network.

There were no significant changes in the nature of the consolidated group’s principal activities during the financial year.

Consolidated Results

The consolidated profit of the group after providing for income tax and eliminating non controlling interests amounted to $2,031,452.

Dividends

Dividends paid or declared for payment are as follows:

Final ordinary dividend of 5 cents per share paid on 9 December 2011 as recommended in last year’s report - $1,662,164.
Interim ordinary dividend of 3 cents per share paid on 15 June 2012 - $1,008,491.
Final ordinary dividend of 4 cents per share declared by the directors to be paid on 14 December 2012 - $1,335,811.

All dividends paid or declared since the end of the previous financial year were fully franked.

22 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Review of Operations

A review of operations of the consolidated group during the financial year and of the results of those operations together with likely developments in the operations of the consolidated group and the expected results of those operations are set out in the Chief Executive Officer’s Review of Operations.

Financial Position

The net assets of the consolidated group have increased by $1.7 million from $40.1 million in June 2011 to $41.8 million in June 2012.

The change has largely resulted from:

Increase in the share capital from the Waterco Dividend Reinvestment Plan of $0.7 million;
Upward movement in foreign currency translation of $0.5 million;
Movement in profits/(losses) (less dividends) of ($0.6) million; and
Net increase in the asset revaluation reserve of group companies (due to revaluations and changes in foreign exchange rates) $1.1 million

The group’s working capital being current assets less current liabilities increased from $25.2 million in 2011 to $25.7 million in 2012.

The directors believe that the group is in a strong and stable financial position.

Significant Changes in State of Affairs

The directors are not aware of any significant changes in the state of affairs of the consolidated group that occurred during the financial year which have not been covered elsewhere in this report.

After Balance Date Events

Since the end of the reporting period, the Board resolved to pay a final dividend of 4 cents per share fully franked.

No other matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the consolidated group, the results of those operations, or the state of affairs of the consolidated group in future financial years.

Future Developments, Prospects and Business Strategies

Information as to future developments, prospects and business strategies in the operations of the consolidated group are included in the Chief Executive Officer’s Review of Operations. Other possible developments have not been included in this report as such inclusions would, in the opinion of the directors, prejudice the interests of the consolidated group.

Environmental Issues

The consolidated group’s operations are subject to some environmental regulations, particularly with regard to the storage of chemicals and waste management. The consolidated group has adequate systems in place for the management of its environmental requirements. The directors are not aware of any breaches of the environmental regulations during the financial year.

Directors and Key Management Personnel’s Shareholdings

Details of the directors and Key Management Personnel’s shareholdings are contained in Note 7 to the Financial Statements.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 23

Meetings of Directors

During the financial year, 16 meetings of directors (including Audit and Remuneration Committees) were held. Attendances are set out below:

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Remuneration
Director Directors’ Meeting Audit Committee Meeting
Committee Meeting
Number Number Number
Number Number Number
Eligible To Eligible To Eligible To
Attended Attended Attended
Attend Attend Attend
Soon Sinn Goh 5 5 - - - -
Bryan Goh 5 5 - - - -
Garry Norman 5 5 7 7 4 4
Ben Hunt 5 5 7 7 4 4
Richard Ling 5 5 7 7 4 4
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Indemnifying Officers or Auditor

During or since the financial year, the company has paid premiums to insure all directors and officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of director or officer of the company, other than conduct involving a wilful breach of duty in relation to the company. In accordance with common commercial practice, the insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium.

The company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the company or any related body corporate against a liability incurred by such an officer or auditor.

Directors’ Benefits

No director has received or become entitled to receive, during or since the financial year, a benefit arising from a contract made by the parent entity, or a related body corporate with a director, a firm of which a director is a member or a director or an entity in which a director has a substantial financial interest other than:

i. Sales made by a controlled entity to Asiapools (M) Sdn Bhd of which Mr S S Goh is a shareholder.
ii. Payments made for rental of warehouses & offices to Mint Holdings Pty Ltd of which Mr S S Goh is a director and shareholder.

This statement excludes a benefit included in the aggregate amount emoluments received or due and receivable by directors and shown in the company’s accounts or the fixed salary of a full time employee of the parent entity, controlled entity or related body corporate.

Proceedings on Behalf of Company

No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

24 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Non-Audit Services

The Board of Directors, in accordance with advice from the Audit Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons:

all non-audit services are reviewed and approved by the Audit Committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and
the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: ‘ Code of Ethics for Professional Accountants ’ set by the Accounting Professional and Ethical Standards Board.

The following fees were paid to the external auditors for non-audit services during the year ended 30 June 2012:

Audit of the Swimart Advertising Fund - $2,750

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the year ended 30 June 2012 has been received and is included in the Directors’ Report.

Remuneration Report

Introduction

This report provides remuneration policy and payment details applying in the financial year for persons who were members of Key Management Personnel of the consolidated Group.

2012 Remuneration Policy

The Board Remuneration Committee governs the Company’s Remuneration Policy. The Committee is comprised of independent Non-Executive Directors.

It has the following objectives:

attract, retain and motivate management of the appropriate caliber to further the success of the business;
align management reward with shareholder value;
ensure that total remuneration is reasonable and comparable with market standards;
ensure that remuneration should realistically reflect the responsibilities of the executives;
ensure that incentive schemes reward superior company performance and be clearly linked to appropriate performance benchmarks based on improved company performance; and
ensure that the remuneration costs are disclosed in accordance with the requirements of law and relevant accounting standards.

The remuneration structure for Key Management Personnel of the Waterco Group comprises:

Fixed remuneration. This consists of base salary and the full costs of other benefits; and
Incentive pay. The level varies with performance. It consists of an annual incentive plan.

The Remuneration Committee reviews market data and the performance of the CEO. The Committee then recommends the fixed remuneration and annual incentive payment of the CEO for approval by the Board.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 25

The CEO recommends Key Management Personnel’s fixed remuneration to the Board Remuneration Committee. Fixed remuneration for Key Management Personnel is reviewed annually and determined by reference to appropriate benchmark information of comparable companies, taking into account their responsibility, performance, qualifications, experience and potential. Adjustments are made only if there is the prospect of fixed remuneration levels falling behind market levels.

The remuneration of Non-Executive Directors is fixed and does not change according to the performance of the company. They do not participate in any incentive plans available to managers. Non-Executive Directors are paid fees based on the nature of their work and their responsibilities. The Company also pays, in addition to those fees, a 9% superannuation contribution. The level and structure of fees is based upon the need for the Company to be able to attract and retain Non-Executive Directors of an appropriate caliber, the demands of the role and prevailing market conditions.

The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders at the Annual General Meeting.

There is no increase in Non-Executive Directors’ fees for the 2012/13 financial year. The fees remained the same at an aggregate of $149,305 plus 9% superannuation, as last financial year’s.

The Remuneration Committee seeks independent external advice when required.

Performance–based Remuneration policy, and its relationship with Company performance

There is an annual incentive plan in place for all Key Management Personnel. This is a payment that varies with performance measured over a 12 month period.

There have been no changes in performance based remuneration policy compared with the prior reporting period.

Maximum payments are capped.

In the case of the CEO, the Remuneration Committee sets the performance requirements; in the case of other Key Management Personnel, the CEO recommends performance requirements for consideration by the Remuneration Committee.

The annual incentive performance criteria relate to the employee’s responsibilities. If requirements are achieved, there will be an improvement in shareholder value.

The key performance requirements for an incentive payment are Net Profit After Tax (NPAT).

This provides a clear alignment between the interests of shareholders and the level of reward for eligible employees.

26 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Performance criteria are tabulated below:

Group Key Management Personnel with annual incentives	Summary of Performance Condition FY 12	Why Chosen
Soon Sinn Goh – CEO Budgeted NPAT for the Waterco Group. Encourage CEO to improve the performance levels of the Group as a whole and thereby to increase shareholder wealth.
Other Key Management Personnel Budgeted NPAT for the Waterco Group. The performance of other key management personnel can have a group impact, so targets are based on Group performance.

The satisfaction of the performance conditions of the annual incentive is based on a review of the audited financial statements of the Group.

If the Group’s performance, as a whole does not reach the relevant target levels, then no annual incentive payments are made.

All of the Company’s Key Management Personnel did not achieve their performance targets in FY 2012. Therefore, they will not receive an annual incentive payment for the financial year just ended.

The following table shows the Sales Revenue, Net Profit before Tax (NPBT), Net Profit After Tax (NPAT), Earnings per Share (EPS), dividends and year end share price in the financial year just ended and the previous four financial years for the Consolidated Group.

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Year ended June 12 June 11 June 10 June 09 June 08
Sales Revenue ($million) 66.14 67.74 70.88 71.57 76.52
NPBT ($million) 2.9 4.48 5.33 3.56 0.72
EPS (cents) 6.1 9.8 12.3 8.0 (2.4)
Dividends per share (cents) 7.0 9.0 8.0 5.0 3.0
Year end share price ($) 0.88 1.06 1.02 0.65 0.61
NPAT ($million) 2.09 3.18 3.71 2.27 0.59
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WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 27

Employment Details of Members of Key Management Personnel and other Executives

The following table provides employment details for the financial year for persons who were members of Key Management Personnel of the Consolidated Group. The table also illustrates the proportion of remuneration that was performance and non-performance based and the proportion of remuneration received in the form of options.

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Proportions of
Proportions of elements of elements of
remuneration related to remuneration
performance not related to
performance
Non-
salary
Position held as cash- Fixed
at 30 June 2012 Contract details based Shares/ Options/ Salary/
and any change (duration & incentives Units Rights Fees Total
during the year termination) % % % % %
Group Key
Management
Personnel
No fixed term; may be
S S Goh Chairman & CEO terminated on 6 months’ - - - 100 100
notice by either party
Group Marketing No fixed term; may be
B Goh Director - terminated on 1 months’ - - - 100 100
Executive notice by either party
No formal contract,
but subject to member
Director -
G Norman confirmation every 3 years - - - 100 100
Non-Executive
after AGM when first
appointed
No formal contract,
but subject to member
Director -
B Hunt confirmation every 3 years - - - 100 100
Non-Executive
after AGM when first
appointed
No fixed term; but subject to
R Ling Director - member confirmation every - - - 100 100
Non-Executive 3 years after AGM when
first appointed
No fixed term; may be
Chief Financial
S T Lim terminated on 1 months’ - - 2 98 100
Officer
notice by either party
No fixed term; may be
B H Leo Joint Company terminated on 1 months’ - - - 100 100
Secretary
notice by either party
Chief
Accountant/
G Doumit No written contract - - - 100 100
Joint Company
Secretary
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Changes in Directors and Executives Subsequent to Year-end

There have been no changes in Directors and Executives subsequent to year-end.

28 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Remuneration Details for the Year Ended 30 June 2012

The following table provides remuneration details for the 2012 and 2011 financial years for persons who were members of Key Management Personnel of the consolidated Group.

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Post- Equity-settled
Long-term
Short-term benefits employment share-based
benefits
benefits payments
Profit
Salary, share Non- Pension
fees and and monetary and super- Incentive Share/ Option/
leave bonus (3) annuation plans (2) LSL Units Rights Total
$ $ $ $ $ $ $ $ $
Group Key
Management
Personnel
2012 346,722 - - 9,813 - - - - 356,535
S S Goh(1)
2011 332,587 - - 13,913 - - - - 346,500
2012 176,663 - - 15,775 - 10,827 - - 203,265
B Goh
2011 169,175 - - 15,025 - - - - 184,200
2012 49,768 - - 4,479 - - - - 54,247
G Norman
2011 47,739 - - 4,297 - - - - 52,036
2012 49,768 - - 4,479 - - - - 54,247
B Hunt
2011 47,739 - - 4,297 - - - - 52,036
2012 49,768 - - 4,479 - - - - 54,247
R Ling
2011 47,739 - - 4,297 - - - - 52,036
2012 177,665 - - 15,775 1,986 17,242 - 4,036 216,704
S T Lim
2011 185,602 - - 15,199 1,992 - - 4,036 206,829
2012 150,301 - - 14,651 1,702 12,525 - - 179,179
B H Leo
2011 154,478 - - 14,110 1,707 - - - 170,296
2012 142,339 - 13,525 12,810 1,702 - - - 170,376
G Doumit
2011 137,966 - 14,336 12,396 1,707 - - - 166,405
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(1) S S Goh’s Base Salary of $346,722 is made up of $109,032 paid by Waterco Ltd, $81,315 paid by Waterco (Far East) Sdn Bhd (a subsidiary) and $156,375 paid by Waterco International Pte Ltd (a subsidiary).

(2) These represent the benefits from the Legacy Non-recourse Loan Employee Share Plan.

(3) Non monetary benefits are made up of company vehicle benefits.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 29

Securities Received that are not Performance Related

No members of Key Management Personnel are entitled to receive securities which are not performancebased as part of their remuneration package.

Cash incentives, Performance-related Bonus and Share-based Payments

No options or other share based payments were granted in the 2012 financial year.

Maximum cash incentives expressed as a percentage of fixed remuneration and the maximum value that could have been earned in 2011/2012 if stretch performance targets were achieved are tabulated below:

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Maximum possible incentive Maximum possible
Position
as a percentage of fixed pay incentive $
Key Management Personnel
CEO, Waterco Limited 28% $100,000
Group Marketing Director, Waterco Limited 20% $40,000
CFO, Waterco Limited 19% $40,000
Company Secretary, Waterco Limited 14% $25,000
Chief Accountant/Joint Company Secretary,
16% $25,000
Waterco Limited
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The percentage of cash incentives paid and forfeited during the year to persons who were members of key management personnel of the consolidated Group;

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Short term incentive in respect of 2012 financial year
Group Key Management Personnel
Paid % Forfeited %
Mr S S Goh 0 100
Mr B Goh 0 100
Mr S T Lim 0 100
Mrs B H Leo 0 100
Mr G Doumit 0 100
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30 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Options and Rights Granted or Vested during the Year Ended 30 June 2012

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Group Key
For the financial year
Management Grant details Overall
ended 30 June 2012
Personnel
Value Exercised Exercised Lapsed Vested Vested Unvested Lapsed
Date no.
$ no. $ no no $ % %
Mr S T Lim 29 July
90,000 0.22079 0 0 0 30,000 66 [2] /3 33 [1] /3 0
- CFO 2008
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Description of Legacy Options/Rights

Details of the options granted as remuneration to those Key Management Personnel and Executives listed in the previous table are as follows:

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----- Start of picture text -----

Value per Amount paid/
option at payable by
Entitlement on Dates Exercise Price grant date recipient
Grant date Issuer exercise exercisable $ $ $
1 Waterco
29 July 2008 Waterco Ltd share for each Note 1 1.35 0.22079 0
option
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Note 1:

The Options will vest in three equal tranches of 30,000 Options in accordance with the Exercise Periods set out below, provided the CFO remains employed by the Company at the commencement of the relevant exercise period:

Tranche 1 the period beginning on 1 July 2010 and ending on 1 July 2013. Tranche 2 the period beginning on 1 July 2011 and ending on 1 July 2013. Tranche 3 the period beginning on 1 July 2012 and ending on 1 July 2013.

This Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors.

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Soon Sinn Goh Chairman 27 August 2012

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 31

Auditor’s Independence Declaration

RSM Bird Cameron Partners Level 12, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 2 9233 8933 F +61 2 9233 8521

AUDITOR’S INDEPENDENCE DECLARATION

As lead auditor for the audit of the financial report of Waterco Limited for the year ended 30 June 2012, I declare that, to the best of my knowledge and belief, there have been no contraventions of:

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
(ii) any applicable code of professional conduct in relation to the audit.

RSM BIRD CAMERON PARTNERS

G N SHERWOOD

Partner

Sydney, NSW Dated: 27 August 2012

Liability limited by a Major Offices in: RSM Bird Cameron Partners is a member of the RSM network. Each member scheme approved Perth, Sydney, Melbourne, of the RSM network is an independent accounting and advisory firm which under Professional Adelaide and Canberra practises in its own right. The RSM network is not itself a separate legal entity Standards Legislation ABN 36 965 185 036 in any jurisdiction.

32 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Consolidated Financial Report for the year ended 30 June 2012

34 | Consolidated Statement of Comprehensive Income
35 | Consolidated Statement of Financial Position
36 | Statement of Changes in Equity
37 | Statement of Cash Flows
38-75 | Notes to the Financial Statements
76 | Directors’ Declaration
77-78 | Independent Auditor’s Report
79 | Shareholder Information
80 | Corporate Directory

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 33

Consolidated Statement Of Comprehensive Income for the year ended 30 June 2012

			Consolidated Group
	Note	2012	2011
	No.	$	$
Revenues	3	66,555,228	68,203,500
Changes in inventories of fnished goods and
work in progress		676,921	(1,040,701)
Raw materials and consumables used		(35,884,592)	(33,843,892)
Employee benefts expense		(13,047,318)	(12,578,413)
Depreciation, impairment and amortisation expense	4	(1,325,900)	(1,379,709)
Finance costs	4	(1,636,511)	(1,587,878)
Advertising expense		(1,388,194)	(1,435,333)
Discounts allowed		(95,583)	(106,694)
Outward freight expense		(1,483,096)	(1,598,852)
Rent expense	4	(2,156,172)	(2,209,001)
Contracted staff expense		(236,888)	(399,522)
Warranty expense		(406,803)	(469,778)
Commission expense		(361,657)	(362,924)
Other expenses		(6,306,907)	(6,708,212)
Proft before income tax expense	4	2,902,528	4,482,591
Income tax expense	6	(814,539)	(1,302,486)
Proft for theyear		2,087,989	3,180,105
Other comprehensive income
Property revaluation increment/(decrement)		1,082,248	(415,720)
Share option reserve increment		15,835	-
Exchange translation differences		458,656	(7,133,962)
Other comprehensive income for theyear		1,556,739	(7,549,682)
Total comprehensive income/(loss) for theyear		3,644,728	(4,369,577)
Proft/(loss) attributable to:
Members of the parent entity		2,031,452	3,204,339
Non-controllinginterest		56,537	(24,234)
		2,087,989	3,180,105
Total comprehensive income/(loss) for the year
attributable to:
Members of the parent entity		3,588,191	(4,345,343)
Non-controllinginterest		56,537	(24,234)
Total comprehensive income/(loss) for theyear		3,644,728	(4,369,577)
Earnings per share
From continuing and discontinued operations
Basic earnings per share (cents per share)	30	6.1	9.8
Diluted earnings per share (cents per share)	30	6.1	9.8
From continuing operations
Basic earnings per share (cents per share)	30	6.1	9.8
Diluted earnings per share (cents per share)	30	6.1	9.8
Dividends per share (cents per share)	29	7.0	9.0

The accompanying notes form part of these financial statements.

34 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Consolidated Statement Of Financial Position

as at 30 June 2012

			Consolidated Group
	Note	2012	2011
	No.	$	$
ASSETS
Current Assets
Cash and cash equivalents	8	1,998,300	2,794,522
Trade and other receivables	9	8,452,064	8,259,945
Inventories	10	25,291,689	25,837,291
Other current assets	11	582,450	570,334
Total Current Assets		36,324,503	37,462,092
Non-Current Assets
Property, plant & equipment	13	36,845,873	34,691,511
Intangible assets	14	24,660	30,528
Deferred tax assets	18	578,419	(37,009)
Other non-current assets	15	378,489	354,622
Total Non-Current Assets		37,827,441	35,039,652

Total Assets		74,151,944	72,501,744
LIABILITIES
Current Liabilities
Trade and other payables	16	6,517,084	6,954,991
Borrowings	17	3,056,237	3,410,206
Current tax liabilities	18	(257,693)	377,817
Short-termprovisions	19	1,332,793	1,505,842
Total Current Liabilities		10,648,421	12,248,856
Non-Current Liabilities
Borrowings	20	20,989,051	19,802,478
Deferred tax liabilities	18	524,265	234,724
Long-termprovisions	21	170,818	110,048
Total Non-Current Liabilities		21,684,134	20,147,250

Total Liabilities		32,332,555	32,396,106
Net Assets		41,819,389	40,105,638
EQUITY
Issued capital	22	35,476,976	34,737,298
Reserves	23	(5,718,475)	(6,018,697)
Retained earnings	24	11,784,511	11,167,197
Parent interest		41,543,012	39,885,798
Non-controllinginterest		276,377	219,840
Total Equity		41,819,389	40,105,638

The accompanying notes form part of these financial statements.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 35

Statement Of Changes In Equity for Year Ended 30 June 2012

Consolidated Group	Note No.	Ordinary Shares	Retained Earnings	Capital Profts Reserve	Asset Revaluation Reserve	Foreign Currency Translation Reserve	Share Options Reserve	Non- Controlling Interests	Total
Balance at 30/6/10		33,750,036	10,898,583	210,562	6,674,760	(5,354,337)	-	256,291	46,435,895
Comprehensive
income
Proft for the year		-	3,204,339	-	-	-	-	(24,234)	3,180,105
Other comprehensive
income for theyear		-	-	-	(415,720)	(7,133,962)	-	-	(7,549,682)
Total comprehensive
income for theyear		-	3,204,339	-	(415,720)	(7,133,962)	-	(24,234)	(4,369,577)
Transactions with
owners, in their
capacity as owners
and other transfers
Issue of shares under
Waterco DRP		973,087	-	-	-	-	-	-	973,087)
Employee share loans		14,175	-	-	-	-	-	-	14,175)
Dividendspaid	29	-	(2,935,725)	-	-	-	-	(12,217)	(2,947,942)
Total transactions
with owners and
other transfers		987,262	(2,935,725)	-	-)	-)	-	(12,217)	(1,960,680)

Balance at 30/6/11		34,737,298	11,167,197	210,562	6,259,040	(12,488,299)	-	219,840	40,105,638
Comprehensive
income
Proft for the year		-	2,031,452	-	-	-	-	56,537)	2,087,989
Other comprehensive
income for theyear		-	-	-	1,082,248	458,656	15,835	-	1,556,739
Total comprehensive
income for theyear		-	2,031,452	-	1,082,248	458,656	15,835	56,537	3,644,728
Transactions with
owners, in their
capacity as owners
and other transfers
Issue of shares under
Waterco DRP		721,978	-	-	-	-	-	-	721,978
Employee share loans		17,700	-	-	-	-	-	-	17,700
Dividendspaid	29	-	(2,670,655)	-	-	-	-	-	(2,670,655)
Total transactions
with owners and
other transfers		739,678	(2,670,655)	-	-	-	-	-	(1,930,977)
Other
Capital proft on sale
of property transferred
from asset revaluation
reserve to retained
profts		-	1,256,517	-	(1,256,517)	-	-	-	-
Total Other		-	1,256,517	-	(1,256,517)	-	-	-	-
Balance at 30/6/12		35,476,976	11,784,511	210,562	6,084,771	(12,029,643)	15,835	276,377	41,819,389

The accompanying notes form part of these financial statements.

36 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Statement Of Cash Flows

for The Year Ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Cash Flows from Operating Activities
Receipts from customers	70,381,820	73,235,980
Payments to suppliers and employees	(64,002,963)	(63,699,237)
Interest received	55,704	32,393
Other Income	233,502	521,231
Finance costs	(1,636,511)	(1,587,878)
Income taxpaid	(1,506,556)	(1,304,215)
Net cashprovided byoperatingactivities (note 34a)	3,524,996	7,198,274
Cash Flows from Investing Activities
Dividends received	370	259
Payment for property, plant & equipment	(3,308,991)	2,462,165
Proceeds from sale ofproperty, plant & equipment	25,820	72,570
Net cash(used in)/provided byinvestingactivities	(3,282,801)	2,534,994
Cash Flows from Financing Activities
Proceeds from borrowings	1,277,328	426,187
Proceeds from issue of shares	721,978	973,087
Payment of hire purchase creditors	(84,144)	(77,076)
Payment of lease liabilities	(172,053)	(180,376)
Dividends paid	(2,670,655)	(2,947,939)
Employee shareplan repayments	17,700	14,175
Net cash(used in)fnancingactivities	(909,846)	(1,791,942)

Net (decrease)/increase in cash held	(667,651)	7,941,326
Cash at beginning of the year	2,381,000	3,505,426
Effects of exchange rate changes on balance of cash held in foreign currencies	118,756	(9,065,752)
Cash at the end of theyear(Note 8)	1,832,105	2,381,000

The accompanying notes form part of these financial statements.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 37

Notes To The Financial Statements

for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies

These consolidated financial statements and notes represent those of Waterco Limited and controlled entities, (“Group”).

Waterco Limited is a listed public company, incorporated and domiciled in Australia.

The separate financial statements of the parent entity, Waterco Limited have not been presented within this financial report as permitted by the Corporations Act 2001.

The financial statements were authorised for issue on 27 August 2012.

Basis of Preparation

The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated.

Except for cash flow information, the financial statements have been prepared on an accruals basis and are based on historical costs, modified, where applicable, by the measurement at fair value of selected noncurrent assets, financial assets and financial liabilities.

a. Principles of Consolidation

The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Waterco Limited at the end of the reporting period. A controlled entity is any entity over which Waterco Limited has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity’s activities. 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 a December financial year end.

Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled. A list of controlled entities is contained in Note 12 to the financial statements.

In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated in full on consolidation.

Non-controlling interests, being the equity in a subsidiary not attributable, directly or indirectly, to a parent, are reported separately within the equity section of the consolidated statement of financial position and statement of comprehensive income. The non-controlling interests in the net assets comprise their interests at the date of the original business combination and their share of changes in equity since that date.

Business combinations

Business combinations occur where an acquirer obtains control over one or more businesses.

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions).

38 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

a. Business combinations (continued)

When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date.

All transaction costs incurred in relation to the business combination are expensed to the statement of comprehensive income.

The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase.

b. Goodwill

Goodwill is carried at cost less accumulated impairment losses. Goodwill is calculated as the excess of the sum of:

(i) the consideration transferred;
(ii) any non-controlling interest; and
(iii) the acquisition date fair value of any previously held equity interest;

over the acquisition date fair value of net identifiable assets acquired.

The acquisition date fair value of the consideration transferred for a business combination plus the acquisition date fair value of any previously held equity interest shall form the cost of the investment in the separate financial statements.

Fair value uplifts in the value of pre-existing equity holdings are taken to the statement of comprehensive income. Where changes in the value of such equity holdings had previously been recognised in other comprehensive income, such amounts are recycled to profit or loss.

The amount of goodwill recognised on acquisition of each subsidiary in which the Group holds less than a 100% interest will depend on the method adopted in measuring the non-controlling interest. The Group can elect in most circumstances to measure the non-controlling interest in the acquiree either at fair value (full goodwill method) or at the non-controlling interest’s proportionate share of the subsidiary’s identifiable net assets (proportionate interest method). In such circumstances, the Group determines which method to adopt for each acquisition and this is stated in the respective notes to these financial statements disclosing the business combination.

Under the full goodwill method, the fair value of the non-controlling interest is determined using valuation techniques which make the maximum use of market information where available. Under this method, goodwill attributable to the non-controlling interests is recognised in the consolidated financial statements.

Refer to Note 14 for information on the goodwill policy adopted by the Group for acquisitions.

Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates.

Goodwill is tested for impairment annually and is allocated to the Group‘s cash-generating units or groups of cash-generating units, representing the lowest level at which goodwill is monitored not larger than an operating segment. Gains and losses on the disposal of an entity include the carrying amount of goodwill related to the entity disposed of.

Changes in the ownership interests in a subsidiary are accounted for as equity transactions and do not affect the carrying values of goodwill.

c. Investments

Investments in controlled entities are measured at cost less impairment losses.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 39

Notes To The Financial Statements for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

d. Leases

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

Finance leases are capitalised by recognising an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are recognised as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the lease term.

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. Income Tax

The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income).

Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities (assets) are measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses.

Current and deferred income tax expense (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss.

Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.

Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

40 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

f. Income Tax (continued)

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. Each entity in the group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the “stand-alone taxpayer” approach to allocation. All of the deferred tax assets and liabilities of the subsidiary members have become part of the deferred assets and liabilities of Waterco Limited. 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 Currency Transactions and Balances

Functional and presentation currency

The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the statement of comprehensive income.

Group companies

The financial results and position of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows:

assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;
income and expenses are translated at average exchange rates for the period; and
retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the statement of comprehensive income. These differences are recognised in the statement of comprehensive income in the period in which the operation is disposed.

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 19)

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 determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy any vesting requirements. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows attributable to employee benefits.

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

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 41

Notes To The Financial Statements

for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

h. Employee Benefits (continued)

Equity-settled compensation

The group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a Black–Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

i. Deferred Expenditure

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project.

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 consolidated group 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 consolidated group is based on the following independent valuations:

Land & Buildings	Date of Valuation	Amount
Rydalmere, NSW	15 June 2012	AUD 9,750,000
Malaysia	13 October 2011	MYR 41,600,000
China	18 June 2012	CNY 42,170,000
USA	24 May 2010	USD 850,000

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.

Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation surplus in equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the statement of comprehensive income. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the statement of comprehensive income and depreciation based on the asset’s original cost is transferred from the revaluation surplus to retained earnings.

Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

42 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

k. Property, Plant and Equipment (continued)

Plant and equipment

Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(n) for details of impairment).

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 that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.

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 consolidated group 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 straight line method, as considered appropriate, is used. The depreciation rates used for each class of depreciable assets are:

Class of Fixed Assets	Depreciation	Depreciation	Rate
Buildings	1.50%	-	2.50%
Plant and equipment	6.00%	-	33.33%
Leased plant and equipment	13.00%	-	20.00%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’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 statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 43

Notes To The Financial Statements for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

l. Revenue and Other Income

Revenue is measured at the fair value of the consideration received or receivable after taking into account any trade discounts and volume rebates allowed. When the inflow of consideration is deferred, it is treated as the provision of financing and is discounted at a rate of interest that is generally accepted in the market for similar arrangements. The difference between the amount initially recognised and the amount ultimately received is interest revenue.

Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods.

Interest revenue is recognised using the effective interest rate method.

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

Franchise fee income is invoiced and recognised as revenue on a monthly basis.

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 statement of financial position 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.

n. Impairment of Assets

At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (eg in accordance with the revaluation model in AASB 116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

o. Trade and Other Receivables

Trade and other receivables include amounts due from customers for goods sold and services performed in the ordinary course of business. Receivables expected to be collected within twelve months at the end of the reporting period are classified as current assets. All other receivables are classified as non-current assets.

Trade and other receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method less any provision for impairment (see note 1(n)).

p. Trade and Other Payables

Trade and other payables represent the liability outstanding at the end of the reporting period for goods and services received by the Group during the reporting period which remains unpaid. The balance is recognised as a current liability with the amount being normally paid within 30 days of recognition of the liability.

44 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

q. 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.

r. 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, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities in the statement of financial position.

s. 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.

t. Financial Instruments

Recognition and Initial Measurement

Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Derecognition

Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognised where the related obligations are either discharged or cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

Classification and Subsequent Measurement

Finance instruments are subsequently measured at fair value, amortised cost using the effective interest rate method, or cost.

Amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition less principal repayments and any reduction for impairment, and adjusted for any cumulative amortisation of the difference between that initial amount and the maturity amount calculated using the effective interest method.

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense item in profit or loss.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 45

Notes To The Financial Statements

for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

t. Financial Instruments (continued)

The Group does not designate any interests in subsidiaries, associates or joint venture entities as being subject to the requirements of Accounting Standards specifically applicable to financial instruments.
(i) Financial assets at fair value through profit or loss
Financial assets are classified at “fair value through profit or loss” when they are held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss.
(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost.

Loans and receivables are included in current assets, where they are expected to mature within 12 months after the end of the reporting period.

(iii) Financial liabilities
Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortised cost.

Impairment

At the end of each reporting period, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in profit or loss. Also, any cumulative decline in fair value previously recognised in other comprehensive income is reclassified to profit or loss at this point.

u. Critical Accounting Estimates and Judgements

The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

Key Estimates

(i) Investments in / Loans to Controlled Entities

The Group assesses impairment at each reporting date by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. The parent entity holds significant investments in, and loans to controlled entities. Discounted cash flow projections for the impairment assessment of these loans and investments include average growth rates of 12% for the next five years on the basis of management’s expectations and strategic plans. Cash flow growth rates of 2.5% subsequent to this period have been used as this reflects historical industry averages. The rates used incorporate allowance for inflation. Pre-tax discount rates of 10.3% have been used in all models. Such impairment models are to assess the carrying value of investment and loans and subsidiaries at the parent level, and the result of these assessments has no potential impact on the consolidated results of the company.

(ii) Inventory Classification
Included in inventory are certain inventory items held to service existing products and various components used in the manufacturing process. The nature of these items may require them to be included in inventory for more than one year. Management have evaluated these inventory items and do not consider the carrying value of these items as material. All inventory items have therefore been classified as current.

46 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

for the year ended 30 June 2012

Notes To The Financial Statements

Note 1: Statement of Significant Accounting Policies (continued)

u. Critical Accounting Estimates and Judgements (continued)

(iii) Inventory Obsolescence

Management review inventory reports on a regular basis to determine slow-moving or obsolescence. Appropriate provisions are carried for impairment of slow-moving items. Obsolete items are disposed of as and when identified.
(iv) Carbon Price

There is presently uncertainty in relation to the impacts of the carbon price mechanism recently introduced by the Australian Government. This carbon pricing system could potentially affect the assumptions underlying value-in-use calculations used for asset impairment testing purposes. The consolidated entity has not incorporated the effect of any carbon price implementation in its impairment testing at 30 June 2012.

v. Comparative Figures

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

w. New Accounting Standards for Application in Future Periods

The AASB has issued new and amended standards and interpretations that have mandatory application dates for future reporting periods, some of which are relevant to the Group. The Group has decided against early adoption of any of these new and amended pronouncements. A discussion of those future requirements and their impact on the Group follows:

AASB 9: Financial Instruments (December 2010) and AASB2010-7: Amendments to Australian Accounting Standards arising from AASB9 [AASB1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 and 1038] and Interpretations 2, 5, 10, 12, 19 and 127 (applicable for annual reporting periods commencing on or after 1 January 2013).

This Standard is applicable retrospectively and includes revised requirements for the classification and measurement of financial instruments, as well as recognition and derecognition requirements for financial instruments.

The key changes made to accounting requirements include:

simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value;
simplifying the requirements for embedded derivatives;
removing the tainting rules associated with held-to-maturity assets;
removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost;
allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument;
requiring financial assets to be reclassified where there is a change in an entity’s business model as they are initially classified based on: (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows; and
requiring an entity that chooses to measure a financial liability at fair value to present the portion of the change in its fair value due to changes in the entity’s own credit risk in other comprehensive income, except when that would create an accounting mismatch. If such a mismatch would be created or enlarged, the entity is required to present all changes in fair value (including the effects of changes in the credit risk of the liability) in profit or loss.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 47

Notes To The Financial Statements

for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

w. New Accounting Standards for Application in Future Periods (continued)

The Group has not yet been able to reasonably estimate the impact of these pronouncements on its financial statements.

In December 2011, the IASB delayed the application date of IFRS9 to 1 January 2015. The AASB is expected to make and equivalent amendment to AASB9 shortly.

AASB 2010-8: Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets [AASB 112] (applies to periods beginning on or after 1 January 2012).

This Standard makes amendments to AASB 112: Income Taxes.

The amendments brought in by this Standard introduce a more practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model under AASB 140: Investment Property.

Under the current AASB 112, the measurement of deferred tax liabilities and deferred tax assets depends on whether an entity expects to recover an asset by using it or by selling it. The amendments introduce a presumption that an investment property is recovered entirely through sale. This presumption is rebutted if the investment property is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale.

The amendments brought in by this Standard also incorporate Interpretation 121 into AASB 112.

The amendments are not expected to impact the Group.

AASB 10: Consolidated Financial Statements, AASB11: Joint Arrangements, AASB12: Disclosure of Interest in Other Entities, AASB127: Separate Financial Statements (August 2011), AASB128:Investment in Associates and Joint Ventures (August 2011) and AASB2011-7: Amendments to Australian Accounting Standards arising from Consolidation and Joint Arrangements Standards (AASB 1, 2, 3, 5, 7, 9, 2009-11, 101, 107, 112, 118, 121, 124, 132, 133,136, 138, 139, 1023 and 1038) and Interpretations 5, 9, 16, and 17 (applicable for annual reporting periods beginning on or after 1 January 2013).

AASB10 replaces parts of AASB127: Consolidated and Separate Financial Statements (March 2008, as amended) and Interpretation 112: Consoldiated-Special Purpose Entities. AASB 10 provides a revised definition of control and additional application guidance so that a single control model will apply to all investees. The Group has not yet been able to reasonably estimate the impact of this Standard on its financial statements.

AASB 12: contains the disclosure requirements applicable to entities that hold an interest in a subsidiary, joint venture, joint operation or associate. AASB 12 also introduces the concept of a “structured entity” replacing the “special purpose entity” concept currently used in interpretation 112, and requires specific disclosures in respect of any investments in unconsolidated structured entities. This standard will affect disclosures only and is not expected to significantly impact the Group.

To facilitate the application of AASB’s 10, 11 and 12, revised versions of AASB127 and AASB128 have also been issued. These Standards are not expected to significantly impact the Group.

48 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

Note 1: Statement of Significant Accounting Policies (continued)

w. New Accounting Standards for Application in Future Periods (continued)

AASB 13: Fair Value Measurement and AASB 2011-8: Amendments to Australian Accounting Standards arising from AASB13 (AASB 1 to 5, 7, 9, 2009-11, 2010-7, 101, 102, 108, 110, 116 to 121, 128, 131 to 141, 1004, 1023 and 1038 ) and Interpretations 2, 4, 12 to 14, 17, 19, 131 and 132 (applicable for annual reporting periods commencing on or after 1 January 2013).

AASB 13 defines fair value, sets out in a single standard a framework for measuring fair value, and requires disclosures about fair value measurement.

AASB 13 requires:
inputs to all fair value measurements to be categorised in accordance with a fair value hierarchy, and
enhanced disclosures regarding all assets and liabilities (including, but not limited, to financial assets and financial liabilities) to be measured at fair value.

These standards are not expected to significantly impact the Group.

AASB 2011-9: Amendments to Australian Accounting Standards – Presentation of items of Other Comprehensive Income [AASB 1, 5, 7, 101, 112, 120, 121, 132, 133, 134, 1039 and 1049] (applicable for annual reporting periods commencing on or after 1 July 2012).

The main change arising from this Standard is the requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially re-classifiable to profit or loss subsequently.

This Standard affects presentation only and is therefore not expected to significantly impact the Group.

AASB119: Employee Benefits (September 2011) and AASB 2011-10: Amendments to Australian Accounting Standards arising from AASB 119 (September 2011) [AASB 1, AASB 8, AASB 101, AASB 124, AASB 134, AASB 1049 and AASB 2011-8 and Interpretation 14] (applicable for annual reporting periods commencing on or after 1 January 2012).

These Standards introduce a number of changes to accounting and presentation of defined benefit plans.

The Group does not have any defined benefit plans and so is not impacted by the amendment.

AASB119 (September 2009) also includes changes to the accounting for termination benefits that require

(1) for an offer that may be withdrawn – when the employee accepts;
(2) for an offer than cannot be withdrawn – when the offer is communicated to affected employees; and
(3) where the termination is associated with a restructuring of activities under AASB137: Provisions, Contingent Liabilities and Contingent Assets, and if earlier than the first two conditions – when the related restructuring costs are recognised.

The Group has not yet been able to reasonably estimate the impact of these changes to AASB119.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 49

Notes To The Financial Statements for the year ended 30 June 2012

Note 2: Parent Information

The following information has been extracted from the books and records of the parent and has been prepared in accordance with accounting standards.

STATEMENT OF FINANCIAL POSITION

		Parent Entity
	2012	2011
	$	$
ASSETS
Current Assets	14,167,267	14,472,652
TOTAL ASSETS	66,682,103	65,605,930
LIABILITIES
Current Liabilities	9,378,685	9,207,889
TOTAL LIABILITIES	26,615,539	25,707,457
EQUITY
Issued capital	35,476,976	34,737,298
Capital profts reserve	180,426	180,426
Asset revaluation reserve	2,228,766	4,113,835
Share options reserve	15,835	-
Retained earnings	2,164,561	866,914
TOTAL EQUITY	40,066,564	39,898,473

STATEMENT OF COMPREHENSIVE INCOME

	2012	2011
	$	$
Total proft/(loss)	2,711,785	(3,567,075)
Total comprehensive income	2,083,233	(3,567,075)

50 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 3: Revenue and Other Income
Revenue from Continuing Operations
Sales revenue
• Sales of goods	66,139,763	67,739,337
Other revenue
• Dividend received 3(a)	370	364
• Interest received 3(b)	55,704	32,393
• Rent	122,053	59,450
• Bad debts recovered	3,836	3,503
• Other	233,502	368,453
Total Revenue	66,555,228	68,203,500
a) Dividends received or receivable from
• Otherpersons	370	364
Total dividend revenue	370	364
b) Interest received or receivable from
• Otherpersons	55,704	32,393
Total interest revenue	55,704	32,393

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 51

Notes To The Financial Statements for the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 4: Proft/(Loss) for the Year
Proft/(loss) for the year has been determined after:
Expenses:
Cost of Sales	35,161,054	34,939,241
Finance costs:
• Borrowings	1,606,222	1,542,011
• Hire purchase expense	9,730	16,798
• Finance charges on fnance leases	20,559	29,069
	1,636,511	1,587,878
Depreciation of non-current assets:
• Buildings	226,379	181,372
• Plant & equipment	851,071	930,616
• Hire purchase assets	18,324	18,324
• Capitalised leased assets	122,652	130,011
	1,218,426	1,260,323
Amortisation of non-current assets:
• Leasehold land	10,905	10,905
• Goodwill on acquisition	5,868	5,867
• Expenditure carried forward	90,701	102,614
	107,474	119,386
Total depreciation,amortisation and impairment	1,325,900	1,379,709
Bad and doubtful debts
• Trade debtors	67,791	319,855
Rental expense on operating leases
• Minimum leasepayments	2,156,172	2,209,001
Research & development	901,113	822,042
Net(gain)/loss on disposal of non-current assets
• Property, plant and equipment	1,363	7,996
• Goodwill	-	89,925
	1,363	97,921
Note 5: Auditors’ Remuneration
Remuneration of the auditor of the parent entity for:
• Audit or reviewing the fnancial report	144,000	128,507
• Non audit fees for agreed upon procedures	2,750	2,750
Remuneration of other auditors of subsidiaries for:
• Auditing or reviewing the fnancial report of subsidiaries	62,021	53,154

52 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

			Consolidated Group
		2012	2011
		$	$
Note 6: Income Tax Expense
(a)	The components of tax expense comprise:
	• Current tax	867,879	1,416,312
	• Deferred tax	31,775	(74,793)
	• Recoupment ofprioryear tax losses	(85,115)	(39,033)
		814,539	1,302,486
(b)	The prima facie tax on proft before income tax is reconciled
	to the income tax as follows:
Proft before income tax		2,902,528	4,482,591
Prima facie tax payable on proft before income tax at 30% (2011: 30%)		870,758	1,344,777
Add
Tax effect of:
	• Depreciation of buildings	30,765	21,743
	• Entertainment	1,641	2,575
	• Amortisation - Goodwill	1,761	1,760
	• Amortisation - Leasehold Land	3,272	3,272
	• Foreign controlled entities not tax effected	449,121	78,861
	• Unrealised foreign exchange losses/(gains)	-	12,841
	• Expenses not allowable	4,309	5,549
Less
Tax effect of:
	• Reinvestment allowance	-	2,086
	• Research and development	56,511	-
	• Special building write off	1,889	1,888
	• Capital gain on sale of goodwill	-	26,978
	• Effects of lower rates in overseas countries	84,756	39,286
	• Overprovision for tax in prior years	401,944	25,642
	• Other	1,988	73,012
Income tax expense attributable to entity		814,539	1,302,486
The	applicable weighted average effective tax rates are as follows:	28%	29%

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 53

Notes To The Financial Statements for the year ended 30 June 2012

Note 7: Key Management Personnel Compensation

(a) Key Management Personnel (“KMP”) Compensation

The totals of remuneration paid to KMP of the company and the Group during the year are as follows:

		Consolidated Group
	2012	2011
	$	$
Short-term employee benefts	1,156,519	1,137,361
Post-employment benefts	82,261	83,534
Other long term benefts	40,594	-
Share-basedpayments	9,426	9,442
	1,288,800	1,230,337

Refer to the remuneration report contained in the directors’ report for remuneration paid or payable to each member of the groups KMP for the year ended 30 June 2012

(b) Shareholdings

Number of Shares held by Key Management Personnel 2012

		Balance	Received as	Net Change	Balance
	Key Management Personnel	1.7.11	Remuneration	Other	30.6.12
	Mr S S Goh	18,002,170	-	386,252	18,388,422
	Mr B Goh	508,405	-	15,860	524,265
	Mr G Norman	139,391	-	3,614	143,005
	Mr B Hunt	252,181	-	39,560	291,741
	Mr R Ling	-	-	-	-
	Mr S T Lim	124,317	-	(4,000)	120,317
	Mrs B H Leo	91,499	-	(10,138)	81,361
	Mr G Doumit	86,300	-	-	86,300
	2011
		Balance	Received as	Net Change	Balance
	Key Management Personnel	1.7.10	Remuneration	Other	30.6.11
	Mr S S Goh	17,468,817	-	533,353	18,002,170
	Mr B Goh	492,866	-	15,539	508,405
	Mr G Norman	135,581	-	3,810	139,391
	Mr B Hunt	252,181	-	-	252,181
	Mr R Ling	-	-	-	-
	Mr S T Lim	124,317	-	-	124,317
	Mrs B H Leo	91,499	-	-	91,499
	Mr G Doumit	86,300	-	-	86,300
(c)	Options
	2012
		Balance	Received as	Net Change	Balance
	Key Management Personnel	1.7.11	Remuneration	Other	30.6.12
	Mr S T Lim	90,000	-	-	90,000
	2011
		Balance	Received as	Net Change	Balance
	Key Management Personnel	1.7.10	Remuneration	Other	30.6.11
	Mr S T Lim	90,000	-	-	90,000

54 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

For the year ended 30 June 2012

Note 7: Key Management Personnel Compensation (continued)

(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 long-term.

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. The maximum aggregate amount of fees that can be paid to NonExecutive Directors is subject to approval of shareholders.

CURRENT ASSETS

Note 8: Cash and cash equivalents

		Consolidated Group
	2012	2011
	$	$
Cash at bank and in hand	1,998,300	2,794,522
Reconciliation of cash
Cash at the end of the year as shown in the statement of cash fows is
reconciled to the related items in the balance sheet as follows:
Cash and cash equivalents	1,998,300	2,794,522
Bank overdraft(note 17)	(166,195)	(413,522)
	1,832,105	2,381,000

Note 9: Trade and other receivables

		Consolidated Group
	2012	2011
	$	$
Trade receivables	7,775,620	7,481,819
Less:provision for impairment of receivables	(339,342)	(418,113)
	7,436,278	7,063,706
Other receivables	1,015,786	1,196,239
	8,452,064	8,259,945

Provision For Impairment of Receivables

Current trade and term receivables are non-interest bearing loans and generally on 30-day terms. Non-current trade and term receivables are assessed for recoverability based on the underlying terms of the contract. A provision for impairment is recognised when there is objective evidence that an individual trade or term receivable is impaired. These amounts have been included in the other expenses item.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 55

Notes To The Financial Statements for the year ended 30 June 2012

Note 9: Trade and other receivables (continued)

Movement in the provision for impairment of receivables is as follows:

	Opening			Closing
	Balance	Charge for	Amounts	Balance
	1.7.2010	the Year	Written Off	30.6.2011
	$	$	$	$
Consolidated Group
Current trade receivables	616,739	121,229	(319,855)	418,113
	Opening			Closing
	Balance	Charge for	Amounts	Balance
	1.7.2011	the Year	Written Off	30.6.2012
	$	$	$	$
Consolidated Group
Current trade receivables	418,113	(10,980)	(67,791)	339,342

There are $1,460,192 (2011: $1,084,440) within trade and other receivables that are not impaired and are past due. It is expected these balances will be received in full. Impaired assets are provided for in full.

The following table details the Group’s trade and other receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the debt has not been settled, with the terms and conditions agreed between the Group and the customer or counter party to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group.

The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality.

		Past due					Within
	Gross	and	Past	due but not	impaired (days	overdue)	initial
	amount	impaired	< 30	31–60	61–90	> 90	trade terms
	$	$	$	$	$	$	$
Consolidated Group
2012
Trade and term receivables	7,775,620	339,342	681,230	303,412	475,550	-	5,976,086
Other receivables	1,015,786	-	-	-	-	-	1,015,786
Total	8,791,406	339,342	681,230	303,412	475,550	-	6,991,872
2011
Trade and term receivables	7,481,819	418,113	567,882	196,072	320,486	-	5,979,266
Other receivables	1,196,239	-	-	-	-	-	1,196,239
Total	8,678,058	418,113	567,882	196,072	320,486	-	7,175,505

The Group does not hold any financial assets with terms that have been renegotiated, but which would otherwise be past due or impaired.

56 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

For the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 10: Inventories
Raw materials and stores at cost	9,331,506	9,200,187
Work in progress at cost	372,211	370,130
Finished goods at cost	15,219,932	16,274,832
Goods in transit at cost	1,010,099	662,640
Provision for inventorywrite-down	(642,059)	(670,498)
	25,291,689	25,837,291

Note 11: Other current assets

Prepayments	582,450	570,334
	582,450	570,334

NON CURRENT ASSETS

Note 12: Controlled Entities

	Country of	Carries on
	incorporation	business in	2012	2011
Parent Entity
Waterco Limited	Australia	Australia	-	-
Controlled Entities of Waterco Limited:
Swimart Pty Ltd	Australia	Australia	100	100
Zane Solar Systems Australia Pty Ltd	Australia	Australia	100	100
Aquaswim Australia Pty Ltd	Australia	Australia	100	100
Waterco USA Inc	USA	USA	100	100
Waterco Engineering Sdn Bhd	Malaysia	Malaysia	100	100
Waterco (Far East) Sdn Bhd	Malaysia	Malaysia	100	100
Watershoppe (M) Sdn Bhd	Malaysia	Malaysia	100	100
Lacron Filters (Far East) Sdn Bhd	Malaysia	Malaysia	100	100
Waterco Engineering Services Sdn Bhd	Malaysia	Malaysia	100	100
Waterco (NZ) Ltd **	New Zealand	New Zealand	100	100
Swimart (NZ) Ltd	New Zealand	New Zealand	100	100
Waterco (Guangzhou) Ltd	China	China	100	100
Waterco (C) Ltd	China	China	100	100
Waterco (Europe) Ltd	United Kingdom	United Kingdom	100	100
Waterco Canada Inc	Canada	Canada	100	100
PT Waterco Indonesia	Indonesia	Indonesia	51	51
Waterco International Pte Ltd	Singapore	Singapore	100	100
Waterco France*	France	France	100	-

On 12 September 2011, Waterco (Europe) Ltd acquired 100,000 shares at EUR1.00/AUD1.30276 each (totalling EUR100,000/AUD$130,276) in Waterco France.
** On 18 May 2012 Waterco (NZ) Ltd allotted 599,000 shares at NZD1.00 (AUD0.7704) each (totalling NZD599,000/AUD461,479) to Waterco Ltd.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 57

Notes To The Financial Statements for the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 13: Property, plant & equipment
Freehold land at independent valuation	10,676,741	8,203,088
Freehold buildings at independent valuation	20,968,507	21,371,247
Less: accumulated depreciation	(1,713,578)	(1,552,075)
	19,254,929	19,819,172
Leasehold land at cost	268,318	268,318
Less: accumulated amortisation	(201,280)	(190,375)
	67,038	77,943
Plant & equipment at cost	22,347,293	20,309,232
Less: accumulated depreciation	(15,934,141)	(14,325,106)
	6,413,152	5,984,126
Hire purchase plant & equipment at cost	260,568	260,568
Less :accumulated depreciation	(51,421)	(33,097)
	209,147	227,471
Leased plant & equipment at cost	295,938	621,690
Less: accumulated depreciation	(71,072)	(241,979)
	224,866	379,711
Total written down value	36,845,873	34,691,511

Movements in Carrying Amounts

						Hire
					Leased	Purchase
	Freehold		Leasehold	Plant &	Plant &	Plant &
	Land	Buildings	Land	Equipment	Equipment	Equipment	Total
Consolidated Group:
Balance at the beginning
of year	8,203,088	19,819,172	77,943	5,984,126	379,711	227,471	34,691,511
Additions	61,840	1,569,943	-	2,133,923	59,384	-	3,825,090
Revaluation	2,411,813	(1,579,039)	-	-	-	-	832,774
Disposals	-	-	-	(83,816)	(91,577)	-	(175,393)
Depreciation expense*	-	(555,147)	(10,905)	(1,621,081)	(122,652)	(18,324)	(2,328,109)
Carrying amount at the
end ofyear	10,676,741	19,254,929	67,038	6,413,152	224,866	209,147	36,845,873

Included in the depreciation expense above is $1,109,683 (2011: $1,142,182) that has been capitalised into the cost of inventory and is reflected in raw materials cost.

		Consolidated Group
	2012	2011
	$	$
If Land & Buildings were stated at historic cost, amounts
would be as follows:
Cost	26,935,609	24,972,104
Less: Accumulated depreciation	3,087,918	2,645,229
Net book value	23,847,691	22,326,875

The Group’s land and buildings were revalued as per the disclosures in note 1(k). The directors consider the carrying value of the land and buildings to be a fair reflection of the market value.

58 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

For the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 14: Intangible assets
Goodwill (note 1b)	280,104	280,104
Less: accumulated amortisation	256,644	250,776
	23,460	29,328
Preliminary expenses	1,200	1,200
	24,660	30,528

Movements in Carrying Amounts

	Preliminary Expense	Goodwill	Total
Consolidated Group:
Balance at the beginning of year	1,200	29,328	30,528
Additions	-	-		-
Disposals	-	-		-
Amortisation expense	-	5,868	5,868
Carryingamount at the end ofyear	1,200	23,460	24,660

Impairment Disclosures

Goodwill is allocated to cash-generating units which are based on the Group’s reporting segments

	2012	2011
	$	$
Asia Segment	13,845	17,308
Australia/New Zealand Segment	9,615	12,020
Total	23,460	29,328

The recoverable amount of each cash-generating unit above is determined based on value-in-use calculations. Value-inuse 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
Asia Segment	2.5%	10.3%
Australia/New Zealand Segment	1.5%	10.3%

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.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 59

Notes To The Financial Statements

for the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 15: Other non-current assets
Deferred expenditure carried forward at cost	669,477	561,188
Less: accumulated amortisation	290,988	206,566
	378,489	354,622
CURRENT LIABILITIES
Note 16: Trade and other payables - unsecured
Trade creditors	4,068,711	5,245,479
Sundrycreditors and accrued expenses	2,448,373	1,709,512
	6,517,084	6,954,991
Note 17: Borrowings
Bank loans	2,750,000	2,750,000
Bank overdraft	166,195	413,522
Hire purchase creditors	69,738	93,874
Less: unexpired interest	(1,494)	(9,000)
Lease liability	71,798	161,810
	3,056,237	3,410,206

Bank facilities of the Group 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 18: Taxes

a) Liabilities
Current
Income Tax	(257,693)	377,817
Non Current Deferred tax liability comprises:
Tax allowances relating to property, plant & equipment	559,042	275,553
Revaluation adjustments taken direct to equity	578,230	1,224,565
Other	1,840	(3,730)
	1,139,112	1,496,388
Parent entityDTA netted off against DTL	(614,847)	(1,261,664)
Consolidated DTL	524,265	234,724
b) Assets
Deferred tax assets comprises:
Provisions	589,979	613,679
Attributable to tax losses	496,473	516,441
Tax allowances relating to property, plant & equipment	12,899	13,302
Other	93,915	81,233
Parent entity DTA netted off against DTL	1,193,266	1,224,655
Consolidated DTA	(614,847)	(1,261,664)
Net Deferred Tax Asset/(Liability)	578,419	(37,009)

60 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements For the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 18: Taxes (continued)
c) Reconciliations
i. Gross Movements
The overall movement in the deferred tax account is as follows:
Opening balance	(271,733)	(364,176)
Credit to statement of comprehensive income	596,129	155,439
(Charge) to equity	(270,242)	(62,996)
ClosingBalance	54,154	(271,733)
ii. Deferred Tax Liability
The movement in deferred tax liability for each temporary
difference during the year is as follows:
Tax allowances relating to property, plant & equipment
Opening balance	275,553	197,472
Charge to statement of comprehensive income	283,489	78,081
Closingbalance	559,042	275,553
Property revaluation adjustments taken direct to equity
Opening balance	1,224,565	1,224,565
Net revaluations during current period taken direct to equity	(269,380)	-
Net revaluation during current period charged to statement of comprehensive income	(376,955)	-
Closing balance	578,230	1,224,565
Other
Opening balance	(3,730)	194,016
Credit/(charge) to statement of comprehensive income	5,570	(197,746)
Closing balance	1,840	(3,730)
iii. Deferred Tax Assets
The movement in deferred tax liability for each temporary
difference during the year is as follows:
Provisions
Opening balance	613,679	686,133
(Charge)to statement of comprehensive income	(23,700)	(72,454)
Closingbalance	589,979	613,679
Income tax losses
Opening balance	498,002	443,262
(Charge)/credit to statement of comprehensive income	(19,106)	117,736
(Charge) to equity	(862)	(62,996)
Closingbalance	478,034	498,002
Capital tax losses
Opening balance	18,439	18,439
Credit/(charge) to statement ofcomprehensiveincome	-	-
Closingbalance	18,439	18,439
Tax allowances relating to
Property plant & equipment
Opening balance	13,302	15,222
(Charge) to statement ofcomprehensiveincome	(403)	(1,920)
Closingbalance	12,899	13,302
Other
Opening balance	81,233	88,821
Credit/(charge) to statement of comprehensive income	12,682	(7,588)
Closing balance	93,915	81,233

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 61

Notes To The Financial Statements for the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 18: Taxes (continued)
d) Deferred tax assets not brought to account the benefts of
which can only be realised if the conditions for
deductibility set out in note 1(f) occur - tax losses
- Operatinglosses	4,487,042	3,991,908
	4,487,042	3,991,908
Note 19: Short-term provisions
Employee Benefts (see note (1h))
Opening Balance	1,505,842	1,534,149
Additional provisions	512,074	405,305
Amounts used	(685,123)	(433,612)
ClosingBalance	1,332,793	1,505,842
NON-CURRENT LIABILITIES
Note 20: Borrowings
Bank loans	20,866,363	19,589,035
Hire purchase creditors	-	69,738
Less: unexpired interest	-	(2,224)
Lease liability	122,688	145,929
	20,989,051	19,802,478
Bank loans of the Group are secured by a frst ranking and registered fxed and foating debenture charge over the assets
of the parent entity, and registered mortgages over freehold land and buildings and guarantees and indemnities from
subsidiaries. The bank loans are made up of a $15.5m loan to the parent entity with a maturity		date of 31 July 2014 and
interest (variable) is payable on a monthly basis. Management expects	an agreement will be reached with the bank for
the loan facility to be extended prior to maturity. The remaining bank	loan amount of $5.4m relates to a subsidiary and
bears interest at 4.80%-5.10% repayable by monthly instalments with maturity dates of December 2021 and June 2031.
Note 21: Long-term provisions
Employee Benefts (see note 1h)
Opening balance	110,048	252,937
Additional provisions	60,770	(142,889)
Amounts used	-	-
Closingbalance	170,818	110,048
a)Aggregate employee entitlement liability	1,503,611	1,615,890
b) Number of employees at year end	472	467

62 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

For the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 22: Issued capital
33,243,283 ordinary shares fully paid at
beginning of the year (2011: 32,419,273)	34,737,298	33,750,036
On 9 December 2011, 373,089 shares were issued at $1.21 each
under the Waterco Ltd DRP	451,438		-
On 15 June 2012, 278,907 shares were issued at $0.97 each
under the Waterco Ltd DRP	270,540		-
On 17 December 2010, 449,758 shares were issued at $1.19 each
under the Waterco Ltd DRP	-	535,212
On 3 June 2011, 374,252 shares were issued at $1.17 each
under the Waterco Ltd DRP	-	437,875
Employee Share Plans loan repayments[see note 36(1)]	17,700	14,175
33,895,279 ordinary shares fully paid at the end of the year
(2011: 33,243,283)	35,476,976	34,737,298

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 shares 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.

Capital Management

Management controls the capital of the Group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the Group can fund its operations and continue as a going concern.

The Group’s debt and capital includes ordinary share capital and financial liabilities supported by financial assets.

There are no externally imposed capital requirements.

Management effectively manages the Group’s capital by assessing the Group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues.

There have been no changes in the strategy adopted by management to control the capital of the Group since the prior year. This strategy is to ensure that the Group’s gearing ratio remains between 30% and 70%. The gearing ratio’s for the year ended 30 June 2012 and 30 June 2011 are as follows:

		Consolidated Group
	2012	2011
	$	$
Total borrowings	24,045,288	23,212,684
Less cash and cash equivalents	(1,998,300)	(2,794,552)
Net debt	22,046,988	20,418,132
Total equity	41,819,389	40,105,638
Total capital	63,866,377	60,523,770
Gearing ratio	53%	51%

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 63

Notes To The Financial Statements

for the year ended 30 June 2012

			Consolidated Group
	Note	2012	2011
	No	$	$
Note 23: Reserves
a) Capital profts		210,562	210,562
The capital profts reserve relates to non taxable profts
on sale of property.
b) Foreign currency translation		(12,029,643)	(12,488,299)
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		6,259,040	6,674,760
Transfer of Bankstown Property Revaluation to retained profts		(1,256,517)	-
Net revaluation increment/(decrement) on
revaluation of land and buildings		1,082,248	(415,720)
Balance at the end of theyear		6,084,771	6,259,040
The asset revaluation reserve records the revaluation of
non-current assets
d) Share options reserve
Balance at the beginning of the year		-	-
Share option increment		15,835	-
Balance at the end of the year		15,835	-
The share options reserve records the cost of the share option plan
		(5,718,475)	(6,018,697)
Note 24: Retained earnings
Opening retained earnings		11,167,197	10,898,583
Net proft/(loss) attributable to the members of the parent entity		2,031,452	3,204,339
Transfer of Bankstown Property Revaluation		1,256,517	-
from asset revaluation reserve
Dividends paid	29	(2,670,655)	(2,935,725)
Closingretained earnings		11,784,511	11,167,197
Note 25: Lease and hire purchase commitments
Finance leases
Lease expenditure contracted and provided for:
not later than one year		85,312	179,494
later than one year but not later than fve years		128,093	159,159
Total minimum lease commitments		213,405	338,653
Less: future fnance charges		18,919	30,914
Lease liability		194,486	307,739
Current portion	17	71,798	161,810
Non-currentportion	20	122,688	145,929
		194,486	307,739
Hire Purchase commitments
HP expenditure contracted and provided for:
not later than one year		69,738	93,874
later than oneyear but not later than fveyears		-	69,738
Total minimum HP commitments		69,738	163,612
Future interest charges		1,494	11,224
		68,244	152,388
Hire purchase creditors
Current portion	17	68,244	84,874
Non-current portion	20	-	67,514
		68,244	152,388

Finance leases and hire purchase commitments of 3 or 4 years are taken out on motor vehicles, forklifts and IT equipment 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.

64 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

For the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 25: Lease and hire purchase commitments (continued)
Operating lease payable:
Non-cancellable operating leases contracted but not capitalised in
the fnancial statements
not later than one year	2,141,952	1,713,780
later than oneyear but not later than fveyears	3,663,015	3,550,127
	5,804,967	5,263,907
Note 26: Contingent Liabilities
Estimate of the maximum amount of contingent
liabilities that may become payable
Guarantees of leases ofpremises subleased to franchisees	5,460,618	5,280,378
	5,460,618	5,280,378
Note 27: Related Parties
Transactions with director related parties
(i) Sales made to Asiapools (M) Sdn Bhd.	155,232	262,271
Mr S S Goh, is a shareholder of and has signifcant infuence over
Asiapools (M) Sdn Bhd.
(ii) Payments made to Mint Holdings Pty Ltd for rental of
warehouses and offces.	656,626	660,883
Mr S S Goh is a director and shareholder of Mint Holdings Pty Ltd.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 65

Notes To The Financial Statements

for the year ended 30 June 2012

Note 28: Operating Segments

Segment Information

Identification of reportable segments

The Group has identified its operating segments based on the internal reports that are reviewed and used by the board of directors (chief operating decision makers) in assessing performance and determining the allocation of resources.

The Group is managed primarily on the basis of location since the Group’s operations have similar risk profiles and performance criteria. Operating segments are therefore determined on the same basis.

The Group 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.

Basis of accounting for the purposes of reporting by operating segments

Accounting Policies Adopted

Unless stated otherwise, all amounts reported to the Board of Directors as the chief decision maker with respect to operating segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group.

Inter-segment transactions

An internally determined transfer price is set for all inter-entity sales. The price is reviewed annually (unless special circumstances arise) and is based on what would be realised in the event the sale was made to an external party at arm’s length under the same terms and conditions. All such transactions are eliminated on consolidation for the Group’s financial statements.

Corporate charges are allocated to reporting segments based on the services provided to those reporting segments.

Inter-segment loans payable and receivable are initially recognised at the consideration received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair valued based on market interest rates.

Segment assets

Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of the economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location.

Segment liabilities

Liabilities are allocated to segments where is a direct nexus between the incurrence of the liability and the operations of the segment.

Unallocated items

The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: – other revenues

66 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

Note 28: Operating Segments (continued)

Geographical Segments
		2012
	AUSTRALIA &		NORTH AMERICA	CONSOLIDATED
	NEW ZEALAND	ASIA	& EUROPE	GROUP
	$	$	$	$
REVENUE
Sales to customers outside the
Consolidated Group	46,160,589	6,886,857	13,092,317	66,139,763
Intersegment sales	1,346,310	16,628,258	1,687,707	19,662,275
Total segment revenue	47,506,899	23,515,115	14,780,024	85,802,038
Reconciliation of segment
revenue to Group revenue
Other revenue				415,465
Intersegment elimination				(19,662,275)
Total GroupRevenue				66,555,228
Segment net proft/(loss)
from continuing
operations before tax	3,226,535	1,541,455	(1,449,997)	3,317,993
Reconciliation of segment result
to Group net proft/(loss)
before tax
Unallocated items
- other				(415,465)
Net proft/(loss) before tax
from continuing
operations				2,902,528
Segment assets	70,763,714	36,573,098	(3,099,160)	104,237,652
Segment asset increases
for the period
Reconciliation of segment assets
to group assets
Intersegment eliminations				(30,085,708)
Total Group Assets				74,151,944
Capital expenditure	1,660,892	1,878,516	211,098	3,750,506
Segment liabilities	29,037,270	23,628,594	5,184,106	57,849,970
Reconciliation of segment
liabilities to Group liabilities
Intersegment eliminations				(25,517,415)
Total Group Liabilities				32,332,555

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 67

Notes To The Financial Statements

for the year ended 30 June 2012

Note 28: Operating Segments (continued)

Geographical Segments
		2011
	AUSTRALIA &		NORTH AMERICA	CONSOLIDATED
	NEW ZEALAND	ASIA	& EUROPE	GROUP
	$	$	$	$
REVENUE
Sales to customers outside the
Consolidated Group	47,067,148	6,265,669	14,406,520	67,739,337
Intersegment sales	1,899,483	16,014,630	1,164,735	19,078,848
Total segment revenue	48,966,631	22,280,299	15,571,255	86,818,185
Reconciliation of segment
revenue to Group revenue
Other revenue				464,163
Intersegment elimination				(19,078,848)
Total GroupRevenue				68,203,500
Segment net proft/(loss)
from continuing
operations before tax	4,798,965	(65,268)	213,057	4,946,754
Reconciliation of segment result
to Group net proft/(loss)
before tax
Unallocated items
- other				(464,163)
Net proft/(loss) before tax
from continuing
operations				4,482,591
Segment assets	69,945,505	32,557,702	(3,078,852)	99,424,355
Segment asset increases
for the period
Reconciliation of segment assets
to Group assets
Intersegment eliminations				(26,922,611)
Total Group Assets				72,501,744
Capital expenditure	1,404,768	(2,411,700)	649,595	(357,337)
Segment liabilities	28,880,595	21,520,058	3,658,300	54,058,953
Reconciliation of segment
liabilities to Group liabilities
Intersegment eliminations				(21,662,847)
Total Group Liabilities				32,396,106

68 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 29: Dividends Paid or Proposed
Final fully franked ordinary dividend of 5c per share (2011: 5c)
franked at the tax rate of 30% paid	1,662,164	1,620,964
Interim fully franked ordinary dividend of 3c per share (2011: 4c)
franked at the tax rate of 30%paid	1,008,491	1,314,761
	2,670,655	2,935,725
Proposed fnal fully franked ordinary dividend of 4c per share
(2011: 5c) franked at the tax rate of 30%	1,335,811	1,662,164
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.	1,583,499	154,558
Note 30: Earnings Per Share
Reconciliation of Earnings to Net Proft/(Loss)
Net Proft	2,087,989	3,180,105
Net proft/(loss) attributable to outside equity interest	56,537	(24,234)
Earnings used in the calculation of basic EPS	2,031,452	3,204,339
Earnings used in the calculation of diluted EPS	2,031,452	3,204,339
a) Weighted average number of ordinary shares outstanding during
the year used in calculation of basic EPS	33,464,447	32,683,116
b) Weighted average number of ordinary shares outstanding during
the year used in calculation of diluted EPS	33,464,447	32,683,116

Note 31: Events Subsequent to Reporting Date

There were no reportable events subsequent to balance date.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 69

Notes To The Financial Statements for the year ended 30 June 2012

Note 32: Financial Risk Management

The Audit Committee (AC) has been delegated responsibility by the Board of Directors for, amongst other issues, monitoring and managing financial risk exposures of the Group. The AC monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to commodity price risk, counter party credit risk, currency risk, financing risk and interest rate risk. The AC meets on a bi-monthly basis and minutes of the AC are reviewed by the Board.

The AC’s overall risk management strategy seeks to assist the Consolidated Group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use of hedging derivative instruments, credit risk policies and future cash flow requirements.

The main risks the Group is exposed to (through its financial instruments) are: interest rate risk, credit risk, foreign currency risk, liquidity risk and price risk.

(a) Interest Rate Risk

The consolidated group’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.

(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 is managed through maintenance of procedures in relation to approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and the monitoring of the financial stability of significant customers. Such monitoring is used in assessing receivables for impairment. Depending on the subsidiary, credit terms are generally 30 days from invoice month.

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 Group has no single concentration of credit risk with any single debtor or group of debtors. However, on a geographical basis, the Group has significant credit exposure to Australia/New Zealand and Canada given the substantial operations in those regions.

Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Aggregates of such amounts are as detailed in Note 9.

(c) Foreign Currency Risk

The parent entity is exposed to fluctuations in foreign currencies arising from the sale and purchase of goods in currencies other than the group’s measurement currency.

The parent entity has forward contracts in place at balance date relating to highly probable forecast transactions. There are no forward contracts taken out by any other member in the Group. These contracts commit the Group to buy and sell specified amounts of foreign currencies in the future at specified exchange rates.

Contracts are taken out with terms that reflect the underlying settlement terms of the commitment to the maximum extent possible so that hedge ineffectiveness is minimised.

The following table summarises the notional amounts of the Group (and parent entity) commitments in relation to forward exchange contracts.

	Notional	Amounts	Average Exchange Rate	Average Exchange Rate
Consolidated Group (and Parent Entity)
	2012	2011	2012	2011
	$	$	$	$
Buy USD/Sell AUD
- Less than 6 months	2,300,000	3,300,000	1.002	0.991
70	WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

Note 32: Financial Risk Management (continued)

d) Liquidity Risk

The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained.

Financial liability and financial asset maturity analysis

Consolidated	Within 1 Year	Within 1 Year	1 to	5 Years	Over 5 years	Over 5 years		Total
Group	2012	2011	2012	2011	2012	2011	2012	2011
	$	$	$	$	$	$	$	$
Financial Assets
Cash	1,998,300	2,794,522	-	-	-	-	1,998,300	2,794,522
Receivables	8,452,064	8,259,945	-	-	-	-	8,452,064	8,259,945
Total anticipated infows	10,450,364	11,054,467	-	-	-	-	10,450,364	11,054,467
Financial Liabilities
Bank overdraft	-	-	166,195	413,522	-	-	166,195	413,522
Bank loans	2,750,000	2,750,000	20,866,363	19,589,035	-	-	23,616,363	22,339,035
Trade and other payable	6,517,084	6,954,991	-	-	-	-	6,517,084	6,954,991
Hire purchase creditors	69,738	93,874	-	69,738	-	-	69,738	163,612
Unexpired interest	(1,494)	(9,000)	-	(2,224)	-	-	(1,494)	(11,224)
Lease Liabilities	71,798	161,810	122,688	145,929	-	-	194,486	307,739
Total contractual outfows	9,407,126	9,951,675	21,155,246	20,216,000	-	-	30,562,372	30,167,675
Less bank overdrafts	-	-	(166,195)	(413,522)	-	-	(166,195)	(413,522)
Total expected outfows	9,407,126	9,951,675	20,989,051	19,802,478	-	-	30,396,177	29,754,153
Net infow/(outfow)
on fnancial	1,043,238	1,102,792	(20,989,051)	(19,802,478)	-	-	(19,945,813)	(18,699,686)
instruments

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 71

Notes To The Financial Statements for the year ended 30 June 2012

Note 32: Financial Risk Management (continued)

e) Price Risk

Price risk relates to the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in market prices largely due to demand and supply factors for commodities.

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.


	Carrying	Net Fair	Carrying	Net Fair
	Amount	Value	Amount	Value
	$	$	$	$
Financial Liabilities
Bank Overdraft	166,195	167,857	413,522	417,657
Bank Loans	23,616,363	23,852,527	22,339,035	22,562,455
Lease Liabilities	194,486	204,210	307,739	323,126
Hire purchase creditors	69,738	73,225	163,612	171,793
Unexpired interest	(1,494)	(1,569)	(11,224)	(11,785)
	24,045,288	24,296,250	23,212,684	23,463,246

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 Consolidated Group intends to hold these assets to maturity.

Sensitivity Analysis

The following table illustrates sensitivities to the Group’s exposures to changes in interest rates and exchange rates. The table indicates the impact on how profit and equity values reported at balance date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. The sensitivity assumes the movement in a particular variable is independent to other variables.

	Consolidated	Group
	Proft	Equity
	$	$
Year ended 30 June 2012
+/- 2% in interest rates	+/-476,000	+/-476,000
+/- 5% in $A/$US	+/-433,000	+/-433,000
Year ended 30 June 2011
+/- 2% in interest rates	+/-441,000	+/-441,000
+/- 5% in $A/$US	+/-382,000	+/-382,000

72 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements for the year ended 30 June 2012

Note 33: 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. During the year, $nil (2011: $nil) in loan balances were written off.

Any ordinary shares issued during the year under this plan are shown in the statement of financial position as issued capital. Any residual loan amounts written off are expensed during the year. During the year, no shares were issued under this plan while debts of $17,700 (2011: $14,175) were repaid. At reporting date, the balance of the debt receivable is $84,920 (2011: $102,620).

2) Exempt Employee Share Plan

The objective of this plan 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.

This plan is offered to all employees and replaces the Waterco Share Acquisition 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 $nil (2011: $nil) for the purchase of nil (2011: nil) shares under this plan. This plan has been suspended until 30 June 2012.

All costs associated with purchasing the plan is borne by the company. However, a fee of $55 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).

The closing share market price of an ordinary share of Waterco Limited on the Australian Stock Exchange at 30 June 2012 was $0.88 (30 June 2011: $1.055).

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 73

Notes To The Financial Statements for the year ended 30 June 2012

Note 33: Employee Benefits (continued)

3) Waterco Limited Directors and Senior Executives Option Plan

This plan was approved by an Extraordinary 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 a previous period, 90,000 options were granted at no cost to Mr Szetin Lim (Chief Financial Officer). These options are split into three equal tranches of 30,000 each and may be exercised at a price of $1.35 each over the following periods:

Tranche Exercise Period

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

Nil options have been exercised during the period.

74 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Notes To The Financial Statements

for the year ended 30 June 2012

		Consolidated Group
	2012	2011
	$	$
Note 34: Cash Flow Information
a) Reconciliation of cash fows from operations with proft after
income tax.
Proft after income tax	2,087,989	3,180,105
Non-cash fows in proft
Depreciation	2,328,109	2,373,343
Impairment/Amortisation	16,773	16,772
(Proft)/Loss on sale of non current assets	1,363	(7,996)
Changes in Assets and Liabilities:-
Trade debtors	(293,801)	817,555
Provision for doubtful debts	(78,771)	(198,626)
Other debtors	180,453	235,478
Inventories	545,602	531,996
Prepayments	(12,116)	20,707
Deferred tax assets	31,389	27,222
Expenditure carried forward	(23,867)	(56,136)
Trade creditors	(1,176,768)	611,640
Other creditors	738,861	(153,380)
Provision for employee benefts	(112,279)	(171,196)
Provision for tax	(635,510)	90,714
Provision for deferred tax	(87,896)	(119,665)
Share options reserve	15,835	-
Cashfow – Non Operating Activities:
Dividends Received	(370)	(259)
Cash Flowsprovided byoperations	3,524,996	7,198,274

b) Non Cash Financial and investment activities

Property, Plant and Equipment

During the year, the Consolidated Group acquired plant and equipment with an aggregate fair value of $58,800 (2011: $236,446) by means of finance leases. These acquisitions are not reflected in the statement of cash flows.

c) Financing Facilities

The following lines of credit were available at balance date:

Fully Drawn Advance Facilities	28,630,471	29,490,925
Master lease facilities	909,950	1,807,201
	29,540,421	31,298,126
Amount utilised	(22,041,702)	(21,546,765)
Amount unutilised	7,498,719	9,751,361

The Fully Drawn Advance Facilities of the parent entity are due to expire on 31 July 2014. The parent entity expects to renew these facilities on expiry date.

The Fully Drawn Advance Facilities of the controlled entity are due to expire on 31 December 2021 and 30 June 2031. The controlled entity expects to renew these facilities on expiry date.

Note 35: Company Details

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

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 75

Directors’ Declaration

The directors of the company declare that:

the financial statements and notes, as set out on pages 34 to 75, are in accordance with the Corporations Act 2001 and:
a. comply with Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes explicit and unreserved compliance with International Financial Reporting Standards (IFRS); and
b. give a true and fair view of the financial position as at 30 June 2012 and of the performance for the year ended on that date of the company and consolidated group;
the directors have been given the declarations required by s295A of the Corporations Act 2011 from the Chief Executive Officer and Chief Financial Officer; and
in the directors’ 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.

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Soon Sinn Goh Chief Executive Officer

Dated at Sydney this 27 August 2012

76 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Independent Auditor’s Report to the members of Waterco Ltd

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WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 77

to the members of Waterco Ltd

Independent Auditor’s Report

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78 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

Shareholder Information as at 20 August 2012

(a) Distribution of Shareholders

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Range Ordinary Shares Options
1 - 1,000 287 -
1,001 - 5,000 299 -
5,001 - 10,000 99 -
10,001 - 100,000 126 -
100,001 - and over 33 -
844
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(b) Marketable Parcel

123 shareholders hold less than a marketable parcel.

(c) Substantial Shareholders

The following information is extracted from the company’s register as at 20 August 2012:

	Name Number of Shares
S S Goh Group	18,388,422
Redbrook Nominees PtyLtd	2,140,982

(d) Voting Rights

For all shares, voting rights are one vote per member on a show of hands and one vote per share on a poll.

(e) Twenty Largest Shareholders

The twenty largest shareholders hold 81.00% of the total shares issued.

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Name Number of Shares Percentage
1 Soon Sinn Goh 15,588,422 45.99
2 Goh Lai Huat & Sons Sdn Bhd 2,500,000 7.38
3 Redbrook Nominees Pty Ltd 2,192,982 6.47
4 Acres Holdings Pty Ltd 1,612,908 4.76
5 Swee Kheong Goon 562,717 1.66
6 HSBC Custody Nominees (Australia) Limited 558,952 1.65
7 Judith Louise Leitch 483,001 1.42
8 Jok Pty Limited 464,905 1.37
9 Chu Shien Chang 340,281 1.00
10 Soon Leong Goh 333,940 0.99
11 Janet Swee Nyet Goh 329,782 0.97
12 GWK Corporation Pty Ltd 318,531 0.94
13 Christine Goh 300,000 0.89
14 GSS Holdings Sdn Bhd 300,000 0.89
15 Brazil Enterprises Pty Ltd 295,173 0.87
16 Benjamin Francis Hunt 291,741 0.86
17 S G Corporation Pty Limited 281,739 0.83
18 Tiow Lip Lee 245,386 0.72
19 Deuteronomy Pty Ltd 230,018 0.68
20 May-Yin Goh 225,267 0.66
TOTAL 27,455,745 81.00
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(f) Stock Exchange Listing

The shares of Waterco Limited are listed on the Australian Stock Exchange under the trade symbol WAT, with Sydney being the home exchange.

WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 79

Corporate Directory

Directors

Soon Sinn Goh Bryan Goh Garry Norman Ben Hunt Richard Ling

Secretaries

Bee Hong Leo Gerard Doumit

Registered office

36 South Street, Rydalmere NSW 2116 Tel: + 61 2 9898 8600 Fax: + 61 2 9898 1877 Website: www.waterco.com E-mail: [email protected]

Share Registry

Computershare Investor Services Pty Ltd Level 4, 60 Carrington Street Sydney, NSW 2000 Tel: 1300 85 05 05

Offices – Australia

NSW (Head Office) 36 South Street, Rydalmere NSW 2116 Postal Address: PO Box 230 Rydalmere BC NSW 1701 Tel: + 61 2 9898 8600

QLD

77 Nealdon Drive, Meadowbrook QLD 4131 Postal Address: PO Box 606 Springwood QLD 4127 Tel: + 61 7 3299 9999

VIC

Unit 1, 6 Samantha Court, Knoxfield Vic 3180 Tel: + 61 3 9764 1211

WA

2 Stretton Place, Balcatta WA 6021 Tel: + 61 8 9273 1900

SA

580 Torrens Road, Woodville North SA 5012 Tel: + 61 8 8244 6000

Auditors

RSM Bird Cameron Partners Level 12, 60 Castlereagh St Sydney, NSW 2000

Banker

HSBC Bank Australia Limited HSBC Centre 580 George St Sydney, NSW 2000

Offices – International

Canada 5460 Rue Martineau, St-Hyacinthe, Quebec, Canada J2R 1T8 Tel: + 450 796 1421

China

No.132 Buling Road, Yonghe District, GETDD Guangzhou 511356, PR China Tel: + 86 20 3222 2180

France

Parc d’Activite Entrimmo 3 Rue Paul Rieupeyroux 69800 Saint Priest, France Tel: + 33 4 72 79 33 31

Indonesia Inkopal Plaza Kelapa Gading Blok B No. 31-32 Jl. Raya Boulevard Barat Jakarta 14240, Indonesia Tel: + 62 21 45851481

Malaysia Lot 832, Jalan Kusta Kawasan Perindustrian SB Jaya 47000 Sungai Buloh, Selangor Darul Ehsan Tel: + 60 3 6145 6000

New Zealand 7 Industry Road, Penrose, 1061 Auckland, New Zealand Tel: + 64 9 525 7570

Singapore 24 Peck Seah Street #05-02/04 Nehsons Building Singapore 079314 Tel: + 65 6344 2378

United Kingdom Radfield, London Road, Teynham Sittingbourne, Kent, ME9 9PS, UK Tel: + 44 1795 521733

United States Of America 1864 Tobacco Rd Augusta, GA 30906, USA Tel: + 1 706 793 7291

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80 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES

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WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES | 81
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Waterco limited ABN 62 002 070 733
Registered Office
36 South Street, Rydalmere NSW 2116
Tel: +61 2 9898 8600
Fax: +61 2 9898 1877
Website: www.waterco.com
Email: [email protected]
82 | WATERCO LIMITED ABN 62 002 070 733 AND CONTROLLED ENTITIES
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AI assistant

WATERCO LIMITED — Annual Report 2012

66038_rns_2012-09-19_56118c70-4dd1-495b-9db8-dfb480bf8998.pdf

Contents

Company Profile

Waterco is an Australian publicly listed company involved in the manufacture and distribution of:

Distributor to Manufacturer

Manufacturing Power House

Economic Entity Financial Highlights

Chief Executive Officer’s Review of Operations

REVENUE AND PROFITABILITY

DIVISIONAL EBIT PERFORMANCE

AUSTRALIA AND NEW ZEALAND

NORTH AMERCIA AND EUROPE

Waterco Canada (WCI)

ASIA

Waterco International in

PRODUCT DEVELOPMENT AND WATER TREATMENT

DIVIDEND AND OUTLOOK

Board of Directors

Statement of Corporate Governance Practices

PRINCIPLE 1

LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

Role of the Board

Performance of Key Management Personnel

PRINCIPLE 2 STRUCTURE THE BOARD TO ADD VALUE

Board Composition

Directors

Independent Directors

Chairperson of the Board

Nomination Committee

Performance of the Board

PRINCIPLE 3

PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING

PRINCIPLE 4

SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

Audit Committee

PRINCIPLE 5

MAKE TIMELY AND BALANCED DISCLOSURE

The Company Secretaries are required to:

PRINCIPLE 6

RESPECT THE RIGHTS OF SHAREHOLDERS

PRINCIPLE 7

RECOGNISE AND MANAGE RISK

PRINCIPLE 8

REMUNERATE FAIRLY AND RESPONSIBLY

Remuneration Committee

Remuneration Committee Composition

Remuneration of Directors -v- Non-Executive Directors

Directors’ Report

Directors

Company Secretaries

Bee Hong Leo

Gerard Doumit CPA

Principal Activities

Consolidated Results

Dividends

Review of Operations

Financial Position

Significant Changes in State of Affairs

After Balance Date Events

Future Developments, Prospects and Business Strategies

Environmental Issues

Directors and Key Management Personnel’s Shareholdings

Meetings of Directors

Indemnifying Officers or Auditor

Directors’ Benefits

Proceedings on Behalf of Company

Non-Audit Services

Auditor’s Independence Declaration

Remuneration Report

Introduction

2012 Remuneration Policy

Performance–based Remuneration policy, and its relationship with Company performance

Employment Details of Members of Key Management Personnel and other Executives

Remuneration Details for the Year Ended 30 June 2012

Securities Received that are not Performance Related

Cash incentives, Performance-related Bonus and Share-based Payments

Options and Rights Granted or Vested during the Year Ended 30 June 2012

Description of Legacy Options/Rights

WATERCO LIMITED Annual Report 2012