WATERCO LIMITED — Annual Report 2014

Sep 25, 2014

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Annual Report 2014

ANNUAL REPORT 2014 1

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2 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Contents

4

Company Profile

14

Board of Directors

30

Auditor’s Independence Declaration

6 Economic Entity Financial Highlights

7 Chief Executive Officer’s Review of Operations

16 Statement of Corporate Governance Practices

22 Directors’ Report

31 80 Consolidated Shareholder Financial Information Report

81 Corporate Directory

ANNUAL REPORT 2014 3

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CANADA UK
Longueuil Kent
USA Augusta FRANCE Saint Priest CHINA
Guangzhou
MALAYSIA
Kuala Lumpur SINGAPORE
INDONESIA
Jakarta
NEW ZEALAND
AUSTRALIA Auckland
Sydney, Brisbane,
Melbourne, Adelaide, Perth
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Company Profile

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

Waterco exports its products to over 40 countries via its branches in Australia, New Zealand, China, Malaysia, Singapore, Indonesia, United Kingdom, France Canada and America.

4 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Company Profile

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. Waterco delivers high quality products at exceptional value with its efficient manufacturing procedures, advanced fibreglass winding and pioneering plastic moulding.

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Swimart is Australia’s premium pool and spa specialist group. With over 30 years’ experience and 71 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 In certain regions of Malaysia, of a 24-strong dealer network residents experience water throughout Australia. Trained discolouration caused by rust dealers install solar pool heating from unlined galvanised pipes. systems for both domestic and To capture this market Waterco commercial applications using has set up a dealer network of 11 Zane’s award winning solar Watershoppes selling Waterco’s absorber. range of water filters and drinking water purifiers.

ANNUAL REPORT 2014 5

Economic Entity Financial Highlights

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Financial Year Ended	2014	2013	2012	2011	2010
	$	$	$	$	$
Operating revenue ($ million)	77.97	68.80	66.56	68.20	71.47
Sales revenue ($ million)	77.12	68.21	66.14	67.74	70.88
Earnings Before Interest and Tax (EBIT) ($ million)	3.43	4.62	4.54	6.07	6.64
EBIT / Sales Revenue	4.4%	6.7%	6.9%	9.0%	9.4%
Proft before income tax ($ million)	1.93	3.19	2.90	4.48	5.33
Net proft attributable to Members of the Parent Entity ($ million)	0.91	1.67	2.03	3.20	3.70
Total assets ($ million)	92.98	85.75	74.15	72.50	78.78
Equity ($ million)	50.60	46.05	41.82	40.11	46.44
Basic Earnings per share	2.6 cents	4.9 cents	6.1 cents	9.8 cents	12.3 cents
Dividend per share	6.0 cents	7.0 cents	7.0 cents	9.0 cents	8.0 cents
Net Tangible Assets per share	$1.41	$1.33	$1.23	$1.21	$1.43

6 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Chief Executive Officer’s Review Of Operations

SOON SINN GOH Chairman/CEO

REVENUE AND PROFITABILITY

The Group reported a Net Profit After Tax (NPAT) of $0.97 million, registering a decrease of 43% on the previous corresponding period (PCP) and coming in below the profit guidance provided at the last Annual General Meeting but in line with the profit announcement on 13 August 2014. Losses in North America and Europe entities were not tax-effected, accentuating their impact on the Group’s profitability. Earnings Before Interest and Tax (EBIT) for the year fell by 25% to $3.43 million from $4.62 million but Sales Revenue grew by 13% to $77.12 million from $68.21 million.

Activities in the Australian and New Zealand Division account for a major portion of the Group’s profitability and sales. Though the EBIT of this Division came in below that of the PCP, we are confident that the operations of this division are fundamentally sound.

The North America and Europe Division has reduced the level of its losses by 20%. However, the losses still exceeded expectation, as a projected marginal profit in Canada turned into a loss of $949,000, largely as a result of pricing commitments made the previous year to the Canadian market when the Canadian Dollar was close to parity with the US Dollar. The subsequent increase in cost to Waterco Canada, as a result of the weaker Canadian dollar against the US dollar, amounted to $417,000.

DIVISIONAL EBIT PERFORMANCE

The breakdown of EBIT contributions by division is as follows:

	FY14	FY13
	($000)	($000)	% Change
Australia and New Zealand	3,231	4,897	– 34%
North America and Europe	(2,007)	(2,520)	+ 20%
Asia	2,209	2,246	– 2%
Consolidated Reported EBIT	3,433	4,623	– 25%

ANNUAL REPORT 2014 7

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AUSTRALIA AND NEW ZEALAND (ANZ)

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Hydrostorm Eco is equipped with a three speed motor which allows pool owners to set the pump at a low, energy saving flow rate for every day filtration. The pump uses almost 70% less energy than standard single speed pumps.

The Australia and New Zealand Division derives its revenue predominantly from the domestic swimming pool industry. Apart from selling a wide range of products, including chemicals for swimming pool water tr ~~e~~ at ~~m~~ ent, Waterco is also the franchisor of the Swimart chain of pool stores. Through more than three decades of experience, ~~W~~ at ~~e~~ rco has acquired an extremely good understanding of the factors that drive consumer demand in the after-market. The franchise programme has been developed and improved on in-house since 1984, with the opening of a companyowned pool shop in Sydney. This shop was subsequently franchised and developed into the Swimart Pool and Spa franchising retail system. This solid foundation has enabled this Division to maintain an acceptable, albeit lower, level of profitability through the challenging times in the last few years, during which the industry underwent consolidation and transformation.

St ~~e~~ ady market share in the domestic pool sector has underpinned th ~~e~~ Division’s performance. The Division’s introduction of a range of energy and water saving swimming pool products generated sales growth, affirming Waterco’s expectation of the market’s appetite for environmentally friendly products, such as Waterco’s Hydrostorm ECO pump and Glass Pearls for improved filtration performance and reduc ~~ed~~ water usage from shorter backwash cycle. This was instrumental in enabling the company to retain market share.

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Glass Pearls offer much finer filtration than other filter media on the market and are therefore capable of providing outstanding water purity and clarity. They also require 20 per cent less water for backwashing compared to sand.

Unfortunately, a weaker Australian Dollar increased costs of imports, resulting in a lower trading margin. Difficult trading conditions prevailed. Nevertheless, Waterco forged ahead with the introduction of a new ERP system and continued with market and product development of the Hydroxypure chlorine-free sanitizing system. With this background, the Division recorded a reduced EBIT of 34%, on increased sales revenue of 3%.

NORTH AMERICA AND EUROPE

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

8 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

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Waterco USA (WUSA) The US market is the largest in the world and Waterco USA had enhanced its presence there through a substantial investment in its acquisition of Baker Hydro in March 2005. Our operations in Augusta, Georgia manufacture larger filters and assemble comm ~~er~~ cial pumps.

In the United States, sales were up by 6% on PCP. This improved underlying performance was, however, not reflected in the EBIT, as the Entity incurred once-off expenses related to the manufacturing of heat p ~~u~~ mps, including inventory write-down of $169,000, production wastages, air freight expenses and overtime amounting to $298,000 in order to meet delivery schedules needed in the narrow Canadian season.

The Micron horizontal filter is a spacesaving high performer; its compact horizontal design allows installation with minimal waste of space. Its spherical ends are designed to give uniform flow from both inlet and outlet collection assemblies. Waterco’s largest Micron horizontal filter, the MD11000, is capable of filtering 6600 litres per minute.

Growth in sales of commercial and industrial filters saw this sector making up more than 45% of total sales in WUSA during the year. WUSA continued to deliver more high-pressure seven-bar rated horizontal filters to the Middle East for installation in a desalination plant.

Waterco Canada (WCI) This Entity was the Group’s original centre for the manufac ~~tu~~ re of heat pumps. Its expertise, developed over more than two decades, with assistance from our Research and Development division in Sydney, had improved performance of our products in both quality and cost. This continues to benefit the Group and enables other manufacturing entities in the Group to produce heat pumps of quality. WCI is now a trading entity with heat pumps as their key product.

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Waterco expanded its Electroheat heat pump range with the addition of the Electroheat MKIV, which combines compactness and performance to effectively heat both spas and domestic pools.

The Electroheat MKIV's small footprint enables greater installation flexibility.

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 the manufacture of fibreglass filters. The renowned “Lacron” name is synonymous with quality filters and coupled with progressive manufacturing techniques – which were introduced after the acquisition – it 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 well-recognised as quality products in Europe. This recognition continues, even after the manufacturing operations were transferred to Malaysia and China, because the same high standards have been maintained.

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Internationally, Lacron is known for its commercial fibreglass filters, that are the preferred choice for more intense commercial installations such as commercial spas and heavy-use commercial pools.

ANNUAL REPORT 2014 9

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The economic conditions in the UK have largely remained unchanged this year. Sales continue to be flat, despite new customers making up for some of the decline in sales to existing customers. Margins continue to come under pressure because of the conditions.

W ~~a~~ terco France (WFR) was set up as the thrust into Europe, with UK as the base. France is one of the largest markets in Europe. However, with the business environment in Europe remaining unchanged during the financial year, this Entity continued to consolidate its operations, in pr ~~e~~ paration for a higher level of activity, when the business environment improves.

ASIA

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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.

Waterco Far East in Malaysia (WFE) was borne out of Waterco’s familiarity ~~w~~ ith 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 our undertakings in Kuala Lumpur, Malaysia. As well as bringing the Group closer to our markets in Southeast Asia, this also gave cost-efficiency in our man ~~u~~ facturing operations. Since then, WFE has become the principal manufacturing facility for pumps and filters for the Waterco Group. WFE continues to deliver new products to give the Group an edge in our marketing activities.

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

Local sales in Malaysia improved significantly and were ahead of expectation. However, this Entity’s performance was below PCP, mainly as a result of a stronger local currency.

Waterco China This entity commenced operations in 2000, delivering advantages of low operational costs and a foothold into the huge China

10 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

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market. Today, these operations manufacture filters primarily for the European and the Australian markets. High manufacturing standards have been maintained, enabling 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.

This Entity performed well during the year. Turnover was above expectation. M ~~an~~ agement changes put in place during the year are expected to improve performance further in the future.

Waterco International in Singapore (WI) focuses on sales in Asian countries, 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. WI has improved on its performance over PCP.

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Waterco’s Hydroxypure chlorine free pool sanitisation has been launched in China, with a particular focus on the commercial pool market.

One of their first customers was the Agricultural Bank of China, located in Jinan, Shandong Province.

Its pool has a volume of 300,000 litres. The pool's water quality has surpassed all expectations and local laboratory water tests.

PRODUCT DEVELOPMENT AND WATER TREATMENT

The Group continues to invest in Research and Development in order to be at the forefront of the industry. The number of patents that the Group has secured or are in the process of applying for continues to increase.

During the year, the chlorine-free system, Hydroxypure, was granted a patent in the United States (USA). Applications in other countries are pending.

At about the same time, a patent was also granted in the US for a Biocidal composition for treating water. Primarily an important support chemical for the Hydroxypure system, this Biocidal composition is also suitable for ordinary chlorine-treated pools, improving the convenience of treating all residential pools.

Also linked to the Hydroxypure system is the method of mixing and measuring ozone dosing. An innovation patent has been granted in Australia with patents pending in other countries. This method of mixing and measuring ozone dosing has applications to enhance treatment of pool water in all residential pools.

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Used in conjunction with the Hydroxypure system, Waterco launched its range of Perox Perfect and Perox Balance chemicals to simplify pool maintenance.

The dual action Perox Perfect and Perox Balance have been specifically designed as a preventative approach to keep swimming pools in pristine condition and trouble-free.

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Waterco's MultiCyclone technology has been incorporated into the Hydroxypure system. It maximises the strength of sanitisation by cleverly mixing the ozone into the pool water as well as providing adequate contact time for maximising sanitisation.

ANNUAL REPORT 2014 11

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Waterco has simplified advanced drinking water treatment technology and successfully applied it to treating swimming pool and spa water.

The end result is a chlorine free, oxygen enriched swimming pool that’s soft and gentle on the skin.

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Waterco has been recognised for outstanding achievement with four prestigious industry awards for its Hydroxypure and MultiCyclone XL products.

The Swimming Pool & Spa Association of SA and the Swimming Pool & Spa Alliance both recognised Waterco’s products at their recent Awards of Excellence.

Product innovation and research and development in the watertreatment subsector are considered to be critical in Waterco staying at the forefront of the industry. Waterco considers water-treatment products and systems to be a key revenue driver for the Group. As such, ensuring that our products and systems are appropriately protected is of value and importance.

The array of patents will improve Waterco’s position in the servicing of swimming pools globally and are expected to improve the appeal of the Swimart franchise, as well as that of other pool shops which market the products.

Waterco’s key products for the future are the Hydroxypure range of products that use hydrogen peroxide as a substitute for chlorine as a sanitising agent. The system uses two disinfectants (ozone and hydrogen peroxide) that actively work in harmony to increase active oxygen in the water. The synergy of the two disinfectants ensures the water environment is safe, without the creation of harmful chemical byproducts. The end result is a swimming pool that is totally chlorine-free and enriched with oxygen. Hydroxypure is good news for those with eczema and allergies. It is the only such sanitisation system to receive a tick of approval from the National Asthma Council Australia.

During the year, a commercial Multicyclone was introduced to the market. This helped to secure sales of commercial filters which Waterco might not have otherwise obtained.

DIVIDEND AND OUTLOOK

The results for the year are below expectation and profitability has yet to return to normal levels, with the North America and Europe Division again incurring a significant EBIT loss.

The North America and Europe Division showed a reduction of its EBIT loss to $2.01 million from PCP’s loss of $2.52 million. This year’s loss in this Division includes significant non-recurrent costs, particularly with the set-up of a second heat-pump manufacturing division in WFE, Malaysia. The North America and Europe Division continues to undergo restructuring, to strengthen its operations, in order to enable

12 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

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it to withstand adverse business conditions. Our pursuit of National Sanitation Foundation (NSF) approval for our commercial filters is beginning to bring in orders for commercial filters and is expected to gain momentum. These measures should enable the Division to perform significantly better during the new financial year. There are signs that the business environment in this market, in particular in the United States, is starting to improve. If ~~c~~ onditions become favourable, the Group considers it possible that there could be a break-even situation in this Division in the next financial year. If achieved, this would mark a significant turning point in this Division.

The way is now clear for Hydroxypure, the Group’s system of nonchlorine sanitization, to be sold for domestic installations in almost all the markets in which Waterco operates; approval is pending in the US. The gr ~~ou~~ p also holds or is pending appropriate patents for this system. Sales in the Australia and New Zealand market commenced during the financial year and are expected to contribute significantly to the turnover in the next financial year. Besides improvement in sales, this system will rei ~~n~~ force Waterco’s standing as a manufacturer of innovative and environmentally-friendly products. The patents will help protect our market share in the foreseeable future. Trials of this system continue in the commercial sector. These trials have been successful and the Group is greatly encouraged by their results. The Group is seeking approvals from ~~t~~ he respective authorities to extend this product into the commercial market.

Accordingly, Waterco declares a final dividend payment of 3 cents per share, payable to shareholders on 15 December 2014. This brings the total dividend payout to 6 cents per share for the year, a satisfactory outcome in an e ~~n~~ vironment of poor global economic conditions.

The Board will provide a profit guidance at a later stage for the financial year ending 30 June 2015, as more information becomes available during the year.

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Waterco's Micron commercial filters have received certification to NSF/ANSI Standard 50. Its certification verifies compliance with the American National Standard for confirming performance, safety, and material health effects requirements have been met. Most American commercial pool codes require compliance with NSF/ANSI Standard 50.

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Turtle Beach Resort on Queensland’s Gold Coast, is the 1st commercial installation of the chlorine-free Hydroxypure sanitisation system.

The Hydroxypure system provided not only an automated chlorine free environment, but also the added advantage of complete water recycling without any additional treatment.

The resort is now able to reuse all of the waste water from the filter cleaning cycles to either irrigate the gardens or fill water features.

ANNUAL REPORT 2014 13

Board of Directors

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SOON SINN GOH - B COM 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.

BRYAN GOH - B ECON

Group Marketing Director

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

As the Group Marketing Director, Mr. Goh has overall responsibility for business and product 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 non-profit organisation dedicated to maintaining and improving standards within the industry for the betterment of consumers, pool builders and suppliers.

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

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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 has been in public practice since 1990, having been previously employed by Duesburys Chartered Accountants (now Deloitte) for fourteen years before leaving to establish his own Chartered firm - G R Norman & Co.

He has an extensive background in accounting and taxation matters, having been involved with a wide range of clients in both city and suburban practices – previously in his role as a manager of the Business Services Division of Duesburys and currently in his role as principal of a suburban practice.

Mr. Norman 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.

14 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

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BEN HUNT - PHD (ANU)

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 co-author of the text Australian Institutions and Markets, 7th Ed.), his knowledge extends to the South East Asian region. He is a regular presenter of financial seminars in Hong Kong and Singapore for the UK publishing and training company Euromoney.

Dr Hunt is the Chairman of the Remuneration Committee and a member of the Audit Committee.

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

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

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 has 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. Since 2009 he has been a NonExecutive Director. Mr. Ling is a member of the Remuneration and Nomination Committee and the Chairman of the Audit Committee of Tiong Nam Logistics Holdings Berhad. Mr. Ling has a good understanding of corporate finance, with experience in raising funds for companies in Australia and Malaysia, via the capital markets in Asia.

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

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

ANNUAL REPORT 2014 15

Statement of Corporate Governance Practices

This statement sets out the corporate governance practices that the Company had in place throughout the financial year ended 30 June 2014 and current as at the date of this report.

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

• 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.

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 Company;

• 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;

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

Appointment and Re-Election of Directors

The Company has in place a policy for nomination and appointment of directors. Before appointing a director, the Company will undertake appropriate checks on a candidate for directorship and will provide all material information in its possession to its shareholders to make a decision on whether or not to elect or re-elect a director.

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 in improving corporate governance practices. The Board has undertaken an evaluation on the performance of the Board, its Committees and individual Directors for the financial year ended 30 June 2014.

16 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

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 participated in an annual performance evaluation for the financial year ended 30 June 2014.

PRINCIPLE 2

STRUCTURE THE BOARD TO ADD VALUE

Nomination Committee

The Company has not established a Nomination Committee. The ASX Recommendations acknowledge that such a committee may not be required for smaller boards. The Board is of the opinion that it is appropriate for a company the size of Waterco for matters that come under the purview of a Nomination Committee to be undertaken by the Board through the Remuneration Committee. Furthermore, the Board has established processes in place to raise and address issues that would otherwise be considered by the Nomination Committee.

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 NonExecutive Directors as being independent.

The Board’s membership is reviewed periodically to ensure that it maintains an appropriate mix of skills, qualifications and experience. In particular the Board has identified skills and experience in corporate finance, international trade and international business environment, marketing and accounting and technical and industry knowledge in the water treatment and pool industries to be important. 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 reelection.

The Company achieved its preferred Board Composition of at least five directors during the last year, with 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 set out 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 assessment of 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 judgment.

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 fulfill their duties and responsibilities as Directors, subject to prior approval from the Chairman. In light

ANNUAL REPORT 2014 17

of this, the Board is of the opinion that a more formal procedure for Directors to seek independent advice need not be established at this time.

Chairperson of the Board

The roles of Chairperson and Chief Executive Officer are both held by Mr Soon Sinn Goh. The Board believes that Mr. Goh brings a vital level of industry experience to the operations of the Company. 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.

Directors Induction Program

All new directors undergo an induction to familiarize them with the business of the Company, the Company’s internal control and risk management practices and policies and procedures. The Company also provides appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively.

• 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.

Diversity Policy

The Board recognises diversity and equity as strengths and has adopted a Diversity & Equity Policy for the Company.

The objectives of the Diversity & Equity Policy include:

• Fostering a working culture that values, respects and responds to the rich diversity of its staff;

• Creating an all inclusive work culture;

• Facilitating equal employment opportunities in all levels of management based on merit;

• Developing flexible work arrangements for staff, including encouraging women to return to workforce after maternity leave and encouraging a balanced work and personal life; and

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 guidelines is published on the Company’s website.

In addition to the Code of Conduct:

• Developing a harassment-free work environment.

The Diversity & Equity Policy are addressed as part of the induction processes for new employees. Recruitment agencies are mandated to provide a gender balance of suitably qualified shortlisted candidates for interview. Further, senior executives are required to address gender balance of women in succession plans.

• there is a published policy within the organisation on accepting gifts;

18 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

The Board sets the measurable objectives for achieving gender diversity and assesses annually both the objectives and the progress of achievement of the measureable objectives.

The members of the Audit Committee during the year were:

• Garry Norman – Chairman;

• Ben Hunt; and

With respect to the achievement of these objectives, the Board notes that as of 30 June 2014:

• 1) 30% of employees in the Company were women; and

• 2) 17% of management and senior executive positions were held by women.

The Board is satisfied that the Company has met the measureable objectives for gender diversity based on the current operational requirement of the Company.

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 assist the Board with its oversight of the integrity of the financial statements, including 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 consisted of 3 Independent Non-Executive Directors and was headed by an Independent Chairperson not holding the position of Chairperson of the Board.

• Richard Ling.

The number of Audit Committee meetings and details of Committee members’ attendance are included in the Directors’ Report section of the Company’s Annual 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 factual and timely disclosure of all material matters concerning the Company.

The Continuous Disclosure Policy further sets out the following:

• Information to be disclosed, being information that a reasonable person would expect to have a material effect on the price or value of the Company’s securities

• Limited circumstances where disclosure is not required under Listing Rule 3.1

• Commitment towards preventing a false market

• Policy towards safeguarding of information

• Contact with media

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.

ANNUAL REPORT 2014 19

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 Shareholder Communication Policy contains information on persons whom shareholders can contact in relation to procedures at shareholders meetings, matters being considered at shareholders meetings and other issues.

Shareholders who are unable to attend any of the Company’s meetings are encouraged to vote on the proposed motions by appointing a proxy. Proxy forms are included with meeting notices that also provides details on how proxy forms should be completed and submitted.

The Board considers that the Company is not materially exposed to economic, environmental and social sustainability risks.

Declaration under section 295A of Corporations Act

The Board approves the Company’s financial statements for the financial period after receiving a declaration from its Chief Executive Officer (CEO) and Chief Financial Officer (CFO) under section 295A of the Corporations Act.

The CEO and CFO advised the Board in writing that:

• in their opinion the Company’s financial reports have been properly maintained and have complied with the appropriate accounting standards and give a true and fair view of the Company’s financial position and performance; and

PRINCIPLE 7

RECOGNISE AND MANAGE RISK

The Board requires the Company’s management 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 system. The Committee has appointed the Head of the Group Corporate Advisory and Assurance as the Risk Manager. A Risk Register is maintained. Risks identified and actions taken are reported to the Audit Committee. The Company’s Risk Management Policy is summarised and published on the Company’s website as “Summary of Risk Management Policy.”

• their opinion 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.

Attendance of Auditors at AGM

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.

PRINCIPLE 8

REMUNERATE FAIRLY AND RESPONSIBLY

The Audit Committee reports to the Board on the effectiveness of the risk management and internal control processes of the Company.

The Board reviews the risk management framework of the Company periodically as and when necessary to meet the operational requirements of the Company and changes in the law. The Board has performed the review for the reporting period.

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 set out in the Directors’ Report section of the Annual Report.

The Remuneration Report at the Directors’ Report section of the Annual 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.

ANNUAL REPORT 2014 21

Directors’ Report

Your directors present their report on the Company and its controlled entities for the financial year ended 30 June 2014.

Directors

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

• Soon Sinn Goh

• Bryan Goh

• 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

• Formulating, packing and distribution of swimming pool chemicals to independent pool stores and stores in its Swimart franchise network.

• 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 section titled “Board of Directors” which is to be read as part of this report.

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 $906,662.00.

Dividends

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 FCPA

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.

Dividends paid or declared for payment are as follows:

• Final ordinary dividend of 4 cents per share paid on 16 December 2013 as recommended in last year’s report - $1,389,275

• Interim ordinary dividend of 3 cents per share paid on 16 June 2014 - $1,052,079.

• Final ordinary dividend of 3 cents per share declared by the directors to be paid on 15 December 2014 - $1,068,933. All dividends paid or declared since the end of the previous financial year were fully franked.

Review of Operations

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;

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 $4.6 million from $46.0 million in June 2013 to $50.6 million in June 2014.

22 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

The change has largely resulted from:

• Increase in the share capital from the Waterco Dividend Reinvestment Plan $1.1 million;

• Downward movement in foreign currency translation of $0.3 million;

• Downward movement in profits less dividends of $1.5 million; and

• Net increase in the asset revaluation reserve of group companies (due to revaluations and changes in foreign exchange rates) $5.3 million.

The Group’s working capital being current assets less current liabilities increased from $29.8 million in 2013 to $30.6 million in 2014.

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 3 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’ Shareholdings

Details of the directors’ shareholdings are contained in Note 7 to the Financial Statements.

Meetings of Directors

During the financial year, 13 meetings of directors (including Audit and Remuneration Committees) were held. Attendances are set out below:

Director	Directors’ Meeting Audit Committee Meeting Remuneration Committee Meeting
	Number Eligible To Attend Number Attended Number Eligible To Attend Number Attended Number Eligible To Attend Number Attended
Soon Sinn Goh	5 5 - - - -
Bryan Goh	5 5 - - - -
Garry Norman	5 5 6 6 2 2
Ben Hunt	5 5 6 6 2 2
Richard Ling	5 5 6 6 2 2

ANNUAL REPORT 2014 23

Indemnifying Officers or Auditor

During and 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 as 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 Soon Sinn Goh is a director and shareholder.

• ii. Payments made for rental of warehouses and offices to Mint Holdings Pty Ltd of which Mr Soon Sinn Goh is a director and shareholder.

This statement excludes a benefit included in the aggregate amount of 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.

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.

Auditor’s Independence Declaration

The lead auditor’s independence declaration for the year ended 30 June 2014 has been received and is included in the directors’ report.

ASIC Class Order 98/100 Rounding of Amounts

The Company is an entity to which ASIC Class Order 98/100 applies and, accordingly, amounts in the financial statement and directors’ report have been rounded to the nearest thousand dollars.

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.

24 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

2014 Remuneration Policy

The Remuneration Committee governs the Company’s Remuneration Policy. The Committee comprises of Independent Non-Executive Directors.

It has the following objectives:

• attract, retain and motivate management of the appropriate calibre 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

• Incentives. 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.

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 superannuation guarantee (SG), in addition to those fees. 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 calibre, 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 has been an increase of 3% in the Non-Executive Director fees for the 2014/2015 financial year. The total fees are now at an aggregate of $159,551 plus superannuation guarantee (SG).

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 twelve-month period.

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

Maximum payments are capped.

The CEO recommends the fixed remuneration of Key Management Personnel to the 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

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.

ANNUAL REPORT 2014 25

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.

Performance criteria are tabulated below:

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Key Management Personnel Summary of Performance
Why Chosen
with annual incentives Condition FY 14
Encourage CEO to improve the
Soon Sinn Goh Budgeted NPAT for the performance levels of the Group
– CEO Waterco Group. as a whole and thereby increase
shareholder wealth.
The performance of other key
Budgeted NPAT for the management personnel can have a
Key Management Personnel
Waterco Group. Group impact, so targets are based
on Group performance.
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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.

None of the Company’s Key Management Personnel achieved their performance targets in FY 2014. 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.

Year ended	June 14 June 13	June 12	June 11	June 10
Sales Revenue ($million)	77.12 68.21	66.14	67.74	70.88
NPBT ($million)	1.93 3.19	2.9	4.48	5.33
EPS (cents)	2.6 4.9	6.1	9.8	12.3
Dividends per share (cents)	6.0 7.0	7.0	9.0	8.0
Year end share price ($)	1.15 1.00	0.88	1.06	1.02
NPAT ($million)	0.97 1.72	2.09	3.18	3.71

26 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Employment Details of Key Management Personnel

The following table provides employment details for the financial year for Key Management Personnel. 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 not
performance related to
performance
Non-
Position held as at Fixed
salary Shares/ Options/
30 June 2014 and Contract details Salary/ Total
cash-based Units Rights
any change during (duration & termination) Fees %
incentives % %
the year %
%
Key
Management
Personnel
No fixed term; may be
Soon Sinn Goh Chairman & CEO terminated on 6 months’ - - - 100 100
notice by either party
Group Marketing No fixed term; may be
Bryan Goh Director - terminated on 1 month’s - - - 100 100
Executive notice by either party
No formal contract,
but subject to member
Director -
Garry Norman confirmation every - - - 100 100
Non-Executive
3 years after AGM when
first appointed
No formal contract,
but subject to member
Director -
Ben Hunt confirmation every 3 - - - 100 100
Non-Executive
years after AGM when
first appointed
No fixed term, but
subject to member
Director -
confirmation every - - - 100 100
Richard Ling Non-Executive
3 years after AGM when
first appointed
No fixed term, may be
Chief Financial
Sze Tin Lim terminated on 1 months’ - - - 100 100
Officer
notice by either party
No fixed term, may be
Bee Hong Leo Joint Company terminated on 1 months’ - - - 100 100
Secretary
notice by either party
Chief Accountant/
Gerard Doumit Joint Company No written contract - - - 100 100
Secretary
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Changes in Directors and Key Management Personnel Subsequent to Year-end

There have been no changes in Directors and Key Management Personnel subsequent to year-end.

ANNUAL REPORT 2014 27

Remuneration Details for the Year Ended 30 June 2014

The following table provides remuneration details for the 2014 and 2013 financial years for Key Management Personnel.

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Post- Equity-settled
Long-term
Short-term benefits employment benefits share-based
benefits payments
Salary, Profit
fees share Non- Pension
and and monetary and super- Incentive Share/ Option/
leave bonus (3) annuation plans (2) LSL Units Rights Total
$ $ $ $ $ $ $ $ $
Key
Management Personnel
2014 359,465 - - 10,440 - - - - 369,905
Soon Sinn Goh(1)
2013 346,722 - - 9,813 - - - - 356,535
2014 186,800 - - 18,470 - 13,557 - - 218,827
Bryan Goh
2013 181,485 - - 15,775 - 11,630 - - 208,890
2014 51,635 - - 4,776 - - - - 56,411
Garry Norman
2013 49,768 - - 4,479 - - - - 54,247
2014 51,635 - - 4,776 - - - - 56,411
Ben Hunt
2013 49,768 - - 4,479 - - - - 54,247
2014 51,635 - - 4,776 - - - - 56,411
Richard Ling
2013 49,768 - - 4,479 - - - - 54,247
2014 192,260 - - 18,470 1,649 16,022 - - 228,401
Sze Tin Lim
2013 195,349 - - 15,775 1,822 5,405 - 4,036 222,387
2014 163,963 - - 16,095 1,413 10,038 - - 191,509
Ben Hong Leo
2013 154,810 - - 15,094 1,562 12,901 - - 184,367
2014 153,583 - 20,578 14,206 1,413 - - - 189,780
Gerard Doumit
2013 148,033 - 15,022 13,323 1,562 - - - 177,940
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(1) Soon Sinn Goh’s Base Salary of $359,465 is made up of $112,862 paid by Waterco Ltd, $84,364 paid by Waterco (Far East) Sdn Bhd (a subsidiary) and $162,239 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.

28 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Securities Received that are not Performance Related

No Key Management Personnel are entitled to receive securities which are not performance based 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 2014 financial year.

Maximum cash incentives expressed as a percentage of fixed remuneration and the maximum value that could have been earned in 2013/2014 if stretch performance targets were achieved are tabulated below:

Position	Maximum possible incentive as a percentage of fxed pay	Maximum possible incentive $
Key Management Personnel
CEO, Waterco Limited	27%	$100,000
Group Marketing Director, Waterco Limited	18%	$40,000
CFO, Waterco Limited	18%	$40,000
Joint Company Secretary, Waterco Limited	13%	$25,000
Chief Accountant/Joint Company Secretary, Waterco Limited	13%	$25,000

The percentage of cash incentives paid and forfeited during the year to key management personnel.

Key Management Personnel	Short term incentive in respect of 2014 fnancialyear
	Paid % Forfeited %
Soon Sinn Goh	0 100
Bryan Goh	0 100
Sze Tin Lim	0 100
Bee Hong Leo	0 100
Gerard Doumit	0 100

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

3rd September 2014

ANNUAL REPORT 2014 29

Auditor’s Independence Declaration

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30 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Consolidated Financial Report

For the year ended 30 June 2014

32

Consolidated Statement of Profit or Loss and Other Comprehensive Income

33 34 Consolidated Statement of Statement Changes in of Financial Equity Position

35

Statement of Cash Flows

36

Notes to the Financial Statements

77 Directors’ Declaration

78 80 Independent Shareholder Auditor’s Information Report

81 Corporate Directory

ANNUAL REPORT 2014 31

Consolidated Statement of Profit or Loss and Other Comprehensive Income For The Year Ended 30 June 2014

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Consolidated Group
Note 2014 2013
No. $000 $000
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Revenues 3 Changes in inventories of fnished goods and work in progress Raw materials and consumables used Employee benefts expense Depreciation, impairment and amortisation expense 4 Finance costs 4 Advertising expense Discounts allowed Outward freight expense Rent expense 4 Contracted staff expense Warranty expense Commission expense Other expenses Proft before income tax expense 4 Income tax expense 6 Proft for the year Other comprehensive income Items that will not be classifed subsequently to proft or loss Property revaluation increment (net of tax) Items that maybe reclassifed to proft or loss Share option reserve increment Exchange translation differences Other comprehensive income for the year Total comprehensive income for the year Proft attributable to : Members of the parent entity Non-controlling interest Total comprehensive income for the year attributable to: Members of the parent entity Non-controlling interest Total comprehensive income for the year Earnings per share From continuing and discontinued operations Basic earnings per share (cents per share) 29 Diluted earnings per share (cents per share) 29 From continuing operations Basic earnings per share (cents per share) 29 Diluted earnings per share (cents per share) 29 Dividends per share (cents per share) 28	77,971 68,802 (1,309) (5,685) (40,771) (28,660) (15,153) (13,994) (1,310) (1,263) (1,529) (1,437) (1,797) (1,506) (9) (287) (1,801) (1,604) (2,480) (2,233) (375) (289) (457) (546) (416) (447) (8,636) (7,665)
	1,928 3,186 (954) (1,467)
	974 1,719
	5,251 750 - 4 (283) 3,242
	4,968 3,996
	5,942 5,715
	907 1,673 67 46
	974 1,719
	5,875 5,669 67 46
	5,942 5,715
	2.6 4.9 2.6 4.9 2.6 4.9 2.6 4.9 6.0 7.0

The accompanying notes form part of these financial statements.

32 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Consolidated Statement Of Financial Position

As At 30 June 2014

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Consolidated Group
Note 2014 2013
No. $000 $000
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ASSETS Current Assets Cash and cash equivalents 8 Trade and other receivables 9 Inventories 10 Current tax assets 17 Other current assets 11 Total Current Assets Non-Current Assets Property, plant & equipment 13 Intangible assets 14 Deferred tax assets 17 Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables 15 Borrowings 16 Current tax liabilities 17 Short term provisions 18 Total Current Liabilities Non-Current Liabilities Borrowings 19 Deferred tax liabilities 17 Long-term provisions 20 Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Issued capital 21 Reserves 22 Retained earnings 23 Parent interest Non-controlling interest Total Equity	1,588 2,456 11,816 9,850 33,827 31,370 65 - 724 859
	48,020 44,535
	43,987 40,115 355 422 614 676
	44,956 41,213
	92,976 85,748
	11,512 9,675 4,380 3,227 - 363 1,492 1,510
	17,384 14,775
	23,280 23,723 1,524 1,037 189 165
	24,993 24,925
	42,377 39,700
	50,599 46,048
	37,430 36,380 3,246 (1,722) 9,533 11,067
	50,209 45,725 390 323
	50,599 46,048

The accompanying notes form part of these financial statements.

ANNUAL REPORT 2014 33

Statement Of Changes In Equity

For Year Ended 30 June 2014

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Asset Foreign
Capital Revalua- Currency Share Non-
Ordinary Retained Profits tion Translation Options Controlling
Shares Earnings Reserve Reserve Reserve Reserve Interests Total
Note
Consolidated Group No. $000 $000 $000 $000 $000 $000 $000 $000
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Balance at 30/6/2012 Comprehensive income Proft for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners and other transfers Issue of shares under Waterco DRP Issue of shares for Poppits Acquisition Employee share loans Dividends paid 28 Total transactions with owners and other transfers Balance at 30/6/2013 Comprehensive income Proft for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners and other transfers Issue of shares under Waterco DRP Employee share loans Dividends paid 28 Total transactions with owners and other transfers Balance at 30/6/2014	35,477 11,784 211 6,084 (12,029) 16 277 41,820
	- 1,673 - - - - 46 1,719 - - - 750 3,242 4 - 3,996
	- 1,673 - 750 3,242 4 46 5,715
	667 - - - - - - 667 212 - - - - - - 212 24 - - - - - - 24 - (2,390) - - - - - (2,390)
	903 (2,390) - - - - - (1,487)
	36,380 11,067 211 6,834 (8,787) 20 323 46,048
	- 907 - - - - 67 974 - - - 5,251 (283) - - 4,968
	- 907 - 5,251 (283) - 67 5,942
	1,042 - - - - - - 1,042 8 - - - - - - 8 - (2,441) - - - - - (2,441)
	1,050 (2,441) - - - - - (1,391)
	37,430 9,533 211 12,085 (9,070) 20 390 50,599

The accompanying notes form part of these financial statements.

34 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Statement Of Cash Flows

For The Year Ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Cash Flows from Operating Activities Receipts from customers Payments to suppliers and employees Interest received Other Income Finance costs Income tax paid Net cash provided by operating activities (note 33a) Cash Flows from Investing Activities Payment for property, plant & equipment Proceeds from sale of property, plant & equipment Net cash used in investing activities Cash Flows from Financing Activities Proceeds from borrowings Proceeds from issue of shares Payment of hire purchase creditors Payment of lease liabilities Dividends paid Employee share plan repayments Net cash (used in) / provided by fnancing activities Net decrease in cash held Cash at beginning of the year Effects of exchange rate changes on balance of cash held in foreign currencies Cash and cash equivalents at the end of the year (Note 8)	81,845 71,589 (79,204) (69,939) 24 64 828 531 (1,529) (1,437) (1,238) (431)
	726 377
	(1,603) (3,473) 155 77
	(1,448) (3,396)
	(382) 2,330 1,042 879 - (68) (238) (126) (2,441) (2,390) 8 24
	(2,011) 649
	(2,733) (2,370) 1,939 1,832 726 2,477
	(68) 1,939

The accompanying notes form part of these financial statements.

ANNUAL REPORT 2014 35

Notes To The Financial Statements For the year ended 30 June 2014

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 3 September 2014.

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 non-current assets, financial assets and financial liabilities.

a. Principles of Consolidation

• The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Waterco Limited) and all of the subsidiaries (including any structured entities). Subsidiaries are entities the parent controls. The parent controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. A list of the subsidiaries is provided in Note 12. All subsidiaries 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.

The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group.

Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income.

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).

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.

36 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

a. Principles of Consolidation (continued)

Business combinations (continued)

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.

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. Fair Value of Assets and Liabilities

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.

The Group measures some of its assets and liabilities at fair value on either a recurring or nonrecurring basis, depending on the requirements of the applicable Accounting Standard.

Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (ie unforced) transaction between independent, knowledgeable and willing market participants at the measurement date.

As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data.

To the extent possible, market information is extracted from either the principal market for the asset or liability (ie the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (ie the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs).

For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use.

The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instrument, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements.

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

ANNUAL REPORT 2014 37

Notes To The Financial Statements For the year ended 30 June 2014

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 straightline 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 as unused tax losses.

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.

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 Ltd. Each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the consolidated group. The group notified the ATO on 20 January 2005 that it had formed an income tax consolidated group to apply from 1 July 2003.

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.

38 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

g. Foreign Currency Transactions and Balances

the statement of comprehensive income. These differences are recognised in the statement of comprehensive income in the period in which the operation is disposed.

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

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 18)

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.

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.

ANNUAL REPORT 2014 39

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

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

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.

The value of the land and building owned by the consolidated group is based on the following independent valuations:

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Land & Date of
Amount
Buildings Valuation
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Rydalmere, NSW Malaysia	15 30	June 2012 April 2014	AUD 9,750,000 MYR 55,000,000
China	18	June 2012	CNY 42,170,000
USA	17	June 2013	USD 1,995,000

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.

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.

40 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

k. Property, Plant and Equipment (continued)

Plant and equipment (continued)

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:

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Class of Fixed Assets Depreciation Rate
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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.

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.

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 of 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.

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.

ANNUAL REPORT 2014 41

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

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.

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 or loss in the period in which they are incurred.

t. Financial Instruments

Recognition and Initial Measurement

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 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.

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.

42 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

t. Financial Instruments (continued)

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, 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.

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. Rounding of Amounts

The parent entity has applied the relief available to it under ASIC Class Order 98/100. Accordingly, amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000, unless specified otherwise.

ANNUAL REPORT 2014 43

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

• v. 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 10.6-12.3% for the next five years on the basis of management’s expectations and strategic plans. Growth rates of 2.5% subsequent to this period have been used. The rates used incorporate allowance for inflation. Pre-tax discount rates of 7.09% have been used in all models. Such impairment models are to assess the carrying value of investments in subsidiaries and loans owing by subsidiaries at the parent company level, and any impairment losses do not impact on the consolidated balances or results as these eliminate in full on consolidation.

• (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.

• (iii) Inventory Obsolescence Management review inventory reports on a regular basis to determine slow-moving or obsolescence.

items are disposed of as and when identified.

• (v) Impairment - General The Group assesses impairment at the end of each reporting period 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.

• (vi) Impairment - Carbon Price In November 2011, the Federal Parliament passed the Clean Energy Act 2011, which implements a carbon pricing mechanism from 1 July 2012. Under the mechanism, entities that produce over the threshold level of carbon emissions will be required to purchase permits to offset their carbon emissions.

• The Group is not directly impacted by the carbon pricing mechanism because it does not control facilities that produce emissions greater than the threshold level. However, the Group will be indirectly impacted by the mechanism through increases in the prices it pays for energy and materials purchased from suppliers that are impacted by the introduction of the mechanism. The Group also anticipates that it will experience an increase in expenditures related to waste disposal under the carbon pricing mechanism, although any future increases in such costs are likely to be less significant than the anticipated increases in energy and material costs.

Management of the Group has considered whether the introduction of the carbon pricing mechanism is an impairment indicator and has determined that it is not expected to have a significant impact on the estimated net cash flows of the Group’s operations or the recoverability of its assets, principally because the Group has the capacity to pass on any increases in production costs through its contracts with customers.

At the time of writing, management is aware that the Clean Energy Act may be repealed.

w. Comparative Figures

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

• Appropriate provisions are carried for impairment of slow-moving items. Obsolete

44 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

x. New and Amended Accounting Policies Adopted by the Group

The below table shows the new and revised accounting standards (including amending standards) and interpretations that are mandatory for the year ended 30 June 2014.

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Standard Effective Date Requirements or amendments Impact
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Standard	Effective Date	Requirements or amendments	Impact
AASB 10 Consolidated Financial Statements	1 January 2013	Replaces the requirements of AASB 127 and Interpretation 112 pertaining to the principles to be applied in the preparation and presentation of consolidated fnancial statements.	None
AASB 11 Joint Arrangements	1 January 2013	Replaces the requirements of AASB 131 pertaining to the principles to be applied for fnancial reporting by entities that have in interest in arrangements that are jointly controlled.	None
AASB 12 Disclosure of Interests in Other Entities	1 January 2013	Replaces the disclosure requirements of AASB 127 and AASB 131 pertaining to interests in other entities.	None
AASB 127 Separate Financial Statements	1 January 2013	Prescribes the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate fnancial statements.	None
AASB 13 Fair Value Measurement	1 January 2013	Provides a clear defnition of fair value, a framework for measuring fair value and requires enhanced disclosures about fair value measurement.	Disclosure only
2011-8 Amendments to Australian Accounting Standards arising from AASB 13	1 January 2013	Amends AASB 1, 2, 3, 4, 5, 7, 9, 101, 102, 108, 110, 116, 117, 118, 119, 120, 121, 132, 133, 134, 136, 138, 139, 140, 141, 1004, 1023 & 1038 and Interpretations 2, 4, 12, 13, 14, 17, 19, 131 & 132 as a result of issuance of AASB 13 Fair Value Measurement.	Disclosure only
AASB 119 Employee Benefts	1 January 2013	The amendments to this Standard eliminates the option for defned beneft plans to use the corridor approach to defer the recognition of actuarial gains and losses and introduce enhanced disclosures about defned beneft plans. The amendments also incorporate changes to the accounting for termination benefts.	None
2011-10 Amendments to Australian Accounting Standards arising from AASB 119	1 January 2013	Amends AASB 1, 8, 101, 124, 134, 1049, 2011-8 & Interpretation 14 as a result of the issuance of AASB 119 Employee Benefts.	None

ANNUAL REPORT 2014 45

Notes To The Financial Statements For the year ended 30 June 2014

Note 1: Statement of Significant Accounting Policies (continued)

y. New Accounting Standards for Application in Future Periods

Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below:

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Application date
Expected
Reference Title Summary (financial years
Impact
beginning)
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Reference	Title	Summary	Application date (fnancial years beginning)	Expected Impact
AASB 9	Financial Instruments	Replaces the requirements of AASB 139 for the classifcation and measurement of fnancial assets. This is the result of the frst part of Phase 1 of the IASB’s project to replace IAS 39.	1 January 2017	Unlikely to be signifcant
2012-3	Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities	This Standard adds application guidance to AASB 132 to address inconsistencies identifed in applying some of the offsetting criteria of AASB 132.	1 January 2014	Unlikely to be signifcant
Interpretation 21	Levies	Interpretation 21 clarifes the circumstances under which a liability to pay a levy imposed by a government should be recognised, and whether that liability should be recognised in full at a specifc date or progressively over a period of time. This Interpretation is not expected to signifcantly impact the Group’s fnancial statements	1 January 2014	Unlikely to be signifcant
AASB 2013–3	Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets	This Standard amends the disclosure requirements in AASB 136: Impairment of Assets pertaining to the use of fair value in impairment assessment and is not expected to signifcantly impact the Group’s fnancial statements	1 January 2014	Unlikely to be signifcant

46 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

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

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2014 2013
$000 $000
ASSETS
Current Assets 18,969 18,485
TOTAL ASSETS (i) 67,482 75,526
LIABILITIES
Current Liabilities 5,347 16,756
TOTAL LIABILITIES 25,288 33,183
EQUITY
Issued capital 37,430 36,380
Capital profits reserve 180 180
Asset revaluation reserve 2,229 2,229
Share options reserve 20 20
Retained earnings 2,336 3,534
TOTAL EQUITY 42,195 42,343
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(i) refer accounting policy Note1 (v) (i) key estimates and judgements

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

	2014 $000	2013 $000
Total proft after tax	1,243	3,759
Total comprehensive income	1,243	3,763

Guarantees

At 30[th] June 2014, Waterco Ltd has provided a guarantees of RM11,150,000 and $US1,000,000 (A$4,752,164) (2013: RM6,150,000 (A$2,093,047)) to AM Bank for loans provided to a subsidiary, Waterco (Far East) Sdn Bhd.

Contingent Liabilities

At 30[th] June 2014, Waterco Ltd has provided guarantees of $5,428,897 (2013: $5,864,772) to landlords for leases of premises subleased to its Swimart franchisees.

Contractual Commitments

At 30[th] June 2014, Waterco Ltd has not entered any contractual commitments for the acquisition of any property, plant and equipment. (2013: nil).

ANNUAL REPORT 2014 47

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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	Consolidated Group 2014 2013 $000 $000
Note 3: Revenue and Other Income Revenue from Continuing Operations Sales revenue • Sale of goods Other revenue • Interest received 3(a) • Rent • Other Total Revenue (a) Interest received or receivable from • Other persons Total interest revenue	77,118 68,206 24 64 210 180 619 352
	77,971 68,802
	24 64
	24 64

48 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Note 4: Proft for the Year Proft for the year has been determined after: (a) Expenses: Cost of Sales Finance costs: • Borrowings • Hire purchase expense • Finance charges on fnance leases Depreciation of non-current assets : • Buildings • Plant & equipment • Capitalised leased assets Amortisation of non-current assets: • Land use rights • Leasehold land • Goodwill on acquisition • Expenditure carried forward Total depreciation, amortisation and impairment Bad and doubtful debts • Trade debtors Rental expense on Operating leases • Minimum lease payments Research & development Net loss on disposal of non-current assets • Property, plant and equipment Note 5: Auditors’ Remuneration Remuneration of the auditor of the parent entity for: • Audit or reviewing the fnancial report • Non audit fees for agreed upon procedures Remuneration of other auditors of subsidiaries for: • Auditing or reviewing the fnancial report of subsidiaries	42,249 34,231
	1,503 1,410 - 1 26 26
	1,529 1,437
	222 377 868 653 179 86
	1,269 1,116
	15 - 13 54 6 5 7 88
	41 147
	1,310 1,263
	4 60
	2,480 2,233
	1,063 1,027
	85 34
	169 144 - 3 107 110

ANNUAL REPORT 2014 49

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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	Consolidated Group 2014 2013 $000 $000
Note 6: Income Tax Expense (a) The components of tax expense comprise: • Current tax • Deferred tax • Recoupment of prior year tax losses (b) The prima facie tax on proft before income tax is reconciled to the income tax as follows: Proft before income tax Prima facie tax payable on proft before income tax at 30% (2013 30%) Add Tax effect of: • Depreciation of buildings • Entertainment • Amortisation – Goodwill • Amortisation – Leasehold Land • Foreign controlled entities not tax effected • Expenses not allowable • Unrealised foreign exchange losses (gains) • Other Less Tax effect of: • Research and development • Special building write off • Effects of lower rates in overseas countries • Overprovision / (underprovision) for tax in prior years • Other Income tax expense attributable to entity The applicable weighted average effective tax rates are as follows:	800 1,166 54 360 100 (59)
	954 1,467
	1,928 3,186
	578 956 12 12 2 3 2 2 4 16 565 785 - 2 57 (214) - 17 67 79 6 25 127 109 57 (101) 9 -
	954 1,467
	49% 46%

50 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

Note 7: Key Management Personnel Compensation

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Consolidated Group
2014 2013
$000 $000
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(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:
	Short-term employee benefts	1,232	1,191
	Post-employment benefts	92	83
	Other long term benefts	40	30
	Share-based payments	4	9
		1,368	1,313

Refer to the remuneration report contained in the directors’ report for remuneration paid or payable to each member of the Group’s KMP for the year ended 30 June 2014.

(b) Shareholdings Number of Shares held by key Management Personnel 2014

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Balance Received as Net Change Balance
Key Management Personnel 1.7.2013 Remuneration Other 30.6.2014
Mr S S Goh 18,716,514 - 590,689 19,307,203
Mr B Goh 539,703 - 134 539,837
Mr G Norman 146,287 - 2,997 149,284
Mr B Hunt 311,191 - 18,926 330,117
- - - -
Mr R Ling
Mr S T Lim 120,317 - - 120,317
Mrs B H Leo 81,361 - - 81,361
Mr G Doumit 86,300 - - 86,300
2013
Balance Received as Net Change Balance
Key Management Personnel 1.7.12 Remuneration Other 30.6.13
Mr S S Goh 18,388,422 - 328,092 18,716,514
Mr B Goh 524,265 - 15,438 539,703
Mr G Norman 143,005 - 3,282 146,287
Mr B Hunt 291,741 - 19,450 311,191
- - - -
Mr R Ling
Mr S T Lim 120,317 - - 120,317
Mrs B H Leo 81,361 - - 81,361
Mr G Doumit 86,300 - - 86,300
(c) Options
2014
Balance Received as Net Change Balance
Key Management Personnel 1.7.13 Remuneration Other 30.6.14
Mr S T Lim 90,000 - (90,000) -
2013
Balance Received as Net Change Balance
Key Management Personnel 1.7.12 Remuneration Other 30.6.13
Mr S T Lim 90,000 - - 90,000
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ANNUAL REPORT 2014 51

Notes To The Financial Statements

For the year ended 30 June 2014

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 Non-Executive Directors is subject to approval by shareholders.

CURRENT ASSETS

Note 8: Cash and cash equivalents

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Consolidated Group
2014 2013
$000 $000
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Cash at bank and in hand 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 Bank overdraft (note 16) Note 9: Trade and other receivables Trade receivables Less: provision for impairment of receivables Other receivables	1,588 2,456 1,588 2,456 (1,656) (517)
	(68) 1,939
	10,603 9,277 (186) (242)
	10,417 9,035 1,399 815
	11,816 9,850

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.

52 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

Note 9: Trade and other receivables (continued)

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

Consolidated Group Current trade receivables	Opening Balance 1.7.2012 $000 339 Opening Balance 1.7.2013 $000	Charge for the Year $000 (37) Charge for the Year $000	Amounts Written Off $000 (60) Amounts Written Off $000	Closing Balance 30.6.2013 $000 242 Closing Balance 30.6.2014 $000
Consolidated Group
Current trade receivables	242	(52)	(4)	186

There are $2,712,348 (2013: $2,102,399) 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.

	Gross amount Past due and impaired Past due but not impaired (days overdue) Within initial trade terms
	< 30 31–60 61–90 > 90
	$000 $000 $000 $000 $000 $000 $000
Consolidated Group 2014 Trade and term receivables Other receivables Total 2013 Trade and term receivables Other receivables Total	10,603 186 1,425 455 833 - 7,704 1,399 - - - - - 1,399
	12,002 186 1,425 455 833 - 9,103
	9,277 242 1,364 295 443 - 6,933 815 - - - - - 815
	10,092 242 1,364 295 443 - 7,748

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

ANNUAL REPORT 2014 53

Notes To The Financial Statements For the year ended 30 June 2014

	Consolidated Group
	2014 2013
	$000 $000
Note 10 : Inventories Raw materials and stores at cost Work in progress at cost Finished goods at cost Goods in transit at cost Provision for inventory write-down Note 11: Other current assets Prepayments	10,572 9,725 1,144 1,038 20,910 20,402 2,230 1,172 (1,029) (967)
	33,827 31,370
	724 859
	724 859

NON CURRENT ASSETS Note 12: Interests in Subsidiaries

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Country of Carries on % owned
incorporation business in 2014 2013
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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
Swimart Network 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
Baker Hydro (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	100

• On 15 October 2013, Aquaswim Australia Pty Ltd changed its name to Swimart Network Pty Ltd

** On 15 August 2013, Lacron Filters (Far East) Sdn Bhd changes its name to Baker Hydro (Far East) Sdn Bhd

54 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Note 13: Property, plant & equipment Freehold land at independent valuation Land use rights Less: accumulated amortisation Freehold buildings at independent valuation Less: accumulated depreciation Leasehold land at cost Less: accumulated amortisation Plant & equipment at cost Less: accumulated depreciation Leased plant & equipment at cost Less: accumulated depreciation Total written down value	13,327 8,278
	3,246 3,330 (15) -
	3,231 3,330
	21,015 22,815 (976) (2,354)
	20,039 20,461
	268 268 (268) (255)
	- 13
	26,076 25,770 (19,189) (18,299)
	6,887 7,471
	668 721 (165) (159)
	503 562
	43,987 40,115

Movements in Carrying Amounts

2014	Freehold Land Buildings Land use rights Leasehold Land Plant & Equipment Leased Plant & Equipment Total
	$000 $000 $000 $000 $000 $000 $000
Consolidated Group: Balance at the beginning of year Foreign exchange translation Additions Revaluation Disposals Depreciation expense* Carrying amount at the end of year	8,278 20,461 3,330 13 7,471 562 40,115 (5) (257) (84) - - - (346) - - - - 1,413 190 1,603 5,054 367 - - - - 5,421 - - - - (308) (100) (408) - (532) (15) (13) (1,689) (149) (2,398)
	13,327 20,039 3,231 - 6,887 503 43,987

• Included in the depreciation expense above is $1,131,000 (2013:$938,150) that has been capitalised into the cost of inventory and is reflected in raw materials cost.

ANNUAL REPORT 2014 55

Notes To The Financial Statements For the year ended 30 June 2014

Note 13: Property, plant & equipment (continued)

Movements in Carrying Amounts

2013	Freehold Land Buildings Land use rights Leasehold Land Plant & Equipment Leased Plant & Equipment Hire Purchase Plant & Equipment Total
	$000 $000 $000 $000 $000 $000 $000 $000
Consolidated Group: Balance at the beginning of year Additions Revaluation Disposals Depreciation expense* Carrying amount at the end of year	7,747 19,255 2,930 67 6,413 225 209 36,846 491 1,332 71 - 2,745 423 - 5,062 40 291 329 - - - - 660 - - - - (145) - (200) (345) - (417) - (54) (1,542) (86) (9) (2,108)
	8,278 20,461 3,330 13 7,471 562 - 40,115

• Included in the depreciation expense above is $938,150 (2012: $1,109,683) that has been capitalised into the cost of inventory and is reflected in raw materials cost

	Consolidated Group
	2014 2013
	$000 $000
If Land & Buildings were stated at historic cost, amounts would be as follows: Cost Less: Accumulated depreciation Net book value	28,106 27,927 (4,077) (3,560)
	24,029 24,367

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.

56 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

		Consolidated Group
		2014 2013
		$000 $000
Note 14: Intangible assets Goodwill (note 1b) Less: accumulated amortisation Preliminary expenses Deferred expenditure carried forward at cost less: accumulated amortisation Movements in Carrying Amounts		280 280 (268) (262)
		12 18
		1 1
		414 798 72 395
		342 403
		355 422
	Preliminary Expense Goodwill Deferred expenditure Total
	$000 $000 $000 $000
Consolidated Group: Balance at the beginning of year Additions Disposals Amortisation expense Carrying amount at the end of year	1 18 403 422 - - - - - - 54 54 - 6 7 13
	1 12 342 355

ANNUAL REPORT 2014 57

Notes To The Financial Statements For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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CURRENT LIABILITIES Note 15: Trade and other payables - unsecured Trade creditors Sundry creditors and accrued expenses Note 16: Borrowings Bank loans Bank overdraft Lease liability	8,219 6,855 3,293 2,820
	11,512 9,675
	2,556 2,510 1,656 517 168 200
	4,380 3,227

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 17: Taxes

a) Liabilities Current Income Tax Non Current Deferred tax liability comprises: Tax allowances relating to property, plant & equipment Revaluation adjustments taken direct to equity Other Parent entity DTA netted off against DTL Consolidated DTL b) Assets Current Income Tax Deferred tax assets comprises: Provisions Attributable to tax losses Tax allowances relating to property, plant & equipment Other Parent entity DTA netted off against DTL Consolidated DTA Net Deferred Tax Asset	- 363
	1,466 1,071 674 578 2 2
	2,142 1,651 (618) (614)
	1,524 1,037
	65 -
	632 633 418 473 (19) 13 201 171
	1,232 1,290 (618) (614)
	614 676

58 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Note	17: Taxes (continued)
c)	Reconciliations
	i. Gross Movements
	The overall movement in the deferred tax account is as follows:
	Opening balance	(361)	54
	Credit to statement of comprehensive income	(443)	(446)
	Credit / (Charge) to equity	(106)	31
	Closing Balance	(910)	(361)
	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	1,071	559
	Charge to statement of comprehensive income	395	512
	Closing balance	1,466	1,071
	Property revaluation adjustments taken direct to equity
	Opening balance	578	578
	Net revaluations during current period taken direct equity	96	-
	Net revaluation during current period charged to	-	-
	statement of comprehensive income
	Closing balance	674	578
	Other
	Opening balance	2	2
	Credit / (charge) to statement of comprehensive income	-	-
	Closing balance	2	2
	iii. Deferred Tax Assets
	The movement in deferred tax liability for each
	temporary difference during the year is as follows:
	Provisions
	Opening balance	723	590
	(Charge) / credit to statement of comprehensive income	(1)	133
	Closing balance	722	723
	Income tax losses
	Opening balance	454	478
	(Charge) to statement of comprehensive income	(43)	(54)
	(Charge) / credit to equity	(11)	30
	Closing balance	400	454
	Capital tax losses
	Opening balance	18	18
	Credit / (charge) to statement of comprehensive income	-	-
	Closing balance	18	18
	Tax allowances relating to
	Property plant & equipment
	Opening balance	13	13
	(Charge) to statement of comprehensive income	(5)	-
	Closing balance	8	13
	Other
	Opening balance	81	94
	Credit / (charge) to statement of comprehensive income	3	(13)
	Closing balance	84	81

ANNUAL REPORT 2014 59

Notes To The Financial Statements For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Note 17: 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 - Operating losses Note 18: Short-term provisions Employee Benefts (see note 1h) Opening Balance Additional provisions Amounts used Closing Balance	5,930 5,286
	5,930 5,286
	1,510 1,333 778 866 (796) (689)
	1,492 1,510

NON-CURRENT LIABILITIES

Note 19: Borrowings

Bank loans Lease liability	23,008 23,436 272 287
	23,280 23,723

Bank loans 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. Bank loan of $16,888,000, maturity date for the parent entity is 31 July 2015 and bears variable interest at 5.12% payable monthly. 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 $11,788,000 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 20: Long-term provisions

Employee Benefts (see note 1h) Opening balance Additional provisions Amounts used Closing balance a) Aggregate employee entitlement liability b) Number of employees at year end	165 171 24 17 - (23)
	189 165 1,681 1,674
	532 478

60 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Note 21: Issued capital 34,731,886 ordinary shares fully paid at beginning of the year (2013: 33,895,279) On 16 December 2013, 337,412 shares were issued at $1.19 each under the Waterco Ltd DRP On 16 June 2014, 561,815 shares were issued at $1.14 each under the Waterco Ltd DRP On 4 December 2012, 212,000 shares were Issued at $1.00 to fund the Poppits Business On 14 December 2012, 357,702 shares were issued at $1.05 each under the Waterco Ltd DRP On 14 June 2013,266,905 shares were issued at $1.09 each under the Waterco Ltd DRP Employee Share Plans loan repayments [see note 32(1)] 35,631,113 ordinary shares fully paid at the end of the year (2013: 34,731,886)

36,380 35,477 402 - 640 - - 212 - 376 - 291 8 24

37,430 36,380

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 ratios for the year ended 30 June 2014 and 30 June 2013 are as follows:

	Consolidated Group
	2014 2013
	$000 $000
Total borrowings Less cash and cash equivalents Net debt Total equity Total capital Gearing ratio	27,660 26,950 (1,588) (2,456)
	26,072 24,494 50,599 46,048
	76,671 70,542
	52% 53%

ANNUAL REPORT 2014 61

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
Note 2014 2013
No $000 $000
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Note 22: Reserves a) Capital profts The capital profts reserve relates to non taxable profts on sale of property. b) Foreign currency translation 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 Net revaluation increment/(decrement) on revaluation of land and buildings Balance at the end of the year 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 Balance at the end of the year The share options reserve records the cost of the share option plan Note 23 : Retained earnings Opening retained earnings Net proft attributable to the members of the parent entity Dividends paid 28 Closing retained earnings Note 24: Lease commitments Finance leases Lease expenditure contracted and provided for: not later than one year later than one year but not later than fve years Total minimum lease commitments Less: future fnance charges Lease liability Current portion 16 Non-current portion 19	211 211
	(9,070) (8,787)
	6,834 6,084 5,251 750
	12,085 6,834
	20 16 - 4
	20 20
	3,246 (1,722)
	11,067 11,784 907 1,673 (2,441) (2,390)
	9,533 11,067
	182 224 281 306
	463 530 23 43
	440 487
	168 200 272 287
	440 487

Finance leases 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.

62 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Note 26: Related Parties (A) Transactions with director related parties (i) Sales made to Asiapools (M) Sdn Bhd. Mr S S Goh, a shareholder has signifcant infuence over Asiapools (M) Sdn Bhd. (ii) Payments made to Mint Holdings Pty Ltd for rental of warehouses and offces. Mr S S Goh is a director and shareholder of Mint Holdings Pty Ltd. Note 24: Lease commitments (continued) Operating lease payable: Non-cancellable operating leases contracted but not capitalised in the fnancial statements not later than one year later than one year but not later than fve years Note 25: Contingent Liabilities Estimate of the maximum amount of contingent liabilities that may become payable Guarantee provided to a bank on behalf of a subsidiary Guarantees of leases of premises subleased to franchisees	2,052 1,722 3,103 3,540
	5,155 5,262
	3,195 2,093 5,514 8,996
	8,709 11,089
	174 160 688 662

ANNUAL REPORT 2014 63

Notes To The Financial Statements For the year ended 30 June 2014

Note 27: 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.

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

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.

64 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

Note 27: Operating Segments (continued)

Geographical Segments

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2014
NORTH
AUSTRALIA & CONSOLIDATED
ASIA AMERICA &
NEW ZEALAND GROUP
EUROPE
$000 $000 $000 $000
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REVENUE Sales to customers outside the consolidated group Intersegment sales Total segment revenue Reconciliation of segment revenue to group revenue Other revenue Intersegment elimination Total group revenue Segment net proft / (loss) from continuing operations before tax Reconciliation of segment result to group net proft/loss before tax Unallocated items - other Net proft before tax from continuing operations Segment assets Segment asset increases for the period Reconciliation of segment assets to group assets Intersegment eliminations Total group assets Capital expenditure Segment liabilities Reconciliation of segment liabilities to group liabilities Intersegment eliminations Total group liabilities	51,528 9,708 15,882 77,118 1,229 21,954 8,049 31,232
	52,757 31,662 23,931 108,350
	853 (31,232)
	77,971
	2,942 1,747 (1,908) 2,781
	(853)
	1,928
	72,106 43,491 (11,314) 104,283
	(11,307)
	92,976
	441 662 155 1,258
	27,645 22,305 2,035 51,985 (9,608)
	42,377

ANNUAL REPORT 2014 65

Notes To The Financial Statements

For the year ended 30 June 2014

Note 27: Operating Segments (continued)

Geographical Segments

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2013
NORTH
AUSTRALIA & CONSOLIDATED
ASIA AMERICA &
NEW ZEALAND GROUP
EUROPE
$000 $000 $000 $000
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REVENUE Sales to customers outside the consolidated group Intersegment sales Total segment revenue Reconciliation of segment revenue to group revenue Other revenue Intersegment elimination Total group revenue Segment net proft / (loss) from continuing operations before tax Reconciliation of segment result to group net proft/(loss) before tax Unallocated items - other Net proft / (loss) before tax from continuing operations Segment assets Segment asset increases for the period Reconciliation of segment assets to group assets Intersegment eliminations Total group assets Capital expenditure Segment liabilities Reconciliation of segment liabilities to group liabilities Intersegment eliminations Total group liabilities	50,496 6,915 10,795 68,206 910 20,215 1,714 22,839
	51,406 27,130 12,509 91,045
	595 (22,838)
	68,802
	4,381 1,914 (2,514) 3,781
	(595)
	3,186
	79,900 49,438 (5,254) 124,084
	(38,336)
	85,748
	1,215 3,328 516 5,059
	35,697 33,572 6,272 75,541 (35,841)
	39,700

66 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements

For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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Note 28: Dividends Paid or Proposed Final fully franked ordinary dividend of 4c per share (2013: 4c) franked at the tax rate of 30% paid Interim fully franked ordinary dividend of 3c per share (2013:3c) franked at the tax rate of 30% paid Proposed fnal fully franked ordinary dividend of 3c per share (2013 4c) franked at the tax rate of 30% 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. Note 29: Earnings Per Share Reconciliation of Earnings to Net Proft Net Proft Net proft attributable to outside equity interest Earnings used in the calculation of basic EPS Earnings used in the calculation of diluted EPS a) Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS b) Weighted average number of ordinary shares outstanding during the year used in calculation of diluted EPS	1,389 1,356 1,052 1,034
	2,441 2,390
	1,069 1,389 1,878 2,939 974 1,719 67 47 907 1,673 907 1,673 34,937 34,224 34,937 34,224

Note 30: Events Subsequent to Reporting Date

There were no reportable events subsequent to balance date.

ANNUAL REPORT 2014 67

Notes To The Financial Statements For the year ended 30 June 2014

Note 31: 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.

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

(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.

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	Notional Amounts	Average Exchange Rate	Average Exchange Rate
	2014 $000	2013 $000	2014 $000	2013 $000
Consolidated Group (and Parent Entity)
Buy USD/Sell AUD
- Less than 6 months	1,000	3,000	0.92215	1.0392

68 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 31: 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

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Consolidated Group Within 1 Year 1 to 5 Years Over 5 years Total
2014 2013 2014 2013 2014 2013 2014 2013
$000 $000 $000 $000 $000 $000 $000 $000
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	2014 2013 2014 2013 2014 2013 2014 2013 $000 $000 $000 $000 $000 $000 $000 $000
Financial Assets Cash Receivables Total anticipated infows Financial Liabilities Bank overdraft Bank loans Trade and other payable Lease Liabilities Total contractual outfows Less bank overdrafts Total expected outfows Net infow/(outfow) on fnancial instruments	1,588 2,456 - - - - 1,588 2,456 11,816 9,850 - - - - 11,816 9,850
	13,404 12,306 - - - - 13,404 12,306
	- - 1,656 517 - - 1,656 517 2,556 2,510 23,008 23,436 - - 25,564 25,946 11,512 9,675 - - - - 11,512 9,675 168 200 272 287 - - 440 487
	14,236 12,385 24,936 24,240 - - 39,172 36,625 - - (1,656) (517) - - (1,656) (517)
	14,236 12,385 23,280 23,723 - - 37,516 36,108
	(832) (79) (23,280) (23,723) - - (24,112) (23,802)

ANNUAL REPORT 2014 69

Notes To The Financial Statements For the year ended 30 June 2014

Note 31: 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.

	2014 2013
	Carrying Amount Net Fair Value Carrying Amount Net Fair Value
	$000 $000 $000 $000
Financial Liabilities Bank Overdraft Bank Loans Lease Liabilities	1,656 1,672 517 522 25,564 25,820 25,946 26,206 440 463 487 512
	27,660 27,955 26,950 27,240

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.

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Consolidated Group
Profit Equity
$000 $000
----- End of picture text -----

Year ended 30 June 2014
+/- 2% in interest rates	+/-520	+/-520
+/- 5% in $A/$US	+/-751	+/-751
Year ended 30 June 2013
+/- 2% in interest rates	+/-510	+/-510
+/- 5% in $A/$US	+/-823	+/-823

70 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 32: 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 parttime 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 (2013: $nil) in loan balances were written off.

2) 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 Sze Tin 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

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.

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.

All options have expired on 1 July 2013.

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 $7,848 (2013: $24,387) were repaid. At reporting date, the balance of the debt receivable is $52,685 (2013:$60,533).

The closing share market price of an ordinary share of Waterco Limited on the Australian Stock Exchange at 30 June 2014 was $1.15 (28 June 2013 $1.00).

ANNUAL REPORT 2014 71

Notes To The Financial Statements For the year ended 30 June 2014

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Consolidated Group
2014 2013
$000 $000
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	Consolidated Group 2014 2013 $000 $000
Note 33: Cash Flow Information a) Reconciliation of cash fows from operations with proft after income tax. Proft after income tax Non-cash fows in proft Depreciation Impairment / Amortisation (Proft) / Loss on sale of non current assets Changes in Assets and Liabilities:- Trade debtors Provision for doubtful debts Other debtors Inventories Prepayments Deferred tax assets Expenditure carried forward Trade creditors Other creditors Provision for employee benefts Provision for tax Provision for deferred tax Share options reserve Cashfow – Non Operating Activities : Cash Flows provided by operations	974 1,719 2,399 2,035 19 59 2 (27) (1,326) (1,502) (56) (97) (584) 201 (2,456) (6,078) 135 (277) 58 (97) 61 (25) 1,363 2,786 472 372 6 171 (427) 621 86 512 - 4
	726 377

b) Non Cash Financial and investment activities

1) Property, Plant and Equipment

During the year, the consolidated group acquired plant and equipment with an aggregate fair value of $190,752 (2013:$418,686) 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 Master lease facilities Amount utilised Amount unutilised	32,863 33,488 826 865
	33,689 34,353
	(27,665) (28,964) 6,024 5,389

The Fully Drawn Advance Facilities of the parent entity are due to expire on 31 July 2015. The parent entity expects to renew these facilities on expiry date.

The Fully Drawn Advance Facilities of a subsidiary is due to expire on 31 December 2021 and 30 June 2031. The subsidiary expects to renew these facilities on expiry date.

72 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 34: Fair Value Measurements

The Group measures and recognises the following assets and liabilities at fair value on a recurring basis after initial recognition:

• derivative financial instruments;

• freehold land and buildings;

The Group subsequently measures some items of freehold land and buildings at fair value on a non recurring basis.

The Group does not subsequently measure any liabilities at fair value on a non-recurring basis.

Valuation techniques

The Group selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The evaluation techniques selected by the Group are consistent with one or more of the following valuation approaches:

• Market approach: valuation techniques that use prices and other relevant information generated by market transactions for identical or similar assets or liabilities.

a) Fair Value Hierarchy

AASB 13: Fair Value Measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement can be categorised into as follows:

• Income approach: valuation techniques that convert estimated future cash flows or income and expenses into a single discounted present value.

• Cost approach: valuation techniques that reflect the current replacement cost of an asset at its current service capacity.

Level 1

Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2

Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3

Measurements based on unobservable inputs for the asset or liability.

The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If all significant inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in Level 3.

Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or liability, including assumptions about risks. When selecting a valuation technique, the Group gives priority to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable.

ANNUAL REPORT 2014 73

Notes To The Financial Statements For the year ended 30 June 2014

Note 34: Fair Value Measurements (continued)

The following tables provide the values of the Group’s assets and liabilities measured and recognised on a recurring basis after initial recognition and their categorisation withing the fair value hierarchy.

	30 June 2014
Note	Level 1 Level 2 Level 3 Total
	$000 $000 $000 $000
Recurring fair value measurements Financial assets Derivatives held for hedging forward exchange contracts 31 Total Financial assets recognised at fair value on a recurring basis Non-fnancial assets Freehold land 13 Freehold buildings 13 Total non-fnancial assets recognised at fair value on a recurring basis Total non-fnancial assets recognised at fair value	- 1,000 - 1,000
	- 1,000 - 1,000
	- 13,327 - 13,327 - 20,039 - 20,039
	-- 33,366 - 33,366
	-- 33,366 - 33,366
	30 June 2013
Note	Level 1 Level 2 Level 3 Total
	$000 $000 $000 $000
Recurring fair value measurements Financial assets Derivatives held for hedging forward exchange contracts 31 Financial assets at fair value through proft or loss Total Financial assets recognised at fair value Non-fnancial assets Freehold land 13 Freehold buildings 13 Total non-fnancial assets recognised at fair value	- 3,000 - 3,000
	- 3,000 - 3,000
	- 8,278 - 8,278 - 20,461 - 20,461
	-- 28,739 - 28,739

74 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Notes To The Financial Statements For the year ended 30 June 2014

Note 34: Fair Value Measurements (continued)

b) Valuation Techniques and Inputs Used to Measure Level 2 Fair Values

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Fair Value at 30 June
Description 2014 Valuation Technique(s) Inputs Used
$000
----- End of picture text -----

Financial assets Forward exchange contracts Non-fnancial assets Freehold land(i) Freehold buildings(i)

1,000 Income approach using discounted cash fow methodology Current forward exchange rates applicable to remaining life of contract 1,000 13,327 Market approach using recent observable market data for similar properties; income approach using discounted cash fow methodology Price per hectare; market borrowing rate 20,039 Market approach using recent observable market data for similar properties; income approach using discounted cash fow methodology Price per square metre; market borrowing rate 33,366

• (i) The fair value of freehold land and buildings is determined at least every three years based on valuations by an independent valuer. At the end of each intervening period, the directors review the independent valuation and, when appropriate, update the fair value measurement to reflect current market conditions using a range of valuation techniques, including recent observable market data and discounted cash flow methodologies

There were no changes during the period in the valuation techniques used by the Group to determine Level 2 fair values.

c) Disclosed Fair Value Measurements

The following assets and liabilities are not measured at fair value in the statement of financial position, but their fair values are disclosed in the notes:

• lease liability

• bank debt

ANNUAL REPORT 2014 75

Notes To The Financial Statements For the year ended 30 June 2014

Note 34: Fair Value Measurements (continued)

The following table provides the level of the fair value hierarchy within which the disclosed fair value measurements are categorised in their entirety and a description of the valuation technique(s) and inputs used:

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Fair Value
Description Note Hierarchy Level Valuation Technique(s) Inputs Used
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Assets
Liabilities
Lease liability	31	2	Income approach using	Current commercial
			discounted cash fow	borrowing rates for similar
			methodology	instruments
Bank debt	31	2	Income approach using	Current commercial
			discounted cash fow	borrowing rates for similar
			methodology	instruments

There has been no change in the valuation technique(s) used to calculate the fair values disclosed in the notes to the financial statements.

Note 35: Company Details

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

76 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Directors’ Declaration

In accordance with a resolution of the directors of Waterco Limited, the directors of the company declare that:

1. the financial statements and notes, as set out on pages 32 to 76 are in accordance with the Corporations Act 2001 and:

2. a. comply with Australian Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); and

3. b. give a true and fair view of the financial position as at 30 June 2014 and of the performance for the year ended on that date of the consolidated group;

4. 2 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; and

5. the directors have been given the declarations required by s 295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer.

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Soon Sinn Goh Chief Executive Officer

Dated at Sydney this 3 September 2014

ANNUAL REPORT 2014 77

Independent Auditor’s Report To the members of Waterco Ltd

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78 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

Independent Auditor’s Report To the members of Waterco Ltd

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ANNUAL REPORT 2014 79

Shareholder Information As at 21 August 2014

(a) Distribution of Shareholders

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

Range Total Holders Options
1 - 1,000 277 -
1,001 - 5,000 287 -
5,001 - 10,000 94 -
10,001 - 100,000 126 -
100,001 - and over 32 -
816
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(b) Marketable Parcel

49 shareholders hold less than a marketable parcel.

(c) Substantial Shareholders

The following information is extracted from the company’s register as at 21 August 2014:

Name	Number of shares
S S Goh Group	19,307,203
Redbrook Nominees PtyLtd	2,375,930
Acres Holdings PtyLtd	2,114,136

(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 83.11% of the total shares issued.

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Name Number of shares %
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1	MrSoonSinnGoh	16,507,203	46.33
2	Redbrook Nominees PtyLtd	2,568,772	7.21
3	Goh Lai Huat & Sons Sdn Bhd	2,500,000	7.02
4	Acres Holdings PtyLtd	2,422,760	6.80
5	Mr Soon LeongGoh	577,022	1.62
6	Mr Swee KheongGoon	562,717	1.58
7	Mrs Christine Goh	500,000	1.40
8	Leitch PtyLtd(Leitch Super Fund A/C)	483,001	1.36
9	Mrs Janet Swee Nyet Goh	447,112	1.25
10	Mr Chu Shien Chang	340,281	0.96
11	GWK Corporation PtyLtd	334,103	0.94
12	Mr Benjamin Francis Hunt(B F Hunt Super Fund A/C)	330,117	0.93
13	DeuteronomyPtyLtd(Dennis Hambleton SF A/C)	301,456	0.85
14	GSS Holdings Sdn Bhd	300,000	0.84
15	Brazil Enterprises PtyLtd	295,173	0.83
16	S G Corporation PtyLimited	281,739	0.79
17	Mr Tiow LipLee	245,386	0.69
18	Ms May-Yin Goh	225,267	0.63
19	Mr Bryan WengKeongGoh	200,734	0.56
20	Mr Shane Goh	188,607	0.53
	TOTAL	29,611,450	83.11

(f) Stock Exchange Listing

The shares of Waterco Limited are listed on the Australian Stock Exchange under the trade symbol WAT.

80 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities

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: administration@waterco.com

Share Registry

Computershare Investor Services Pty Ltd GPO Box 2975, Melbourne VIC 3001 Tel: 1300 850 505

Offices – Australia

NSW (Head Office) 36 South Street, Rydalmere NSW 2116 Tel: + 61 2 9898 8600

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

2645 East, Jacques-Cartier Blvd., Longueuil, Qc, Canada, J4N 1L7 Tel: +1 450 748 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

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

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

ANNUAL REPORT 2014 81

ANNUAL REPORT 2014 83

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: administration@waterco.com

84 WATERCO LIMITED ABN 62 002 070 733 And Controlled Entities