WATERCO LIMITED — Earnings Release 2011

Aug 29, 2011

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WATERCO LTD A.B.N. 62 002 070 733 36 South Street, Rydalmere NSW 2116 P.O. Box 230, Rydalmere BC NSW 1701 Ph: + 61 2 9898 8600 Fx: + 61 2 9898 1877 www.waterco.com

MEDIA RELEASE 30 AUGUST 2011

WATERCO FY RESULTS RESILIENT DESPITE ADVERSE WEATHER CONDITIONS Solid performance by North America and Europe division

Waterco Ltd (ASX:WAT) has today announced a full year financial result that is in line with expectations. The reported result was significantly impacted by adverse weather events across Australia including major floods in Queensland, Northern NSW and Victoria, which resulted in poor trading conditions for a longer period than expected. However, a significant improvement in North America and Europe has kept the drop in the group’s performance to a manageable level. Overall, Waterco’s performance was above that of the general market.

Highlights for the 12 months to 30 June 2011

• Sales revenue of $67.7m, representing a 4% decrease on the previous corresponding period ($70.9m) and in line with forecasts. This result reflects the impact of the adverse weather conditions across Australia, including heavy rain and major flooding in Queensland, NSW and Victoria, which affected trading conditions

• Net profit after tax was $3.18m, representing a 14% decrease on the previous corresponding result of $3.70m. This was largely due to the adverse weather events across Australia, including the Queensland floods

• Earnings Before Interest and Tax was $6.04m (before foreign exchange adjustments on intercompany loans and goodwill impairment), down marginally from the previous corresponding period of $6.62m

• North American and European division North American and European division showed good turnaround to profit and improved significantly on the previous corresponding period

• Introduction of three new products helped buoy results

• Patent for award-winning MultiCyclone granted in Europe

• The Board has declared a fully franked final dividend of 5 cents per share, bringing the total to 9 cents per share for the year, compared with 8 cents for the previous corresponding period

Divisional EBIT performance

	FY11	FY10	% change
	($000)	($000)
Australia and New Zealand	5,619	6,463	-13%
North America and Europe	211	(688)	+131%
Asia	214	842	-75%
Consolidated Reported EBIT	6,044	6,617	-9%

Commenting on the result, Waterco CEO Soon Sinn Goh said: “Results for the year, though short of expectation, are satisfactory, in view of the continuing subdued trading conditions globally and the adverse weather conditions in Australia, which impacted trading conditions locally,” Mr Goh said.

“It demonstrates Waterco’s ability to deliver resilient results amidst what was a very challenging operating environment.

“Additionally, despite difficult trading conditions, the performance of the North American and European operations improved significantly on the previous corresponding period and has kept the drop in the group’s performance to a manageable level.”

AUSTRALIA AND NEW ZEALAND

Waterco’s Australian division accounts for the majority of the group’s activities, predominantly in the domestic swimming pool industry. In recent years, Waterco has been marketing larger filters, suitable for public pools, aquaculture and industrial water treatment, mitigating the group’s reliance on the domestic swimming pool sector. Additionally, Waterco is franchisor of the Swimart chain of pool stores.

This year saw a period of reduced profitability, with a reduction in sales revenue as a result of poor weather conditions across Australia and widespread flooding in Queensland, an important domestic pool market, at the peak of the trading season. This was the main cause for the drop in EBIT of 13% from a reduction in sales revenue of 8%.

“However, the introduction of three new products – the MultiCyclone Plus, a wider range of LED underwater lights and a robotic pool cleaner for domestic pools – contributed to a resilient

performance in the difficult market conditions and enabled us to contain the impact on our results,” Mr Goh said.

NORTH AMERICA AND EUROPE

In the United States, sales improved by 28% on the previous corresponding period (in local currency terms), with improvements coming predominantly from the commercial water treatment market.

“This was positive progress given the continuing recessionary state of the US economy, particularly in the housing market,” Mr Goh said. “Waterco USA recorded a much lower loss this financial year

compared with the previous corresponding period and we expect a turnaround to profitability in the new financial year, built on continuing success in the water treatment industry.”

For the 2011 financial year, sales in Waterco Canada declined by 16% in local currency terms, as a result of the rationalisation of some low-margin Sales. This helped Waterco achieve an improvement in EBIT on the previous corresponding period.

“The synergy of Waterco Canada with the rest of the group is evident through the wide range of heat pumps, which are in demand throughout the group’s entities, hence generating healthy revenues for the group,” Mr Goh said.

During the year, Waterco Canada celebrated the milestone of producing its 50,000[th] heat pump pool heater and focused on completion of the conversion of the group’s heat pump line to the new environmentally-friendly refrigerant.

Waterco Europe improved sales by 26% in local currency terms on the previous corresponding period, with an equivalent improvement in EBIT. “This achievement is very pleasing, and given these results have been achieved in particularly tough trading conditions, it provides optimism for this entity’s future,” added Mr Goh.

Combined, the EBIT in the North America and Europe division showed a promising profit of $211,000, a significant improvement on the previous corresponding loss of $689,000.

ASIA

Since Waterco built a manufacturing base in Kuala Lumpur, Malaysia, it has brought the group closer to its markets in Southeast Asia and also given it cost-efficiency in its manufacturing operations. Subsequently, Waterco Far East in Malaysia has consolidated its position as the principal manufacturing facility for pumps and filters for the Waterco Group.

In the last financial year Waterco Far East delivered several new products – notably the enhanced range of LED underwater lights and the MultiCyclone Plus, which helped the Australian business cushion the decline of the market in general.

Local sales in Malaysia improved during the year, while intercompany sales – mainly to Australia and New Zealand – saw a small reduction as a result of the poor weather conditions in Australia.

In China, Waterco saw sales continue to improve, with local customers willing to pay a premium for Waterco products compared with local ones, because of Waterco’s superior design and manufacture capabilities.

Due to the decline of the US dollar against the Malaysian and Chinese currencies, there were foreign exchange losses in the two manufacturing centres in Asia – Malaysia and China. The receivables in these two centres were mainly in US dollars, which yielded less local currency. Foreign exchange

losses totaled $569,000 and accounted for practically the entire decline in earnings of these two entities, compared with the previous year.

Waterco International – Singapore was set up to focus on sales in the rest of Asia other than Malaysia and China, where Waterco has its own trading entities. Waterco International also provides technical assistance to the group’s Indonesian entity and has been able to contribute to the growth of the latter.

PRODUCT DEVELOPMENT AND WATER TREATMENT

Waterco continued to put resources into research and development, expanding further into high pressure filters suitable for water treatment. During the year, multiple large composite filters installed for pre-filtration of seawater for a desalination plant in Iraq were successfully commissioned with pleasing results.

“The acceptance of Waterco’s filters for desalination is encouraging and opens a new market for Waterco,” Mr Goh said.

The patent for MultiCyclone was approved by European authorities in the second half of the year and is now awaiting formalisation. “This will further reinforce our marketing of this product globally, with expectations that approval for patents in other regions will be forthcoming,” Mr Goh continued.

Energy and water conservation

In line with the growing trend towards energy conservation, Waterco introduced a powerconserving pump to the market. In addition, Waterco has made available glass beads as filtration media which, together with progressive design of the internal components (which guide water through the filter) enables users to conserve water during the filter cleaning or backwashing process. The new MultiCyclone Plus also conserves water through reducing the need for backwashing or cleaning of filter elements.

DIVIDENDS

The Directors have authorised a final dividend payment of 5 cents per share, payable to shareholders on 9 December 2011. “This will bring the total dividend payout to 9 cents per share for the year, a satisfactory outcome in the current environment of poor global economic conditions,” Mr Goh said.

OUTLOOK

Waterco attained the guidance provided in June, and stated that the results are acceptable in view of the continued subdued trading conditions globally and the adverse weather conditions in Australia.

“While the unfavourable weather conditions and weaker economic conditions are outside of our control and have made our task more challenging, we feel positive that there will be more improvement ahead, particularly in North America,” Mr Goh said. “In that market losses have been

reduced significantly and a turnaround to profitability can be expected in the new financial year, given our successes in the water treatment sector during the current year.”

The Board will provide a profit guidance at a later stage for the financial year ended 30 June 2012, as more information becomes available during the year.

-ends-

About Waterco Ltd – www.waterco.com

Established in 1981 and listed on the ASX in 1989, Waterco (ASX: WAT) manufactures and distributes a diverse range of products for the international swimming pool and water treatment markets. Waterco is also the franchisor of Swimart, Australia and New Zealand's largest network of pool and spa retail outlets, and is also the distributor of Zane Pool Heating solutions via a network of Australian dealerships.

Waterco delivers high quality, innovative products at exceptional value in over 40 countries. This includes a comprehensive range of swimming pool & spa equipment and chemicals as well as domestic and industrial water treatment equipment.

The company’s head office is in Sydney, Australia with international offices, manufacturing plants and warehouses located in Australia, New Zealand, Malaysia, Indonesia, Singapore, China, US, Canada and the UK.

For further information, please contact:

Soon Sinn Goh CEO 612 9898 8600

Lisa Llewellyn Principal Llewellyn Communications 0419 401 362