WATERCO LIMITED — Interim / Quarterly Report 2012

Feb 26, 2012

WATERCO LIMITED A.B .N. 62 002 0 70 73 3 36 SOUTH ST RYDALMERE NSW 2116 AUSTRALIA PO BOX 230, RYDALMERE BC , NSW 1701 Tel: ( 612) 9898 8600 Fax: (612) 9898 1877

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www.waterco.com

WATERCO LIMITED

Half Yearly Report for the Period Ended 31[st] December 2011

For announcement to the market

For announcement to the market	For announcement to the market	For announcement to the market	For announcement to the market	For announcement to the market
Revenues down 2.3% to Profit(loss)after tax attributable to members down 39.5% to				$A'000 36,490 1,595
Dividends		Amount per security	Franked amount per security
Interim dividend		3¢	3¢
Previous corresponding period		4¢	4¢
Date for determining entitlements to the dividend		4thMay2012

This half yearly report is to be read in conjunction with the 30[th] June 2011 annual financial report and any announcements made to the market during the period.

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Consolidated Statement of Comprehensive Income

Revenues Expenses Borrowing costs Other expenses Profit (loss) before tax Income tax Profit (loss) after tax Net profit (loss) attributable to non controlling interests Net profit (loss) for the period attributable to members	Current period - $A'000	Previous corresponding period -$A'000
	36,490 (866) (33,179)	37,353 (793) (32,822)
	2,445 (809)	3,738 (1,086)
	1,636 (41)	2,652 (18)
	1,595	2,634
Other Comprehensive income Net exchange differences recognised in equity Property revaluation decrement Share option reserve Other comprehensive income for the period Total comprehensive income/(loss) attributable to members of the parent entity	671 403 14	(5,654) (339)
	1,088	(5,993)
	2,683	(3,359)

Earnings per security (EPS)

	Basic EPS Diluted EPS	4.8c 4.8c	8.4c 8.4c

Calculation of Earnings per security (EPS)

Current Period	Current Period	Previous corresponding
	$A'000	Period $A'000
Net Profit/(Loss)	1,636	2,652
Net Profit/(Loss) attributable to non-controlling interests	41	18
Earnings used in calculation of basic EPS	1,595	2,634
Weighted average number of ordinary shares
outstanding during the year used in calculation
of basic EPS	33,110	31,369

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Notes to the Consolidated Statement of Comprehensive Income

Profit (loss) attributable to members

	Profit (loss) after tax Less(plus)non-controllinginterests	Current period - $A'000	Previous corresponding period -$A'000
		1,636 41	2,652 18
	Profit (loss) after tax, attributable to members	1,595	2,634

Revenue and expenses - See Annexure A

	Capitalised outlays Interest costs capitalised in asset values Outlays capitalised in intangibles (unless arising from an acquisition of a business)	-- --	-- --

Movement in Retained Profits

	Retained profits at the beginning of the financial period Adjustment related to AASB121 Restated Retained Profits at the beginning of the financial period Net profit (loss) attributable to members Net transfers from (to) reserves Adjustment on deregistration of subsidiary Dividends and other equity distributions paid orpayable	Current period - $A'000	Previous corresponding period -$A'000
		11,167 - 11,167 1,595 - (1,662)	10,899 - 10,899 2,634 - (1,621)
	Retained profits (accumulated losses) at end of financialperiod	11,100	11,912

Intangibles-Impairment/Amortisation

	Impairment of goodwill Amortisation of other intangibles Total Impairment/ amortisation of intangibles		Consolidated -	currentperiod
		Before tax $A'000	Related tax $A'000	Related outside equity interests $A'000	Amount (after tax) attributable to members $A'000
		1 52	-- --	-- --	1 52
		53	--	--	53

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Consolidated Statement of Financial Position Current assets Cash Receivables Inventories Other Total current assets	At end of current period $A’000	As shown in last annual report$A'000	As in last half yearly report $A'000
	2,457 12,717 27,994 685	3,878 9,115 26,369 591	2,141 13,791 28,732 695
	43,853	39,953	45,359
Non-current assets Property, plant and equipment (net) Intangibles (net) Deferred Tax assets Other Total non-current assets	36,353 29 134 345	37,850 36 647 298	34,215 35 141 224
	36,861	38,831	34,615
Total assets	80,714	78,784	79,974
Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions exc. tax liabilities Other Total current liabilities	12,308 3,033 490 1,694 -	6,497 1,593 287 1,534 -	11,915 2,236 927 1,757 -
	17,525	9,911	16,835
Non-current liabilities Payables Interest bearing liabilities Deferred tax liabilities Provisions exc. tax liabilities Other Total non-current liabilities	- 21,112 347 103 -	- 21,174 1,010 253 -	- 20,562 300 261 -
	21,562	22,437	21,123
Total liabilities	39,087	32,348	37,958
Net assets	41,627	46,436	42,016
Equity Issued capital Employee share loans Reserves Retained profits (accumulated losses)	35,291 (94) (4,931) 11,100	33,867 (117) 1,531 10,899	34,402 (110) (4,462) 11,912
Parent entity interest Non-controlling interest Total equity	41,366 261	46,180 256	41,742 274
	41,627	46,436	42,016

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Cash flow statement

Cash flow statement
Cash flows related to operating activities Receipts from customers Payments to suppliers and employees Other Income Interest received Interest and other costs of finance paid Income taxes paid Net operatingcash flows	Current period $A'000	Previous corresponding period$A'000
	34,737 (31,570) 188 26 (865) (756)	35,320 (31,048) 26 14 (793) (652)
	1,760	2,867
Cash flows related to investing activities Payment for purchases of property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from sale of business Payment for intangibles Payment for investments Net investingcash flows	(2,651) 13	3,738 38 - -
	(2,638)	3,776
Cash flows related to financing activities Proceeds from issues of shares Proceeds from borrowings Repayment of borrowings Dividends paid Net financingcash flows	451 1,469 (173) (1,662)	535 162 (118) (1,621)
	85	(1,042)
Net increase (decrease) in cash held Cash at beginning of period (see Reconciliation of cash) Exchange rate adjustments Cash at end of period (see Reconciliation of cash)	(793) 2,381 869	5,601 3,505 (7,155)
	2,457	1,951

Non-cash financing and investing activities: During the period, the economic entity acquired plant and equipment amounting to $176,602 (2009 $286,345) by means of finance leases and hire purchase agreements. These financing activities are not reflected in the Cash flow statement.

Reconciliation of cash

Reconciliation of cash
Reconciliation of cash at the end of the period (as shown in the cash flow statement) to the related items in the accounts is as follows.	Current period $A'000	Previous corresponding period -$A'000
Cash on hand and at bank Bank overdraft Other (commercial bills) Total cash at end ofperiod	2,457 -	2,141 (190) -
	2,457	1,951

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Other notes to the financial statements

Ratios Profit before tax / revenue Profit (loss) before tax as a percentage of revenue Profit after tax / equity interests Profit (loss) after tax attributable to members as a percentage of equity (similarly attributable) at the end of the period	Current period	Previous corresponding Period
	6.7%	10.01%
	3.9%	6.31%
NTA Per Share Net tangible asset backing per ordinary security
	Current period	Previous corresponding Period
	1.24	1.28

Dividends

dends
Date the dividend is payable Date of entitlements to the dividend	15th June 2012
	4thMay2012

Amount per security

		Amount per security	Franked amount per security at 30% tax	Amount per security of foreign source dividend
	Interim dividend: Current year Previous year	3¢ 4¢	3¢ 4¢	¢ ¢

The[+] dividend or distribution plans shown below are in operation. Waterco Dividend Reinvestment Plan

• Shares to be issued at 7.5% discount to average market price of dividend record date and the four prior trading days

The last date for receipt of election notices for the 4th May 2012 dividend

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Issued and quoted securities at end of current period

Category of securities	Total number	Number quoted	Issue price per security (cents)	Amount paid up per security (cents)
Ordinary securities Changes during current period (a) Increases through issues Waterco DRP (b) Decreases through returns of capital, buybacks	33,616,372	33,616,372
	373,089	373,089	$1.21	$1.21
Options Directors and Senior Executives Option Plan Issued during current period Exercised during current period Expired during current period	90,000		Exercise Price	Expiry date
			$1.35	1/7/2013

Segment reporting - See Annexure B Review Of Operations - See Annexure C

Compliance statement

• 1 This report has been prepared in accordance with the requirements of the Corporations Act 2001and Australian Accounting Standards including AASB 134: Interim Financial Reporting.

• 2 This report and the accounts upon which the report is based use the same accounting policies.

• 3 This report does give a true and fair view of the matters disclosed

• 4 This report is based on accounts which have been subject to review.

• 5 The entity has a formally constituted audit committee.

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Soon Sinn Goh Chief Executive Officer

27th February 2012

Notes

1. Income tax Reconciliation of income tax prima facie payable on the profit before tax to income tax expense

2. Rounding of figures This report anticipates that the information required is given to the nearest $1,000 (where stated)

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

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WATERCO LIMITED AND CONTROLLED ENTITIES

Half Yearly Report for the Period Ended 31 December 2011

ANNEXURE A

REVENUE AND EXPENSES

Revenues Changes in inventories of finished goods and work in progress Raw Materials and consumables used Employee benefits expense Depreciation and amortisation expense Finance costs Advertising expense Discounts allowed Outward freight expense Rent expense Contracted staff expense Warranty expense Commission expense Other expenses Profit before income tax Income tax expense Profit for the period Other comprehensive income Gain/(loss) on revaluation of land and buildings Share option reserve increment Exchange differences on translation of foreign controlled entities Other comprehensive income for the period Total comprehensive income/(loss) for the period Profit/(loss) attributable to: Members of the parent entity Non-controlling interest	Consolidated Group 31/12/2011 31/12/2010 $ $
	36,489,798 37,352,635 (2,926,068) (4,363,550) (15,853,503) (13,956,416) (6,826,990) (6,518,690) (732,178) (713,811) (865,540) (792,964) (862,078) (728,544) (152,065) (146,670) (844,565) (857,419) (1,039,929) (1,117,132) (128,254) (222,675) (211,692) (222,508) (128,811) (124,294) (3,472,823) (3,849,407)
	2,445,302 3,738,555 (809,017) (1,086,005)
	1,636,285 2,652,550
	403,241 (338,725) 13,817 - 670,500 (5,654,483)
	1,087,558 (5,993,208)
	2,723,843 (3,340,658)
	1,594,506 2,634,218 41,779 18,332
	1,636,285 2,652,550

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WATERCO LIMITED AND CONTROLLED ENTITIES

Half Yearly Report for the Period Ended 31st December 2011

ANNEXURE B

OPERATING SEGMENTS

Industry Segments

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

Geographical Segments

Revenue Sales to customers outside the economic entity Intersegment sales Unallocated revenue Total revenue Segment result Unallocated expenses net of unallocated revenue Profit before income tax Income tax expense Profit after income tax Segment assets Segment liabilities	2011 AUSTRALIA & NEW ZEALAND ASIA NORTH AMERICA &EUROPE ELIMINATION 31/12/2011 $ 31/12/2011 $ 31/12/2011 $ 31/12/2011 $	CONSOLIDATED GROUP 31/12/2011 $
	27,598,827 3,673,981 5,002,098 942,936 10,097,361 833,297 (11,873,594)	36,274,906 214,892
	28,541,763 13,771,342 5,835,395 (11,873,594)	36,489,798
	3,171,385 1,219,826 (1,213,584) (517,433) 79,793,077 37,877,923 11,967,079 (48,923,616)	2,660,194 (214,892)
		2,445,302 (809,017)
		1,636,285
		80,714,463
	37,596,797 24,910,680 20,086,628 (43,506,984)	39,087,121

Revenue Sales to customers outside the economic entity Intersegment sales Unallocated revenue Total revenue Segment result Unallocated expenses net of unallocated revenue Profit before income tax Income tax expense Profit after income tax Segment assets Segment liabilities	2010 AUSTRALIA & NEW ZEALAND ASIA NORTH AMERICA &EUROPE ELIMINATION 31/12/2010 $ 31/12/2010 $ 31/12/2010 $ 31/12/2010 $	CONSOLIDATED GROUP 31/12/2010 $
	27,851,657 3,599,131 5,861,373 1,342,062 11,390,065 591,262 (13,323,389)	37,312,161 40,474
	29,193,719 14,989,196 6,452,635 (13,323,389)	37,352,635
	(1,427,439) 497,767 (583,637) 5,292,338 83,803,615 39,860,560 10,182,966 (53,872,817)	3,779,029 (40,474)
		3,738,555 (1,086,005)
		2,652,550
		79,974,324
	40,812,628 27,904,107 17,909,540 (48,668,361)	37,957,914

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WATERCO LIMITED AND CONTROLLED ENTITIES

Half Yearly Report for the Period Ended 31[st] December 2011

ANNEXURE C

REVIEW OF OPERATIONS

REVIEW OF OPERATIONS

For the six months ended 31 December 2011 (this half-year) Waterco Limited reported a Net Profit After Tax of $1.63 million. This compares with a reported after tax profit of $2.65 million for the previous corresponding period (PCP), the six months ended 31 December 2010.

Earnings Before Interest & Tax for this half-year were $3.28 million (PCP $4.53 million).

Total revenue was $36.49 million (PCP $37.35 million).

Detailed below is a breakdown of the sales revenue contribution for this half-year compared with the PCP:

Australia and New Zealand Asia North America and Europe Sales revenue Other revenue Total	Dec 2011 ($000) Dec 2010 ($000) %Change
	$ 27,599 $ 27,852 - 0.9% $ 3,674 $ 3,599 + 2.1% $ 5,002 $ 5,862 -14.7%
	$ 36,275 $ 37,313 - 2.8% $ 215 $ 40 NA
	$ 36,490 $ 37,353 - 2.3%

In the face of wet weather and uncertainty in the non-mining sector, the team in Australia and New Zealand worked hard to limit the decline in sales in Australia and New Zealand to 0.9%. There was a continuous trend of wet weather, with 2011 reported to be the third wettest year since records began in 1900, a weather pattern which continued into January 2012. Consumer confidence during the period was also low, resulting in successive interest-rate cuts by the Reserve Bank of Australia in November and December. Chemical sales to the Swimart stores accounted for most of the decline.

Sales in Asia registered an improvement of 2.1%. China performed well, with the expansion of Waterco’s product range and new customers taking up Waterco products as a premium line.

In the United States, sales were encouraging, particularly in the water treatment sector, although they showed a decline compared with the PCP. However, this trend may be reversed in the second halfyear, as there has been an increase in the size of the quote register, predominantly for filters, for the commercial pool and water treatment sector. Canada sales have similarly declined, compared with PCP, with a lower level of forward orders. This was as a result of Waterco customers clearing inventory held over from the previous season. However, this trend may also be reversed, as the company has noted an increased level of interest from customers for the coming season. European sales have held up compared with PCP

DIVISIONAL PERFORMANCE

Detailed below is a breakdown of EBIT contributions (after consolidation adjustments for unrealised forex gains/losses on intercompany loans and intercompany dividends) by division for the half year ended 31 Dec 2011:

Australia and New Zealand Asia North America and Europe Consolidated Reported EBIT	Dec 2011 ($000) Dec 2010 ($000) %Change
	$ 3,158 $ 4,346 - 27.3% $ 1,355 $ 770 + 76.0% ($1,229) ($ 585) - 110.1%
	$ 3,284 $ 4,531 - 27.5%

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AUSTRALIA and NEW ZEALAND

Profitability this year was lower, with weaker consumer confidence, thus creating a competitive business environment. While there were gains in the pool-builder segment of the business, the keener competition restrained profit margins. Expenses were higher, as a result of a major sales campaign conducted early in the financial year.

ASIA

Waterco Far East (WFE) consolidated its position as the Group’s principal manufacturing facility for pumps and filters for both, the commercial and the residential sectors, supplying all major overseas divisions, including Australia. In addition to being in a more central geographical location, WFE also offers the Group benefits from economies of scale and favourable labour cost. Local sales remained steady compared with PCP.

NORTH AMERICA and EUROPE

Waterco North America and Europe, incorporating the Group’s operations in the United States, Canada and Europe, reported an EBIT loss for the six months of $1.229 million which is an increase on the loss of $0.59 million from the PCP. The main business season for this division is in the second half of the financial year. Trading conditions in the US were tough. However, the division has been busy increasing its quote register and is, therefore, looking forward to improved sales and EBIT performance.

Waterco’s larger fibreglass filters, with a higher pressure rating, have been accepted by the water treatment industry in the US. Expenses were higher, compared with PCP, with the appointment of a sales executive specialising in the water-treatment sector. The entity treats this as an investment to spearhead the move into this specialised sector and expects positive results from it in the second half of the financial year.

Commercial filters are currently being made in Augusta, Georgia, with the largest filter made being 88 inches in diameter. The availability of a range of large filters made in Waterco’s factory in the United States has been received positively and should improve Waterco’s position as a supplier to the local market.

Of the three entities in this division, the seasonality of the business in Canada is the most pronounced, with profits skewed markedly into the second half of the financial year. Waterco has made further improvements in productivity and sales margins and expects results to be in the black for the full year, consolidating the turnaround achieved in the previous year.

While trading conditions in Europe continued to be tough, a return in confidence in some of the distributors aligned to Waterco products, together with new distributors appointed, improved the outlook for the division in Europe. However, as the business environment in the Euro-Zone was still weak, margins in this division continued to come under pressure. The Group, through this entity, set up a warehousing facility and a sales team in France, sustaining an increase in the operating expenses of this division. The Group expects that this strategic move will result in improved sales for the division later in the year.

PRODUCT DEVELOPMENT AND WATER TREATMENT

In this half-year, Waterco spent approximately $0.43 million on research and development, which was fully expensed. The Group continues to believe that a strong company culture of delivering to its customers innovative, durable and energy efficient products is an important strategic measure. Several new products introduced in recent times have had satisfactory success.

WORKING CAPITAL

G CAPITAL
Inventory Debtors Creditors TOTAL	Dec 2011 ($000) Dec 2010 ($000)
	$ 27,994 $ 28,732 $ 12,717 $ 13,791 ($12,309) ($11,915)
	$ 28,402 $ 30,608

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The Group’s working capital position as at December 2011 has decreased by $2.21m, mainly attributable to reduced inventory and other debtors, compared with the PCP. The reduction in inventory in the Australian and New Zealand division would have been better, had sales not been dampened by an unusually wet summer and low consumer confidence.

DIVIDEND

Based on the half-year result, Waterco’s directors are pleased to declare a fully-franked interim dividend of 3 cents per share (last year 4 cents), payable on 15 June 2012 to shareholders on our register at 4 May 2012.

OUTLOOK

The Board of Waterco considers this half-year’s results as disappointing but, in the light of poor weather and consumer confidence, are optimistic that the continued, albeit lower, profitability will provide the Group with a firm foundation for growth in the future.

The next half-year will be more dependent on the business of Waterco’s Northern Hemisphere entities, namely North America and Europe. , The availability of large filters made in the United States will help tp improve Waterco’s position as a supplier there. In Canada, research and development activity has continued to improve the quality and performance of the current range of heat pumps and is expected to contribute towards future earnings. In Europe, successes in marketing activities have enabled us to export pool and water-treatment equipment into new markets like Russia.

Trading conditions in Australia and New Zealand remain difficult. The forecast Net Profit After Tax for the full year’s is expected to decline to $2.3 Million from the earlier forecast of $3.0 million.

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