WATERCO LIMITED — Interim / Quarterly Report 2016

Feb 25, 2016

www.waterco.com

==> picture [148 x 43] intentionally omitted <==

WATERCO LIMITED A.B.N. 62 002 070 73 3

36 SOUTH ST RYDALMERE NSW 2116 AUSTRALIA Tel: ( 612) 9898 8600 Fax: (612) 9898 1877

WATERCO LIMITED

Half Yearly Report for the Period Ended 31[st] December 2015

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 up Profit (loss) aftertaxattributable tomembers up		6.19% to 45.4% to		$A'000 46,211 2,109
Dividends		Amount per security	Franked amount persecurity
Interim dividend		2¢	2¢
Previous corresponding period		0¢	0¢
Date for determining entitlements to the dividend		5thMay2016

This half yearly report is to be read in conjunction with the 30[th] June 2015 annual financial report and any announcements made to the market during the period.

.

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Comprehensive Income
Revenues Expenses Borrowing costs Otherexpenses 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
	46,211 (656) (42,320)	43,516 (807) (40,290)
	3,235 (1,065)	2,419 (927)
	2,170 61	1,492 41
	2,109	1,451
Other Comprehensive income Net exchange differences recognised in equity Share option reserve Other comprehensive income for the period Total comprehensive income/(loss) attributable to members of the parent **entity **	(1,057) -	4,076 (20)
	(1,057)	4,056
	1,052	5,507

Earnings per security (EPS)

Basic EPS Diluted EPS	5.8c 5.8c	4.10c 4.10c

Calculation of Earnings per security (EPS)

Calculation of Earnings per security (EPS)	Calculation of Earnings per security (EPS)
Current Period		Previous corresponding
	$A'000	Period $A'000
Net Profit/(Loss)	2,170	1,492
Net Profit/(Loss) attributable to non-controlling interests	61	41
Earnings used in calculation of basic EPS	2,109	1,451
Weighted average number of ordinary shares
outstanding during the year used in calculation
of basic EPS	36,312	35,405

.

Notes to the Consolidated Statement of Profit or Loss and Other Comprehensive Income

Profit (loss) attributable to members

Profit (loss) after tax Less (plus)non-controllinginterests	Current period - $A'000	Previous corresponding period -$A'000
	2,170 61	1,492 41
Profit (loss) after tax, attributable to members	2,109	1,451

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

Movement in Retained Profits
Retained profits at the beginning of the financial period Net profit (loss) attributable to members Net transfers from (to) reserves Dividends and other equity distributions paid orpayable	Current period - $A'000	Previous corresponding period -$A'000
	9,949 2,109 20 (1,813)	9,533 1,451 - (1,069)
Retained profits (accumulated losses) at end of financialperiod	10,265	9,915

Intangibles-Impairment/Amortisation

Impairment of goodwill Amortisation of other intangibles Total Impairment/ amortisation of intangibles	Impairment of goodwill Amortisation of other intangibles Total Impairment/ amortisation of intangibles
	Impairment of goodwill Amortisation of other intangibles Total Impairment/ amortisation of intangibles		Consolidated -	current period
		Before tax $A'000	Related tax $A'000	Related outside equity interests $A'000	Amount (after tax) attributable to members $A'000
		1 9	-- --	-- --	1 9
		10	--	--	10

.

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
	7,293 21,307 33,265 951	3,771 16,735 33,970 843	2,979 16,298 36,761 866
	62,816	55,319	56,904
Non-current assets Property, plant and equipment (net) Intangibles (net) Deferred Tax assets Other Total non-current assets	39,219 281 444 -	41,325 322 311 -	46,029 350 780 -
	39,944	41,958	47,159
Total assets	102,760	97,277	104,063
Current liabilities Payables Interest bearing liabilities Current tax liabilities Provisions exc. tax liabilities Other Total current liabilities	18,629 7,374 1,007 1,767 -	12,139 15,418 279 1,658 -	16,393 17,227 758 1,740 -
	28,777	29,494	36,118
Non-current liabilities Payables Interest bearing liabilities Deferred tax liabilities Provisions exc. tax liabilities Other Total non-current liabilities	16,024 1,294 189 -	10,211 1,341 178 -	10,340 1,631 183 -
	17,507	11,730	12,154
Total liabilities	46,284	41,224	48,272
Net assets	56,476	56,053	55,791
Equity Issued capital Employee share loans Reserves Retainedprofits	39,265 - 6,428 10,265	38,142 - 7,505 9,949	38,143 - 7,302 9,915
Parent entity interest Non-controlling interest Total equity	55,958 518	55,596 457	55,360 431
	56,476	56,053	55,791

.

Consolidated cash flow statement

Consolidated 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 refund/paid Net operating cash flows	Current period $A'000	Previous corresponding period$A'000
	44,738 (38,126) 30 1,174 (656) (516)	41,663 (40,120) 300 24 (807) (163)
	6,644	898
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 Dividends received Net investing cash flows	(474) 111 1	(2,347) 62 1
	(362)	(2,284)
Cash flows related to financing activities Proceeds from issues of shares Proceeds from borrowings Repayment of borrowings Dividends paid Net financing cash flows	1,123 14,159 (16,068) (1,813)	659 1,299 (1,187) (1,069)
	(2,599)	(298)
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)	3,683 3,264 346	(1,684) (68) 3,277
	7,293	1,525

Non-cash financing and investing activities: During the period, the economic entity acquired plant and equipment amounting to $184,017 (2014 $51,068) by means of finance leases. These financing activities are not reflected in the Cash flow statement.

Reconciliation of cash

Reconciliation of cash at the end of the period (as shown in the cash flow statement) to the related itemsinthe accountsis asfollows.	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	7,293 -	2,979 (1,454)
	7,293	1,525

.

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 NTA Per Share Net tangible asset backing per ordinary security	Current period	Previous corresponding Period
	7.0%	5.6%
	3.77%	2.6%
	Current period	Previous corresponding Period
	$1.50	$1.53

Dividends

Date shares trade ex-dividend Record date to determine entitlements to the dividend Date the dividend is payable Amount per security	Date shares trade ex-dividend Record date to determine entitlements to the dividend Date the dividend is payable Amount per security	Date shares trade ex-dividend Record date to determine entitlements to the dividend Date the dividend is payable Amount per security	5thMay2016	5thMay2016
			6thMay 2016
			15thJune 2016
		Amount per security		Franked amount per security at 30% tax	Amount per security of foreign source dividend
	Interim dividend:Current year Previous year	2¢ 0¢		2¢ 0¢	¢ ¢

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

• Shares to be issued at 5% discount to the weighted average market price.

• Securities to be issued shall rank pari passu in all respect with the existing ordinary

• securities. The issue price of the DRP shares is based on the weighted average market price of all Waterco shares sold on the Dividend Record date and 14 trading days immediately prior to the Record Date or such number of days that the Board of Directors may so determine

.

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 Increases through issues Waterco DRP	37,339,244	37,339,244
	1,080,154	1,080,154	$1.04	$1.04
Options Directors and Senior Executives Option Plan Issued during current period Exercised during current period Expired during current period			Exercise Price	Expiry date

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.

==> picture [80 x 39] intentionally omitted <==

Soon Sinn Goh Chief Executive Officer

26th February 2016

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.

.

WATERCO LIMITED AND CONTROLLED ENTITIES

Half Yearly Report for the Period Ended 31 December 2015

ANNEXURE A

REVENUE AND EXPENSES

Sales revenue Other revenue 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 Items that maybe reclassified to profit or loss Share option reserve decrement Exchange differences on translation of foreign controlled entities Other comprehensive income for the period Total comprehensive income for the period Profit attributable to: Members of the parent entity Non-controlling interest	Consolidated Group 31/12/2015 31/12/2014 $000 $000
	44,908 43,191 1,303 325 (74) (3,152) (23,757) (19,801) (8,420) (7,930) (654) (624) (656) (807) (935) (813) (116) (121) (1,061) (1,224) (1,379) (1,315) (137) (156) (381) (117) (178) (111) (5,228) (4,926)
	3,235 2,419 (1,065) (927)
	2,170 1,492
	- (20) (1,057) 4,076
	(1,057) 4,056
	1,113 5,548
	2,109 1,451 61 41
	2,170 1,492

.

WATERCO LIMITED AND CONTROLLED ENTITIES

Half Yearly Report for the Period Ended 31st December 2015

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

2015

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	AUSTRALIA & NEW ZEALAND ASIA 31/12/2015 $000 31/12/2015 $000	NORTH AMERICA &EUROPE 31/12/2015 $000	ELIMINATION 31/12/2015 $000	CONSOLIDATED GROUP 31/12/2015 $000
	31,907 6,190 728 15,037	6,811 793	(16,558)	44,908 1,303
	32,635 21,227	7,604	(16,558)	46,211
	4,203 1,826 83,031 49,945	(1,281) 14,745	(210) (44,961)	4,538 (1,303)
				3,235 (1,065)
				2,170
				102,760
	35,414 23,779	32,946	(45,855)	46,284

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	2014 AUSTRALIA & NEW ZEALAND ASIA NORTH AMERICA &EUROPE 31/12/2014 $000 31/12/2014 $000 31/12/2014 $000	2014 AUSTRALIA & NEW ZEALAND ASIA NORTH AMERICA &EUROPE 31/12/2014 $000 31/12/2014 $000 31/12/2014 $000	ELIMINATION 31/12/2014 $000	CONSOLIDATED GROUP 31/12/2014 $000
	31,351 5,119 837 14,504	6,721 2,103	(17,444)	43,191 325
	32,188 19,623	8,824	(17,444)	43,516
	6,046 687 83,794 50,238	(592) 17,552	(3,397) (47,521)	2,744 (325)
				2,419 (927)
				1,492
				104,063
	34,727 24,988	32,945	(44,388)	48,272

.

WATERCO LIMITED AND CONTROLLED ENTITIES

Half Yearly Report for the Period Ended 31[st] December 2015

ANNEXURE C

REVIEW OF OPERATIONS

For the six months ended 31 December 2015 (this Half-year) Waterco Limited reported a Net Profit After Tax of $2.17 million. This compares with a reported Net Profit After Tax of $1.49 million for the previous corresponding period (PCP).

Earnings Before Interest & Tax (EBIT) for this Half-year were $3.86 million (PCP $3.20 million).

Total Revenue was $46.21 million (PCP $43.52 million).

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

	Dec 2015 ($000)	Dec 2014 ($000)	% Change
Australia and New Zealand	31,907	31,351	+ 1.77%
Asia	6,190	5,119	+ 20.92%
North America and Europe	6,811	6,721	+ 1.34%
Sales revenue	44,908	43,191	+ 3.98%
Other revenue	1,303	325	+300.92%
Total	46,211	43,516	+ 6.19%

DIVISIONAL EBIT PERFORMANCE

Detailed below is a breakdown of EBIT contributions by Division for the half-year ended 31 December 2015:

	Dec 2015 ($000)	Dec 2014 ($000)	% Change
Australia and New Zealand	3,154	2,791	+ 13.0%
Asia	1,997	1,001	+99.5%
North America and Europe	(1,291)	(590)	-118.8%
Consolidated Reported EBIT	3,860	3,202	+ 20.5%

AUSTRALIA AND NEW ZEALAND

In Australia and New Zealand (ANZ), we had a soft start for the beginning of the financial year. However, sales caught up as the weather warmed up, to be marginally higher than PCP. Margins are not as strong as previous year’s due to a weaker Australian Dollar (AUD). As a result, Gross Profit was marginally below that of the previous year’s level. However, with favourable foreign exchange differences and the receipt of insurance claims for consequential losses suffered in previous years’ fires, EBIT was up on PCP.

.

ASIA

In Asia we are experiencing improved performance in sales of our product lines throughout South East Asia, while sales in China improved as a result of wider acceptance of the Hydroxypure system. This is a chlorine-free sanitisation water treatment system, using a combination of ozone and hydrogen peroxide as sanitising agents. The system enables swimmers to enjoy the silkiness of the water, in comparison with the feeling if chlorine was used as the sanitising agent. Used in indoor pools, it eliminates the chlorine odour, which may be unpleasant to some swimmers. A patent to protect this system has been lodged globally, including in China.

Waterco Far East (WFE) continues to consolidate its position as a manufacturer for the Group with improved performance in the quality of the heat pump, after the line was transferred from Waterco Canada and Waterco USA. Further improvement of our manufacturing lines of other products resulted in a better performance compared to PCP.

NORTH AMERICA AND EUROPE

In the Northern Hemisphere – namely Canada, the USA and Europe – generally, poor economic conditions prevail. Waterco Canada is expected to trade poorly as a result of a weaker Canadian dollar. The performance of the USA entity is expected to improve, as restructuring exercises, which include the transfer of almost all manufacturing activities to Malaysia, have been completed. The supply of large commercial filters capable of high pressure rating will underpin our presence in the USA. In Europe, in the previous year, we built a strong foundation for growth, despite poor economic conditions and yet turned in a satisfactory financial result. Indications are that we expect this entity to continue to perform well this financial year. The Division’s performance, however, is expected to be adversely affected by poor performances of Canada and USA.

This Division reported an EBIT loss for the six months of $1.29 million, or an increase of 118.8% on the PCP. The main business season for this Division is in the second half of the financial year. Trading conditions in the US remained tough, though we do see prospects of an improvement in the water-treatment sector.

We expect improvement in performance of our businesses in the Northern Hemisphere in the Second Half Year, in particular the European sector.

PRODUCT DEVELOPMENT & WATER TREATMENT

In this Half-year, Waterco invested approximately $0.551 million on research & 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.

Several new patents had been lodged in Australia with some patents pending overseas registration. In addition to patents in the development of water filtration products, an area which Waterco had specialized in, over the years, there were, notably, several patents in a chlorine-free system of sanitization which uses ozone and hydrogen peroxide as an alternative to the traditional methods of using chlorine in various forms. This chlorine-free system extends the Group’s efforts in producing environmentally-friendly products and is expected to achieve significant sales, initially in Australia, and subsequently globally.

WORKING CAPITAL

	Dec 2015 ($000)	Dec 2014 ($000)
Inventory	33,265	36,761
Debtors	21,307	16,298
Creditors	(18,629)	(16,392)
TOTAL	35,943	36,667

The group’s working capital position as at December 2015 had decreased by $0.724 million, mainly attributable to decreased Inventory and increased Creditors which offset the large increase in Debtors, compared with the PCP.

.

DIVIDEND

Based on this Half Year result, the Board is pleased to declare a fully-franked interim dividend of 2 cents per share payable on 15 June 2016.

OUTLOOK

The Board considers this half-year’s results as encouraging. Some easing off in the second half year is expected.

The next half-year will be more dependent on the performance of North America and Europe. Sales in the USA, particularly in commercial filters, continue to look promising.

.