Gowest Gold Ltd. Annual Report 2013

Plain-text annual report

G W A G r o u p | A n n u A l r e p o r t 2 0 1 3 2013 AnnuAl report 2012/13 YEAR PERFORMANCE HIGHLIGHTS Revenue down 6% with underlying revenue down 9% excluding API Locksmiths Trading earnings before interest and tax (EBIT) from continuing operations of $66 million, down 13% on the prior period Restructure delivered an $8 million contribution to trading EBIT and operating cashflow in the second half Strong cash generated from trading operations reduced net debt to $162 million Fully franked final dividend of 6 cents per share with total fully franked dividend of 12 cents for the year CONTENTS Five Year Financial Summary Company Profile and Overarching Strategy Chairman’s Review Managing Director’s Review of Operations Health and Safety GWA Bathrooms & Kitchens GWA Door & Access Systems GWA Heating & Cooling Board of Directors Corporate Governance Statement Directors’ Report GWA Group Financial Report Other Statutory Information Shareholder Information and Timetable 1 2 4 6 10 12 13 14 16 18 28 43 91 92 Five year Financial summary 2008/09 $’000 2009/10 $’000 2010/11 $’000 2011/12 $’000 2012/13 $’000 revenue from continuing operations 678,344 656,809 726,367 602,128 565,365 earnings before interest, tax, depreciation, amortisation and restructuring costs** 105,060 112,099 125,243 94,228 85,181 (%) 15.5 17.1 17.2 15.6 15.1 Depreciation and amortisation (18,105) (17,551) (18,087) (18,864) (19,411) earnings before interest, tax and restructuring costs** 86,955 94,548 107,156 75,364 65,770 (%) interest (net) 12.8 14.4 14.8 12.5 11.6 (13,844) (15,027) (15,175) (14,247) (13,324) Trading profit before tax** 73,111 79,521 91,981 61,117 52,446 (%) Tax expense (%) Trading profit after tax** restructuring costs after tax 10.8 12.1 12.7 10.2 9.3 (21,919) (24,068) (28,622) (15,565) (13,815) 30.0 51,192 (2,867) 30.3 31.1 25.5 55,453 63,359 45,552 – – 621 26.3 38,631 (6,241) Net profit after tax from continuing operations 48,325 55,453 63,359 46,173 32,390 loss from discontinued operations (net of income tax) – (6,926) – (6,518) – Net profit after tax for the period net cash from operating activities capital expenditure research and development net debt shareholders’ equity Other Ratios and Statistics return on shareholders’ equity (%) interest cover (times) net debt / (net debt + equity) (%) Basic earnings per share (cents) Trading earnings per share (cents)* Ordinary dividend per share (cents) Franking (%) Ordinary dividend payout ratio (%) share price (30 June) ($) Dividend yield (total dividend)(%) number of employees * excludes restructuring expenses 48,325 48,527 63,359 39,655 32,390 78,628 17,348 6,619 67,165 15,450 7,729 88,558 24,727 9,486 60,499 25,798 7,587 63,349 14,703 7,117 154,985 175,952 198,083 174,472 162,243 426,164 431,089 439,995 426,984 426,742 11.3 7.6 26.7 16.9 17.9 18.0 100 106.5 2.30 7.8 1,891 11.3 7.5 29.0 16.2 18.5 18.0 100 111.1 3.01 6.0 1,922 14.4 8.3 31.0 21.0 21.0 18.0 100 85.7 2.75 6.5 2,150 9.3 6.6 29.0 13.2 15.1 18.0 100 136.4 2.10 8.6 1,788 7.6 6.4 27.5 10.6 12.7 12.0 100 113.2 2.40 5.0 1,680 ** non-iFrs financial measures – given the significance of restructure costs, the directors believe the presentation of non-iFrs financial measures is useful for the users of this document as they reflect the underlying financial performance of the business. The non-iFrs financial disclosures included in this document exclude restructuring costs that are detailed in note 6 of the financial report. notes: The financial year 2008/09 includes the results of both rover mowers and Wisa Beheer. These businesses were divested during the 2009/10 financial year and were disclosed as discontinued operations in the 2009/10 year. The financial years 2008/09 through to 2010/11 includes the results of sebel Furniture and caroma north america. These businesses were divested during the 2011/12 financial year and were disclosed as discontinued operations in the 2011/12 year. 1 1 cOmPany PrOFile GWA Group Limited (GWA) listed on the Australian Securities Exchange in May 1993 and is Australia’s leading supplier of building fixtures and fittings to households and commercial premises. The Company had 1,680 employees at 30 June 2013 with manufacturing and distribution facilities located across Australia and with branch offices in New Zealand. GWa currently operates through three distinct business divisions including: GWA Bathrooms & Kitchens is australia’s foremost designer, manufacturer, importer and distributor of domestic and commercial bathroom and kitchen products. The product range is distributed under australian brands including caroma, caroma marc newson, Dorf, Fowler, stylus, clark, epure, radiant, irwell, Dux, ecosmart and international brands including Hansa, KWc, schell, virtu, emcO and sanitron. in December 2012, the division was expanded to include Dux Hot Water which is an australian manufacturer and importer of hot water systems for residential and commercial markets. GWA Heating & Cooling is an australian designer, manufacturer, importer and distributor of heating and cooling systems for residential and commercial markets. The product range is distributed under australian brands including Brivis and aPac. GWA Door & Access Systems is a leading australian designer, manufacturer, importer and distributor of a comprehensive range of access and security systems for use in residential and commercial premises. The product range is distributed under australian brands including Gainsborough, Trilock, renovator, austral lock, Gliderol, matador and international brands including salto, Hillaldam and eco schulte. in October 2012, the division was expanded to include aPi locksmiths which is an australian supplier of security and access control systems and locksmithing services to major commercial enterprises. GWa has grown significantly since listing as a result of the strong operating performance of the core building fixtures and fittings businesses and through successful acquisitions. The company remains committed to growing shareholder wealth through organic growth initiatives in targeted market segments and acquisitions that add value to its core businesses by supporting expansion into new markets or providing access to new products. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWa’s OverarcHinG sTraTeGy GWA’s overarching strategy is entirely consistent for the Group and across each Division. This strategy is built around FOCUS, REACH and LEVERAGE. Our FOcus is to grow in our core australian building fixtures and fittings markets. in particular we will FOcus on growth in targeted market segments where GWa can sustain long term competitive advantage. Growth can be organic in which case our FOcus is on better servicing our existing markets and improving our overall business efficiencies. GWa will also pursue inorganic growth opportunities in which case our FOcus is on acquiring businesses or distribution rights for products and services which complement GWa’s existing offer to our target market segments. GWa will reacH the key decision makers across our target market segments. in doing so we will seek to influence their purchasing decisions: • Through a clear understanding of their needs; • Through a value proposition which meets the needs of each target market segment; and • Through the appropriate value proposition to those aligned channel partners servicing each target market segment. GWa will maximise competitive advantage through leveraGe to ensure the Group operates the most efficient structures to support our target market segments and aligned channel partners. GWa will leveraGe the Group wide investment in: • Brands, innovation, systems and processes, supply chain, transport and logistics, business relationships, market knowledge, sales and marketing. GWA’s overarching strategy of FOCUS, REACH and LEVERAGE will drive competitive advantage and deliver growth. 3 3 cHairman’s revieW 2012/13 was a challenging year for the group given weak building and renovation activity, intense import competition resulting from the high Australian dollar and low consumer confidence levels. We commenced the year poorly with trading earnings before interest and tax (EBIT) down 41% in the September 2012 quarter versus the same period last year. It is commendable that we were able to finish the year with EBIT down only 13% on the prior year, and highlights the resilience of the business in the tough market conditions and the successful implementation of the strategic plans announced in December 2012. Building activity levels reached cyclical lows at the beginning of 2012/13 and the sector has been recovering at a modest pace supported by low interest rates and gradually rising house prices. at June 2013, the moving annual total for dwelling approvals increased to 157,544 representing a 5% increase on the prior year. Following significant restructuring activities to improve competitiveness and acquisitions of complementary businesses to expand our product and service offerings, we are well positioned to take advantage of the expected higher market activity levels. The managing Director will provide further comments on market activity in his review of Operations. With growth in the resources sector set to decline over the next few years it is imperative that other sectors of the australian economy grow strongly if the country is to avoid a sustained period of weak growth. Whilst a modest recovery has commenced in the building sector, the current level of activity does not appear sufficient to make up for the shortfall in national economic growth. We welcome various Federal and state Government initiatives to support dwelling construction activity. sTraTeGy Our strategy continues to focus on the australian and new Zealand building fixtures and fittings sector with three core business segments of scale, comprising Bathrooms & Kitchens, Heating & cooling and Door & access systems. We are committed to providing compelling customer value propositions in the sector through product innovation, efficient manufacturing and supply chains, strong brand management, and installation and service capabilities. The strategic initiatives announced by the Board in December 2012 resulted in changes to the divisional structures to improve efficiency, deliver cost savings and provide a stronger platform for growth. as part of these changes, Dux Hot Water was combined with the Bathrooms & Kitchens division and Gliderol Garage Doors was combined with the Gainsborough business. These changes were implemented in 2012/13 and enabled the group to deliver improved profitability and cash flow. OvervieW OF resulTs The Group achieved a net profit after tax from continuing businesses of $32.4 million in 2012/13 on sales revenue of $565.4 million. This represents a decline of 18% and 6% respectively on the prior year reflecting the difficult trading conditions. net profit was impacted by the considerable restructuring activities completed during the year following the strategic initiatives announced by the Board in December 2012. The restructuring activities delivered a positive contribution to trading eBiT and operating cash flow of $8 million during the second half of the financial year. a highlight for the year was the strong cash generated from trading operations of $97.2 million, representing 113% of eBiTDa, due to management’s focus on reducing working capital. The cash flow performance provided funding for the restructuring activities and the acquisition of aPi locksmiths in October 2012. DiviDenDs anD caPiTal manaGemenT The Group’s strong cash generated from trading operations in 2012/13 enabled the Directors to declare a final fully franked dividend of 6 cents per share to be paid in October 2013 which brings the total fully franked dividend for the year to 12 cents per share. GWa has maintained a high dividend payout at 95% of trading profit after tax in 2012/13 whilst funding the aPi locksmiths acquisition, restructuring activities and reducing debt levels. The Dividend reinvestment Plan has been suspended as the company has access to sufficient funding to meet its needs. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTTrading EBIT $m Net Debt $m 12/13 11/12 10/11 09/10 08/09 12/13 11/12 10/11 09/10 08/09 0 25 50 75 100 125 0 50 100 150 200 250 Trading EBIT from continuing operations of $66 million reflects the difficult trading conditions Strong cash generated from trading operations reduced net debt to $162 million net debt at the end of June 2013 was $162 million, down by $12 million from June 2012 due to improved working capital management. Debt is well covered by total bank facilities of $275 million and we appreciate the ongoing support of our banks including commonwealth Bank of australia, australia and new Zealand Banking Group, HsBc Bank australia and Westpac Banking corporation. DiversiTy The Board understands the significant benefits that can arise from a diverse workforce and strengthened its focus on diversity in 2012 through the approval of a specific Diversity Policy which is available on the company’s website. a number of measurable objectives have been approved by the Board to promote and encourage diversity, particularly the improvement of female representation within the workforce. Whilst some of the diversity initiatives were delayed during the year due to the considerable restructuring activities, the Board is committed to the achievement of the measurable objectives. The Board supports the recommendations of the asX corporate Governance council on diversity and has provided the required diversity disclosures in its corporate Governance statement. The company lodged its Workplace Gender equality report with the Workplace Gender equality agency in may 2013 and the report is available on the company’s website. eXecuTive remuneraTiOn GWa’s remuneration policies continue to be assessed with the independent advice of Guerdon associates who were engaged by the Board for the 2013/14 executive remuneration review. We aim to provide remuneration to executives that is fair and sufficient to attract and retain a high quality management team with the experience, knowledge, skills and judgment required for the business. in order to achieve this objective, the key principle is that remuneration varies between the median and third quartiles relative to companies of comparable size and scope. The only change in the remuneration policy in 2012/13 was the cessation of the legacy GWa employee share Plan. changing employee attitudes to share ownership has led to lower participation levels in recent years and it was no longer effective as a long term incentive (lTi). Following the wind down of the Plan, total loan repayments of $8.3 million were received by the company from employees during 2012/13. The Plan has been discontinued and there will be no further share issues to employees under the Plan. GWa executives will continue to participate in the lTi (Performance rights) Plan approved by shareholders in 2008. The Board attempts to balance the need to address market trends whilst positioning GWa to retain and attract a high quality executive team led by our experienced managing Director of the past 10 years, mr Peter crowley. in 2011, mr crowley agreed to a freeze on his fixed remuneration for 3 years from 2011 to 2014 and will not receive any increase in fixed remuneration in 2013/14. For other GWa executives, the review by Guerdon associates during the year concluded that fixed remuneration is in line with market levels. in addition, short term incentive payments to executives in 2012/13 subject to the achievement of financial targets have declined in line with the lower trading result. carBOn emissiOns The Board is committed to reducing energy, carbon emissions, water and waste across the GWa Group operations. GWa reports its group carbon emissions annually under the Federal Government’s national Greenhouse and emissions reporting (nGer) scheme and the reports can be accessed on GWa’s website. During 2012/13, GWa’s carbon emissions have declined by an estimated 20% due to a combination of factors including site rationalisations, site closures, reduced demand and energy efficiency measures. saFeTy Our business is only as good as our people and we aim to provide a safe and rewarding environment in the workplace. We are pleased with continuing progress in safety performance resulting in an 11% reduction in the total injury frequency rate (TiFr) in 2012/13. This represents the eighth consecutive year of improvement and reflects the ongoing commitment to creating an injury free work environment. in closing, i would like to thank management and staff for their efforts in 2012/13 and their ongoing commitment to GWa. We have the people, businesses and strategies to take advantage of the expected improvement in trading conditions in 2013/14 and to build a stronger business for the future. 5 manaGinG DirecTOr’s revieW OF OPeraTiOns Difficult trading conditions and competitive pressures led to a 6% decline in revenue for 2012/13. On a like for like basis sales were down by 9% offset by the contribution from API Locksmiths which was acquired in October 2012. chart 1 below shows that the overall dwelling commencements for the year increased by approximately 7% compared to 2011/12. This growth was driven by medium and high density units which grew 13%, whereas detached housing increased by 3%. The key growth states were new south Wales and Western australia and this positive momentum should continue through the 2013/14 year. it is clear that over time the mix has changed between residential and multi-units and we expect this trend to continue and increase gradually over the medium to long term. although this is a positive indicator in the 2012/13 period the impact for GWa Group is lagged as the majority of our sales occur at completion which can be some 6 to 9 months later, and generally longer for multi-unit developments. One of the key issues through the 2012/13 year was housing affordability driven by Government charges and regulatory costs. virtually all the state Governments have allocated some provisioning for building activity initiatives however these are limited given their budget constraints. new south Wales looks to have more options available and these were highlighted through its Building the state initiative. The trading conditions during 2012/13 were tough and chart 2 demonstrates the trend in dwelling construction by showing the twelve month moving annual numbers for dwelling activity since 2003. The chart highlights that dwelling completions were very low, in line with activity levels experienced during the Global Financial crisis in 2008/09. The nine month sales contribution from aPi locksmiths, which was acquired in October 2012, added 3% to overall revenue in 2012/13, partially offsetting the decline in underlying demand for our products. This decline has been driven by three key factors: • decline in new dwelling and renovation activity; • cessation of Federal Government stimulus spending and environmental heater rebates which impacted the first quarter of 2012/13; and • loss of market share in the Garage Door and Hot Water categories. it was pleasing to see that in the last quarter of 2012/13 sales improved slightly in our core target market segments and in some key categories we are regaining market share. The decline in trading profit in 2012/13 is a reflection of the loss of sales however this was offset by cost savings arising from the restructuring that was implemented in December 2012. approximately 2% of the 6% revenue decline for the year arose from market share Chart 1 – Dwelling Commencements (2003 – 2013) Starts – Thousands Houses Multi-Units 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 Forecast source – Hia economics Group may 2013 118.6 106.2 104.0 106.3 107.0 91.5 111.7 96.8 88.1 90.6 56.5 54.2 48.4 45.7 51.6 39.9 55.4 60.7 54.0 61.1 Total 175.1 160.3 152.4 152.0 158.6 131.4 167.1 157.5 142.1 151.7 % Houses % Multi- Units % Chg Houses % Chg Multi-Units % Chg Total 68% 66% 68% 70% 67% 70% 67% 61% 62% 60% 32% 34% 32% 30% 33% 30% 33% 39% 38% 40% -10% -2% 2% 1% -14% 22% -13% -9% 3% -4% -11% -6% 13% -23% 39% 10% -11% 13% -8% -5% 0% 4% -17% 27% -6% -10% 7% GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTChart 2 – New Dwelling Activity (2003 – 2013) Approvals Commencements Completions Source: BIS Shrapnel 190,000 180,000 170,000 160,000 150,000 140,000 130,000 120,000 s r e b m u N l a u n n A g n i v o M June 03 June 04 June 05 June 06 June 07 June 08 June 09 June 10 June 11 June 12 June 13 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 loss in the Garage Door and Hot Water categories. The loss of market share in the Garage Door category is a result of poor management and business practices. significant work has been undertaken since December 2012 to fix these issues and we expect to see an improvement in performance through 2013/14. in the Hot Water category we have seen aggressive pricing in the market and as a result we have experienced share loss in the core electric and gas storage heaters. a thorough review of our Hot Water offer and pricing was completed in the last quarter of 2012/13 and a new strategy targeting our key market segments has been implemented. The impact of restructuring delivered a positive contribution to trading eBiT of $8 million during the year. as a result the workforce reduced by 256 employees (14%), almost all of which were salaried staff. corporate costs were slightly ahead of the prior period driven by external consulting and acquisition costs. cash generated from trading operations of $97 million represents 113% of eBiTDa. We are pleased with the strong operating cash flow reflecting the benefits of management focus on working capital improvement. This strong cash flow allowed the business to acquire aPi locksmiths, implement the major restructuring and reduce net debt levels by $12 million to $162 million. The cash flow performance also enabled the Board to pay a fully franked dividend for the year of 12 cents per share, representing a 95% payout ratio of trading profit after tax. Financial Results for 2012/13 $Million sales revenue Trading eBiT* eBiT margin 2012/13 2011/12 % Change 565.4 602.1 -6% 65.8 75.4 -13% 11.6% 12.5% Trading Profit after Tax from continuing Operations* 38.6 45.6 -15% Net Profit after Tax 32.4 39.7 -18% Trading earnings per share – continuing Operations * excludes net restructuring expenses 12.7 15.1 -16% sTraTeGy anD GrOWTH We estimate that the australian building fixtures and fittings sector generates sales of approximately $5 billion per annum. GWa has approximately 13% market share in the sector. The australian building fixtures and fittings sector is highly competitive however we believe there are significant opportunities to increase our market share through organic and inorganic growth initiatives. GWa completed a major strategic review in late 2012 with the assistance of leK consulting. This led to the restructuring of the key business units to better service the market, deliver cost savings and improve efficiency. as part of the restructuring, the Dux Hot Water business was consolidated into the Bathrooms & Kitchens division and the Gliderol Garage Door business was consolidated into the Gainsborough business. The core business segments are:- Bathrooms & Kitchens – vitreous china toilet suites, basins, plastic cisterns, tapware, baths, kitchen sinks, laundry tubs, bathroom accessories and water heaters. Door & Access Systems – garage doors, door locks and levers and supply and maintenance of commercial door systems. Heating & Cooling – sale of ducted heating and climate control systems. GWa’s overarching strategy is entirely consistent for the Group and across each Division. This strategy is built around FOcus, reacH and leveraGe. Our FOcus is to grow in our core australian building fixtures and fittings markets. in particular we will FOcus on growth in targeted market segments where GWa can sustain long term competitive advantage. Growth can be organic in which case our FOcus is on better servicing our existing markets and improving our overall business efficiencies. GWa will also pursue inorganic growth opportunities in which case our FOcus is on acquiring businesses or distribution rights for products and services which complement GWa’s existing offer to our target market segments. 7 manaGinG DirecTOr’s revieW OF OPeraTiOns (cOnT) GWa will reacH the key decision makers across our target market segments. in doing so we will seek to influence their purchasing decisions: • Through a clear understanding of their needs; • Through a value proposition which meets the needs of each target market segment; and • and through the appropriate value proposition to those aligned channel partners servicing each target market segment. GWa will maximize competitive advantage through leveraGe to ensure the Group operates the most efficient structures to support our target market segments and aligned channel partners. GWa will leveraGe the Group wide investment in: • Brands, innovation, systems & processes, supply chain, transport & logistics, business relationships, market knowledge and sales & marketing. GWa’s overarching strategy of FOcus, reacH and leveraGe will drive competitive advantage and deliver growth. The nature of GWa’s products means that there is an important installation and service offering in a number of our businesses. We see potential growth opportunities by extending these capabilities to enable a larger range of products to be offered with an installation and service option. an example of this is the recent acquisition of aPi locksmiths which is primarily a commercial locksmithing business. it provides GWa with options for installed offers for both mechanical and electronic access systems and provides access to the commercial sector where we are looking to increase sales. Our key strategies for success in our core target market segments include: • reaching and engaging key decision makers in our target market segments through direct engagement and via digital strategies; • investment in innovative and sustainable products; • efficient and low cost supply chain management to ensure a cost competitive supply position; • delivering superior customer service levels; and • improving our installation and service capabilities. segment results are summarised below: seGmenT PerFOrmance sales from Bathrooms & Kitchens were adversely impacted by the Hot Water category with revenue from our traditional Bathrooms & Kitchens ranges (excluding the Hot Water category) down only 5% compared to last year. sales in the Hot Water category were down 24% reflecting the cessation of the environmental rebates which impacted the business in the first quarter and market share loss in core electric and gas storage heating. Bathrooms & Kitchens made important progress during the second half of the year rationalising the product range and reviewing our customer service offering. Heating & cooling sales were impacted by a weak victorian housing market however the business performed well in the circumstances. The last quarter saw strong recovery of momentum and higher sales compared to last year. sales by the Door & access systems segment increased due to the inclusion of aPi locksmiths. The residential door furniture business, which is highly leveraged to new housing completions, found conditions difficult. in addition issues relating to poor management and business practices were identified in the Garage Door business which led to the loss of market share. sales in the Garage Door category were down 14% compared to last year. Financial cOnDiTiOn anD caPiTal manaGemenT net debt at June 2013 reduced by $12 million from $174 million to $162 million as a result of improved working capital management, the sale of non-core assets and lower capital expenditure. The gearing ratio (net debt/net debt plus equity) of 28% is within our target range and the leverage ratio (net debt/eBiTDa) is an acceptable 1.92 times. interest cover (eBiTDa/net interest) of 6.9 times further highlights GWa’s strong financial metrics. While we continue to review growth options, we also remain very focussed on maintaining GWa’s investment grade metrics. The business has a strong balance sheet. This ensures GWa is well positioned to respond to acquisition opportunities as they arise. in may 2013, the Group completed refinancing of the syndicated banking facility and put in place a new $275 million facility. This facility comprises a three year tranche of $200 million which expires in July 2016 and a five year tranche of $75 million which expires in July 2018. $Million Sales Revenue 2012/13 2011/12 % change Trading EBIT 2012/13 2011/12 % change Bathrooms & Kitchens Heating & Cooling Door & Access Systems 367.5 404.7 -9% 64.5 67.8 -5% 58.8 62.5 -6% 5.2 6.5 -19% 140.9 138.6 2% 10.9 14.1 -23% Other (1.8) (3.7) (14.8) (13.0) Total 565.4 602.1 65.8 75.4 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWa has sufficient undrawn debt facilities and in-principle support from our banks to increase facilities to fund growth opportunities if required. as a consequence of this, the Dividend reinvestment Plan which was reopened last year has been suspended by the Board until further notice. a summary of our debt position and existing facilities is provided below: Bank $Million Available Facilities Drawn Facilities Maturity Profile cBa anZ Westpac HsBc 85 80 55 55 Gross debt 275 195.0 0.0 July 2016 – $200 million July 2018 – $75 million cash and deposits Net debt (32.8) 162.2 HealTH anD saFeTy management is committed to continuous improvement in GWa’s health and safety performance through better safety systems and processes, extensive communication with our workforce and increased diligence in identifying and removing safety risks across our workplace. continuous improvement in safety performance over the past 8 years has been consolidated with a further 11% decline in the total injury frequency rate in 2012/13. With our total injury frequency rate reducing to 7.7, we have a consistent sense of purpose in creating a safe work environment for our people. Despite these impressive results, we still had 14 employees sustain lost time injuries during the year which we will strive to reduce. Good safety is good management and reflects both the efforts of management and the diligence of our workforce. We remain committed to continuous safety improvements with the objective of creating an injury free work environment. chart 3 below highlights the continued improvement in the total injury frequency rate in the 2012/13 year. Chart 3 – GWA Group Total Injury Frequency Rate 30 20 10 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 susTainaBiliTy anD carBOn reDucTiOn GWa has an active program to improve our impact on the environment through the reduction of energy, carbon emissions, water and waste. Our environmentally sustainable products are also a major source of competitive advantage for the company. GWa reports greenhouse gas emissions under the national Greenhouse and energy reporting scheme and the reports are available on the company’s website. in 2012/13 GWa’s estimated direct carbon emissions totalled 9,700 tonnes plus 20,300 tonnes of indirect carbon emissions through the purchase of energy. This compares with 37,000 tonnes of total reported emissions in 2011/12. The estimated 20% reduction reflects the impact of plant rationalisations and energy efficiency initiatives. PeOPle GWa’s long term success has been due to the efforts of a committed and talented workforce. We continue to bring new thinking and skills into the business and are committed to developing our people to provide succession opportunities. The company recognises the benefits that can be achieved from a diverse workforce and has implemented policies aimed at improving workplace diversity. in support of these objectives, a significant investment has been made through the GWa leadership Program with the aim of underpinning a high performance culture. This involves the development of core capabilities for our personnel supported by rigorous goal setting and performance management procedures. GWa continues to work with the australian institute of management to provide an in-house certificate of management program constituting 4 modules of advanced learning to better prepare our managers to be effective in their roles. 42 managers and senior staff attended the programme during 2012/13. FuTure PrOsPecTs anD risKs The outlook for 2013/14 is difficult to assess but improving house prices and gradually rising dwelling approvals should result in higher sales in the second half of the financial year. The business is well positioned to take advantage of opportunities with clear initiatives aimed at our target market segments supported by lower cost structures and improving Group leverage. Our focus is on improving and optimising the business whilst awaiting the recovery in market demand for our products. Benefits from the major restructure activity undertaken in December 2012 will continue to flow into the 2013/14 year and this will provide a lower cost base from which to leverage the business as trading conditions improve. There are a number of key business risks that may impact on the achievement of the outlook for 2013/14 and future periods including: • • the expected recovery in building and renovation activity does not eventuate or is delayed and leads to continuing weak demand for GWa’s products; the actions implemented in 2012/13 to address the loss of market share in the Dux and Gliderol businesses does not lead to improved business performance and profitability; and • unforseen disruptions impacting product supply from material offshore suppliers leading to lower sales and loss of market share. We will be in a better position to update the market on 2013/14 trading performance at the annual General meeting in October 2013 following first quarter trading and updated data on dwelling activity. 9 HealTH anD saFeTy GWA continues to ensure that it provides a Three key measures of safety outcomes are: safe workplace for its employees, contractors, visitors and customers in an efficient and compliant manner. Through divisional or site based health and safety advisors, GWa promotes awareness of health and safety in a continuous improvement environment. The health and safety advisors meet periodically with the Group risk manager with the collective objectives of: • discussing safety performance, goals and improvement strategies; • exchanging ideas and detailing successful improvement programs; • promoting training through guest speakers and external experts; • arranging visits to view best practice sites; • planning for cross site auditing (whereby health and safety advisors visit other internal GWa sites); and • planning and implementing of new systems and procedures. The Group risk manager reports twice per annum to the GWa audit committee. The reporting includes current health and safety performance, current improvement plans and compliance to regulations. an audit plan, consistent with health and safety objectives, is also presented for approval for the new financial year. WOrK HealTH anD saFeTy PerFOrmance GWa measures a range of balanced safety performance indicators. Proactive indicators such as number of hazards identified, risk assessments undertaken and actions issued and completed on time are recorded for each GWa site. 1. 2. 3. lost Time injury Frequency rate (lTiFr) which measures lost time (injury that results in an inability to work for at least one full shift) medical Treatment injury Frequency rate (mTiFr) which measures the number of doctor treated injuries per million hours worked injury severity rate which measures the number of hours for a lost time injury per million hours worked. The collective sum of mTiFr plus lTiFr results in the Total injury Frequency rate (TiFr) for GWa. major projects for the 2012/13 year include: • work to integrate aPi Work Health and safety (WHs) software systems with GWa systems. Whilst this project will continue in 2013/14, the GWa WHs software for reporting hazards, incidents and conducting audits and key performance indicators has been successfully deployed. recently GWa have appointed a national WHs manager reporting to the chief executive of GWa Doors & access systems (which includes aPi, Gliderol and Gainsborough); • work completed to integrate caroma and Dux into GWa Bathrooms & Kitchens under one national WHs manager and WHs management system; • • successful 2013/14 renewal application for the nsW “retro Paid loss” (rPl) scheme which has reduced nsW workers compensation premiums by approximately $740,000 per annum; and the appointment (new role) of a national injury management coordinator reporting to the Group risk manager. This has enabled GWa to commence fully integrating and streamlining Workers compensation and return to Work activities and procedures across all businesses in all states. The project is expected to be completed by October 2013. GWA Group Total Injury Frequency Rate (TIFR) GWA Group Lost Time Injury Frequency Rate (LTIFR) 30 20 10 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 8 6 4 2 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORT • in June 2013, work commenced to integrate WHs management systems across all businesses into one consistent structure that will adopt the nsW rPl criteria as its framework. rPl closely aligns with the australian standard as4801 together with additional Key Performance indicators for injury management. This project is expected to be completed by april 2014. at the start of the 2012/13 year GWa set a target of 13% year on year improvement versus the 2011/12 results for TiFr. The actual improvement in performance was 11%, which is just short of the target. This is the 8th consecutive year that GWa has improved TiFr. Highlights within the GWa business units include: • injury severity rate reducing compared to the prior year for the first time in many years (reduction of 30% on 2011/12 result and below that of 2010/11); • all GWa business units except GWa Bathroom & Kitchens achieved better than target results for TiFr. GWa Doors & access systems (Gainsborough, Gliderol and aPi) achieved a combined TiFr of 3.85 which is an excellent result; and • GWa absenteeism has reversed its trend of recent years with a reduction in total absenteeism of 17% in 2012/13 compared with the prior year. WHs improvement objectives and projects are planned to be met through continuation of the 2012/13 initiatives including: • a 2013/14 TiFr target of a further 12% reduction versus the 2012/13 year; • plans to reduce injury severity rate to 2600 through improved return to work plans; and • the completion of a software based contractor management system. GWA Group Medical Treatment Injury Frequency Rate (MTIFR) GWA Group Injury Severity Rate (ISR) 25 20 15 10 5 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 5000 4000 3000 2000 1000 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 11 11 technology, and providing a superior level of customer service. GWa Bathrooms & Kitchens will continue to invest in its iconic brands to reinforce its brand values. GWa Bathrooms & Kitchens are committed to continuous process improvement in its australian manufacturing and supply chain operations. % Change -9% -5% HeaD OFFice lOcaTiOn GWA Bathrooms & Kitchens caroma industries limited level 1, 7-9 irvine Place Bella vista nsW 2153 ausTralia Dux manufacturing limited lackey road moss vale nsW 2577 ausTralia Telephone: 61 2 8825 4400 Facsimile: 61 2 8825 4567 Telephone: 61 2 4868 0200 Facsimile: 61 2 4868 2014 www.gwabathroomsandkitchens.com.au www.dux.com.au www.ecosmart.com.au www.hotwaterrebate.com.au www.caroma.com.au www.fowler.com.au www.dorf.com.au www.irwell.com.au www.stylus.com.au www.epure.com.au www.clark.com.au www.radiantstainless.com.au www.starionaust.com.au seGmenT PerFOrmance $M sales Trading eBiT eBiT % return on Funds employed June 13 June 12 367.5 64.5 17.6% 14.4% 404.7 67.8 16.7% 14.7% Business DescriPTiOn GWa Bathrooms & Kitchens is australia’s foremost designer, manufacturer, importer and distributor of domestic and commercial bathroom and kitchen products. Through its portfolio of well known bathroom and kitchen brands, GWa Bathrooms & Kitchens aims to create environmentally friendly innovative product solutions for every australian and new Zealand bathroom and kitchen. GWa Bathrooms & Kitchens is at the forefront of product innovation incorporating water saving technology and is the market leader in water efficient sanitaryware and tapware. in December 2012, GWa Bathrooms & Kitchens was expanded to include Dux Hot Water which is an australian manufacturer and importer of hot water systems for residential and commercial markets. main PrODucTs anD services vitreous china toilet suites, urinals, basins, plastic cisterns, bathroom accessories and fittings. acrylic and pressed steel baths and shower trays. Tapware, showers and accessories, stainless steel sinks and laundry tubs. Hot water systems including mains pressure gas and electric storage, continuous flow gas, electric and gas boosted solar and heat pump products. maJOr BranDs Owned: caroma, caroma marc newson, Dorf, Fowler, stylus, clark, epure, radiant, irwell, Dux, ecosmart Distributed: Hansa, KWc, schell, virtu, emcO, sanitron OPeraTinG lOcaTiOns australia, new Zealand, export markets maJOr marKeTs new residential dwellings, renovation, replacement and commercial markets in australia, new Zealand and selected international markets. sTraTeGic DirecTiOn GWa Bathrooms & Kitchens will maintain leadership in the domestic market by creating value for its customers through the development of innovative products with appealing design and advanced water saving GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORT seGmenT PerFOrmance $M sales Trading eBiT eBiT % return on Funds employed 10.6% June 13 June 12 140.9 10.9 7.7% 138.6 14.1 10.1% 15.9% % Change 2% -23% Business DescriPTiOn GWa Door & access systems is a leading australian designer, manufacturer, importer and distributor of a comprehensive range of access and security systems for use in residential and commercial premises. in January 2011, the division was expanded with the acquisition of Gliderol Garage Doors which is a leading australian manufacturer and distributor of garage doors and openers for residential and commercial markets. The division was further expanded in October 2012 through the acquisition of aPi locksmiths which is a national supplier of security and access control systems and locksmithing services to major commercial enterprises. main PrODucTs anD services a comprehensive range of door hardware and access systems comprising door handles (knobs and levers), locking systems, door closers, hinges and other door accessories. a wide range of roller doors, sectional overhead doors, automatic operators, gate operators and roller shutters. commercial locksmithing services for security systems and safes, supply and installation of electronic access control systems and associated products including ccTv, alarms and intercoms. maJOr BranDs Owned: Gainsborough, Trilock, renovator, austral lock, Gliderol, matador, aPi locksmiths Distributed: salto, Hillaldam, eco schulte OPeraTinG lOcaTiOns australia, export markets maJOr marKeTs Domestic home builders, Diy and renovation projects, commercial buildings and multi-dwelling developments, after sales servicing. sTraTeGic DirecTiOn GWa Door & access systems strategic direction encompasses the development of new and innovative door hardware, access system technologies and garage door products to suit domestic buildings and commercial projects. GWa Door & access systems will continue to focus on its key customer relationships through the supply of market leading product innovation and design, and high levels of customer service. HeaD OFFice lOcaTiOn GWA Door & Access Systems Gainsborough Hardware industries limited 31-33 alfred street Blackburn vic 3130 ausTralia aPi services and solutions Pty limited 248 normanby road south melbourne vic 3205 ausTralia Telephone: 61 3 9877 1555 Facsimile: 61 3 9894 1599 Telephone: 131Key(539) Facsimile: 61 3 9644 5887 www.gainsboroughhardware.com.au www.ausloc.com www.apisec.com.au Gliderol international Pty limited 32 Jacobsen crescent Holden Hill sa 5088 ausTralia Telephone: 61 8 8261 9633 Facsimile: 61 8 8261 9700 www.gliderol.com.au 13 sTraTeGic DirecTiOn GWa Heating & cooling will continue to develop its range of climate solutions for consumers and take them to market through its channel partners under its strong brands. much of the development in the division will be centered around reducing energy and water consumption to meet emerging australian regulations. GWa Heating & cooling will continue to strengthen its key customer and channel relationships, invest in brands and reduce costs through investment in improved manufacturing capability and selective sourcing of products and components. HeaD OFFice lOcaTiOn GWA Heating & Cooling Brivis climate systems Pty ltd 61 malcolm road Braeside vic 3195 ausTralia Telephone: 61 3 9264 9555 Facsimile: 61 3 9264 9400 www.brivis.com.au seGmenT PerFOrmance $M sales Trading eBiT eBiT % return on Funds employed 10.9% June 13 June 12 58.8 5.2 8.9% 62.5 6.5 10.4% 13.8% % Change -6% -19% Business DescriPTiOn GWa Heating & cooling is an australian designer, manufacturer and importer of heating and cooling systems for residential and commercial markets. all products are developed to provide consumers with greater control and comfort in their home or work environments. GWa Heating & cooling has developed an extensive range of innovative environmental products to meet the changing regulatory requirements, while assisting consumers to reduce their energy consumption and manage comfort in the home. main PrODucTs anD services a wide range of products to assist consumers manage comfort and energy use in their homes. The range includes heating and cooling systems, including ducted gas furnaces, evaporative coolers and inverter based refrigerated heating and cooling systems. maJOr BranDs Owned: Brivis, aPac OPeraTinG lOcaTiOns australia, overseas distributors maJOr marKeTs GWa Heating & cooling participates in the new home, renovation and replacement or breakdown markets primarily for residential and light commercial applications. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORT 15 15 BOarD OF DirecTOrs GeOFF mcGraTH miie chairman and non-executive Director • expertise: manufacturing and general management • special responsibilities: chairman of Board, chairman of nomination committee and member of audit and remuneration committees Darryl mcDOnOuGH BBus (acTy), llB (HOns), sJD, FcPa, FaicD Deputy chairman and non-executive Director • expertise: experienced public company director and lawyer • special responsibilities: Deputy chairman of Board and member of nomination committee mr mcGrath was appointed a non-executive Director of GWa Group limited in 2004 and was appointed chairman effective 1 July 2010. He retired from GWa Group limited in may 2003 after 43 years service, including the last 10 years as managing Director. in 1982 mr mcGrath was appointed managing Director of the GWa manufacturing Group companies following the takeover of uPl Group by the former public company, GWa limited. He retired as chairman of campbell Brothers limited in July 2012 and is a former director of Fletcher Building limited. During the past three years, mr mcGrath has served as a director of the following other listed company, and the period in which the directorship has been held: • campbell Brothers limited 2003 – 2012 mr mcDonough was appointed a non-executive Director of GWa Group limited in February 2009 and was appointed Deputy chairman in October 2009. He has over 25 years of corporate experience as a director and lawyer. He has served as a director of a number of public companies in the past, including Bank of Queensland limited and super retail Group limited and is a Past-President of The australian institute of company Directors, Queensland Division. During the past three years, mr mcDonough has served as a director of the following other listed company, and the period in which the directorship has been held: • super retail Group limited 2003 – 2010 PeTer crOWley Ba BecOn FaicD managing Director rOBerT anDersOn non-executive Director • Expertise: Property investment and transport logistics mr anderson was appointed a non-executive Director of GWa Group limited in 1992. He was appointed a director of the former public company, GWa limited in 1979 after joining the Group in 1955 where he gained wide experience in management, investment and property matters. • expertise: Broad manufacturing experience in australia and overseas 2003: managing Director of GWa Group limited 2001: managing Director and chief executive, austrim nylex limited, a diversified industrial company 1999: executive Director, cement and lime, The rugby Group Plc, a uK Public company with extensive international cement operations. During this period, also served as a director of adelaide Brighton limited 1997: chief executive, cockburn cement limited (a subsidiary of The rugby Group Plc), Western australia’s largest cement producer and australia’s largest lime producer 1982: various roles with Queensland cement limited and its parent company Holderbank culminating in General management responsibilities within australia and south-east asia GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTBill BarTleTT Fca, cPa, Fcma, ca(sa) JOHn mulcaHy PHD (civil enGineerinG), Fie ausT non-executive Director non-executive Director • expertise: chartered accountant, actuarial, property, insurance and financial services • expertise: civil engineer and experienced public company director • special responsibilities: member of remuneration committee • special responsibilities: chairman of audit and remuneration committees and member of nomination committee mr Bartlett was appointed a non-executive Director of GWa Group limited in 2007 and chairman of the audit committee in October 2009. He is a Fellow of the institute of chartered accountants and was a partner at ernst & young in australia for 23 years, retiring on 30 June 2003. He is chairman of the cerebral Palsy council of Governors and a former director and honorary treasurer of the Bradman museum and Foundation. mr mulcahy was appointed a non-executive Director of GWa Group limited in november 2010. He is a Fellow of the institute of engineers and is a non-executive Director of mirvac Group limited, mirvac Funds management limited, coffey international limited, campbell Brothers limited and a Guardian of the Future Fund. He is the former managing Director and chief executive Officer of suncorp Group limited (“suncorp”). Prior to joining suncorp, he held a number of senior executive roles at the commonwealth Bank and lend lease corporation. During the past three years, mr Bartlett has served as a director of the following other listed companies, and the period in which the directorships have been held: During the past three years, mr mulcahy has served as a director of the following other listed companies, and the period in which the directorships have been held: • suncorp Group limited since 2003* • reinsurance Group of america inc (nyse) since 2004* • abacus Property Group since 2007* *denotes current directorship • mirvac Group limited since 2009* • coffey international limited since 2009* • campbell Brothers limited since 2012* *denotes current directorship PeTer BirTles Bsc, aca non-executive Director ricHarD THOrnTOn ca B cOm llB (HOns) llm executive Director and company secretary • expertise: chartered accountant, retail, financial and operational • expertise: chartered accountant, taxation and finance • special responsibilities: member of audit committee mr Birtles was appointed a non-executive Director of GWa Group limited in november 2010. He is a chartered accountant and is the current managing Director and chief executive Officer of super retail Group limited (“super retail”). He was formerly the chief Financial Officer of super retail. Prior to joining super retail, he held a variety of finance, operational and information technology roles with The Boots company in the united Kingdom and australia and worked for coopers & lybrand. During the past three years, mr Birtles has served as a director of the following other listed company, and the period in which the directorship has been held: • super retail Group limited since 2006* *denotes current directorship mr Thornton was appointed an executive Director of GWa Group limited in may 2009. He joined GWa Group limited in 2002 as Group Taxation manager and Treasurer and was appointed company secretary in 2003. He is a chartered accountant and is experienced in accounting, taxation and finance through positions at coopers & lybrand, citibank and ernst & young in australia and overseas. mr Thornton continued in his role as company secretary following his appointment as an executive Director in 2009. He is a director of Great Western corporation Pty ltd. 17 cOrPOraTe GOvernance sTaTemenT FOr THe year enDeD 30 June 2013 The Board of Directors is responsible for the corporate governance of GWa Group limited (“the company”) which is an essential part of the role of the Board. The company’s corporate governance practices have been in place since listing and are constantly reassessed in the light of experience, contemporary views and guidelines on corporate governance practices. The Board adopts practices it considers to be superior and which will lead to better outcomes for the company’s shareholders. The Board supports the corporate Governance Principles and recommendations (“the recommendations”) of the asX corporate Governance council. The Board confirms that the current corporate governance practices of the company meet or exceed the recommendations. The Board operates under a charter that details the functions and responsibilities of the Board. The charter is reviewed annually to ensure it remains consistent with the Board’s objectives and responsibilities. refer to the company’s website for a copy of the charter. Delegations Policy The Board has approved a Delegations Policy which clearly outlines the authorities of the Board and those which have been delegated to senior executives. The policy ensures that the executives understand the authorities delegated by the Board and are accountable to the Board for its compliance. annual reviews are conducted on the appropriateness of the delegated authorities and any material breaches are reported to the Board. PrinciPle 1 – lay sOliD FOunDaTiOns FOr manaGemenT anD OversiGHT role of the Board The Board is responsible for the long term growth and financial performance of the company. The Board charts the strategic direction of the company and monitors executive and senior management performance on behalf of shareholders. To achieve this, the Board is engaged in the following activities: letter of appointment new directors of the company are provided with a formal letter of appointment which outlines the key terms and conditions of their appointment. similarly, senior executives including the managing Director, executive Director and chief Financial Officer have formal job descriptions and letters of appointment describing their salary arrangements, rights and responsibilities and entitlements on termination. • providing input and final approval of corporate strategies and performance objectives developed by senior management; • approval and monitoring of financial and other reporting; a comprehensive induction program is available to directors and senior executives to ensure full understanding of the company, its policies and procedures and the industry within which it operates. • monitoring of executive and senior management performance, including the implementation of corporate strategies, and ensuring appropriate resources are available; • appointment and monitoring of the performance of the managing Director; • liaison with the company’s external auditor through the audit committee; • ensuring that the company has appropriate systems of risk management and internal controls, reporting mechanisms and delegation authority limits in place; • approval and monitoring the progress of major capital expenditure, capital management, acquisitions and divestments; • any other matters required to be dealt with by the Board from time to time depending upon circumstances of the company; and • other matters referred to in the Board and Board committee charters. Performance reviews Performance reviews of staff including senior executives are conducted formally on a bi-annual basis. The performance review process is critical to the development of staff and enables performance issues to be addressed. The company has identified core competencies for the key roles in the organisation and these are incorporated into individual job descriptions. During the performance review process, the performance of staff is assessed against the business objectives and core competencies. measurable personal financial and business improvement goals are established during the performance review process and the achievement of the personal goals is incorporated into the company’s short Term incentive Plan as outlined in the remuneration report. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTPrinciPle 2 – sTrucTure THe BOarD TO aDD value Board meetings The Board meets at least 9 times each year for scheduled meetings and may, on other occasions, meet to deal with specific matters that require attention between scheduled meetings. Together with the Board committees, the directors use the Board meetings to challenge and fully understand the business and its operational issues. To assist with the Board’s understanding of the business, the Board regularly conducts Board meetings at the various business locations followed by management presentations and site tours. The Divisional chief executives and General managers are required to regularly attend and present at the Board meetings on divisional and business unit operational issues and performance. an annual group strategy meeting is held as part of the budget approval process which enables the Board to review corporate strategies and performance with the executives. This ensures that the Board is effectively carrying out its duties of providing input and approving corporate strategies and performance objectives. The chief Financial Officer is required to attend Board meetings and present the finance department monthly report, and to answer questions from the directors on financial performance, accounting, risk management and treasury matters. The executive Director is responsible for the completion and dispatch of the agenda and Board papers for each meeting. The executive Director prepares the draft minutes for each meeting, which are tabled at the next Board meeting for review and approval. The executive Director is accountable to the Board, through the chairman, on all corporate governance matters. composition of the Board The Board presently comprises 8 directors, 6 of whom, including the chairman and Deputy chairman, are non-executive directors and 2, the managing Director and executive Director, are executive directors. Profiles of the directors are set out in the annual report. The profiles outline the skills, experience and expertise of each Board member, including the period of office held by each director. The composition of the Board is determined by the nomination committee and, where appropriate, external advice is sought. The following principles and guidelines are adhered to: • • • • the Board should maintain a majority of non-executive directors; the Board should consist of a majority of independent directors; the chairperson should be an independent director; the role of chairperson and managing Director should not be exercised by the same individual; • non-executive directors should not be involved in management of the day to day operations of the company; and • all Board members should be financially literate and have relevant experience in the industries in which the company operates. re-election of Directors in accordance with the company’s constitution, at each annual General meeting, a number of directors will face re-election. One third of the Board (excluding the managing Director and any director not specifically required to stand for re-election) must stand for re-election. in addition, no director (other than the managing Director) may hold office for more than three years without standing for re-election and any director appointed by the Board since the last annual General meeting must stand for re-election at the next annual General meeting. all retiring directors are eligible for re-election. independence of Directors The Board considers that the non-executive directors must be independent from management and free of any business or other relationship that could interfere, or reasonably be perceived to interfere, with the exercise of their unfettered and independent judgment. in considering the relationships which may affect independent status as outlined in the recommendations of the asX corporate Governance council, it has been determined that the company’s non-executive directors are independent. Therefore, the Board comprises 75% independent directors and 25% non-independent directors (being the managing Director and executive Director) which meets the recommendations of the asX corporate Governance council. 19 cOrPOraTe GOvernance sTaTemenT (cOnT) FOr THe year enDeD 30 June 2013 The following table outlines the company’s directors considered to be independent: Non- Executive Independent Director Role mr Geoff mcGrath chairman mr Darryl mcDonough Deputy mr Peter crowley mr Bill Bartlett chairman managing Director non-executive Director yes yes no yes mr robert anderson non-executive yes mr John mulcahy mr Peter Birtles mr richard Thornton Director non-executive Director non-executive Director executive Director yes yes no yes yes no yes yes yes yes no The Board is responsible for ensuring that the action of individual directors in the Boardroom is that of independent persons. The Board distinguishes between the concept of independence and issues of conflict of interest or material personal interest which may arise from time to time – refer conflicts of interest below. in recognising the importance of the independence of directors and the immediate disclosure of conflicts of interest, the Board has included both matters as permanent items on the agenda at Board meetings. any independence or conflict of interest issues that arise must be disclosed to the chairman prior to each Board meeting. The disclosure is recorded in the register of Directors’ interests and in the Board minutes. (i) Board Succession Planning The Board has established succession plans for the retirement of individual Board members to ensure an appropriate balance of skills, experience and expertise on the Board. The Board views director renewal as an essential process to ensure optimal Board performance. The Board is also mindful of the need to increase diversity of the Board for future director appointments. in accordance with the succession plans, the following director retirements and appointments have occurred in recent years: • appointment of mr Bill Bartlett in 2007 • retirement of mr martin Kriewaldt in 2008 • retirement of mr Jim Kennedy in 2009 • appointment of mr Darryl mcDonough in 2009 • appointment of mr richard Thornton in 2009 • retirement of mr Barry Thornton in 2010 • retirement of mr David Barry in 2010 • appointment of mr John mulcahy in 2010 • appointment of mr Peter Birtles in 2010 Further director retirements and appointments are expected in future years to continue the Board succession planning process, whilst ensuring an efficient and effective Board is maintained. (ii) Legal Services provided by Clayton Utz During the 2012/13 year clayton utz provided legal services of $332,195 to the company as outlined in note 34 to the Financial statements. The legal services were provided on an arm’s length basis and covered specialty areas including employment, environment, competition, acquisition, corporate and commercial advice. mr Darryl mcDonough is a non-executive Director of GWa Group limited and is also the current chief executive Partner at clayton utz. mr mcDonough is not involved in providing any of the legal services to the company, nor does he influence the selection of legal adviser by the company. The company has utilised clayton utz for legal services for many years prior to the appointment of mr mcDonough as a non-executive Director, and the legal services have continued to the present date. The company uses a variety of legal service providers (including clayton utz) and selects its legal providers based on the company’s assessment of the skills and expertise of the legal firm providing the relevant services. The Board is of the view that the provision of legal services by clayton utz has no impact on the independence of mr mcDonough who continues to be classified as an independent director. conflicts of interest The directors are required to disclose to the Board any relationships from which a conflict of interest might arise. a director who has an actual or potential conflict of interest or a material personal interest in a matter is required to absent himself from any meeting of the Board or Board committee, whenever the matter is considered. in addition, the director does not receive any Board papers or other documents in which there is a reference to the matter. This process is applied to business and trading relationships, dealings with the directors, dealings with companies with common directors and dealings with any significant shareholders of the company. The materiality thresholds used for the determination of independence and issues of conflict of interest has been considered from the point of view of the company and directors. For the company, a relationship which accounts for 5% or more of its revenue is considered material. For a director, a relationship which accounts for 5% or more of the total income of a director is considered material. Directors’ fees are not subject to this test. access to independent advice Directors and the Board committees have the right in connection with their duties and responsibilities to seek independent advice at the company’s expense. Prior approval of the chairman is required, but this will not be unreasonably withheld. Where appropriate, directors share such advice with the other directors. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTnomination committee The nomination committee meets as required and on several occasions throughout the year. For membership and attendance details of the nomination committee, refer to the Directors’ report. • consideration of the need for Board diversity and whether the potential appointee furthers the Board’s objective of achieving a diverse workforce in accordance with its Diversity Policy; and • the Board members consent to the proposed appointee. The composition of the nomination committee is based on the following principles: • • • • the nomination committee should consist of non-executive directors only; the nomination committee should consist of a majority of independent directors; the nomination committee should consist of a minimum of three members; and the chairperson should be the chairperson of the Board or another non-executive director. The nomination committee operates under a charter that details the committee’s role and responsibilities, composition, structure and membership requirements. The charter is reviewed annually to ensure it remains consistent with the Board’s objectives and responsibilities. refer to the company’s website for a copy of the charter. The main responsibilities of the committee include: • assessment of the necessary and desirable competencies of Board members; • review of the Board succession plans; • evaluation of the performance and contributions of Board members; • • • recommendations for the appointment and removal of directors; review of the remuneration framework for the non-executive directors; and reporting to the Board on the committee’s role and responsibilities covering all the functions in its charter. in performing its responsibilities, the nomination committee receives appropriate advice from external consultants and other advisers as required. The executive Director prepares the draft minutes for each nomination committee meeting, which are tabled at the next nomination committee meeting for review and approval. The draft minutes are also included in the Board papers of the next Board meeting following the nomination committee meeting. selection and appointment of Directors The nomination committee is responsible for the selection and appointment of directors. in the circumstances where there is a need to appoint a director, whether due to the retirement of a director, growth of the company, or changed circumstances of the company, certain procedures will be followed including the following: • determination of the skills and experience appropriate for an appointee, having regard to those of the existing directors and other likely changes to the Board; • upon identifying a potential appointee, consider the competency and qualifications, independence, other directorships, time availability, and the effect that their appointment would have on the overall balance of the composition of the Board; induction Program The nomination committee is responsible for ensuring that an effective induction program for new directors is in place and regularly reviewed to ensure its effectiveness. The Board has developed a comprehensive induction program for new directors to allow the new appointees to participate fully and actively in Board decision making. The Board views the induction program as critical in enabling the new directors to gain an understanding of the company and the markets in which it operates. Performance evaluation On an annual basis, the nomination committee conducts a formal evaluation of the performance of the Board, the Board committees and the individual Board members to determine whether they are functioning effectively by reference to current good practice. The performance evaluation is conducted by the chairman of the Board through open discussions with the Board members and detailed questionnaires as required. any issues or improvement opportunities identified from the performance evaluation are actioned. PrinciPle 3 – PrOmOTe eTHical anD resPOnsiBle DecisiOn-maKinG code of conduct The company’s objective is to conduct its business with the highest standards of personal and corporate integrity. To assist employees in achieving this objective, the company has developed a comprehensive code of conduct which guides the behaviour of directors, officers and employees and demonstrates the commitment of the company to ethical practices. The code of conduct is incorporated as part of new employees’ induction training and an acceptance form is signed by new employees acknowledging their understanding and on-going compliance with the code of conduct and the company’s policies and procedures. The code of conduct states the values and policies of the company and complements the company’s risk management and internal control practices. The code of conduct is reviewed annually and updated to ensure that it reflects current good practice and to promote the ethical behaviour of all employees. refer to the company’s website for a copy of the code of conduct. share Trading Policy The Board has approved a share Trading Policy which complies with the asX listing rules. The policy limits the trading periods for directors and senior executives in the company’s securities to 30 days after each yearly/half yearly results announcement and annual General meeting, and provided they are not in the possession of unpublished insider information. Outside of these trading periods, the directors, senior executives and other ‘potential insiders’ are prohibited from trading in the company’s securities unless ‘exceptional circumstances’ exist and prior written approval has been obtained. ‘exceptional circumstances’ mean severe financial hardship or other circumstances considered to be 21 cOrPOraTe GOvernance sTaTemenT (cOnT) FOr THe year enDeD 30 June 2013 exceptional, including a court order or court enforceable undertaking in a bona fide family settlement or some other overriding legal or regulatory requirement to transfer the company’s securities. The share Trading Policy requires the directors to notify the executive Director within two business days after trading, to enable the executive Director to lodge the required disclosures with the australian securities exchange. Diversity in the Workforce The company is committed to the promotion of diversity in the organisation through the implementation of targeted employment policies and initiatives to achieve a diverse workforce. The Board understands the significant benefits that can arise from increasing the pool of talent from which the company can draw high quality employees and the different perspectives that can be brought to the organisation from a diverse workforce. The company strengthened its focus on diversity in 2012 with the Board’s approval of a specific Diversity Policy which is available on the company’s website. in accordance with the policy, the Board has established a number of measurable objectives to promote and encourage increased diversity and in particular, to improve the representation of females within the workforce. The measurable objectives are assessed annually and performance is reported in the corporate Governance statement in the annual report. The measurable objectives are: 1. Increase the percentage of females employed by GWA • ensure the recruitment process and practices continue to comply with equal opportunity principles; • provide recruitment training for managers ensuring a focus on equal opportunity and avoiding ‘unconscious bias’; and • investigate the feasibility of implementing a graduate program with an emphasis on encouraging women into non-traditional roles. 2. Provide and promote flexible work practices to attract and retain female employees • continue to promote awareness of current flexible work practices available in the company to existing employees and potential candidates; and • investigate and implement any additional flexible work arrangements appropriate to the needs of employees with families. 3. Succession planning and high potential employee development • ensure high potential female employees are identified as part of the company’s succession planning process and actively developed for career progression. The company follows a detailed recruitment process to ensure staff are selected on merit, irrespective of their gender. The planned recruitment training in 2012/13 was temporarily postponed due to the significant restructuring announced in December 2012 which resulted in changes to the divisional structures and lower overall employee numbers. The recruitment training will now be completed during the year ending 30 June 2014 and will be reported in next year’s diversity disclosures. Based on the company’s 2013 Workplace Gender equality report, 31% of staff recruited into the organisation during the reporting period were female. although this percentage is slightly lower than last year, the total number of new hires during the period was down approximately 50% on last year due to the restructuring activities. However, it is pleasing to see that the percentage of female senior executives has increased from the prior year reflecting the focus on improving diversity in the organisation. During 2013, the company commenced the investigation into the feasibility of a graduate program. Further work will be performed to develop the right program for the company and ensure it will meet its objectives of attracting high quality employees with diverse backgrounds into the organisation. There has been some delays with this initiative due to the restructure activities and further progress is expected during the upcoming year. The company has continued to promote the ‘Work life Balance’ policies introduced in 2011. These policies, such as paid parental leave and flexible work arrangements, were aimed at assisting in attracting more females to apply for positions advertised and retaining the current female employees. The company continues to have a number of employees moving to flexible working arrangements, particularly on return from parental leave. The increased percentage of female senior executives from the prior year is encouraging and has been supported by the promotion of the ‘Work life Balance’ policies. as part of the company’s succession planning process, a number of female employees have been identified as high potential. The company has ensured that they continue to be developed through a mix of external and internal development. The aim for these employees is to be ready to step up to the next level when a position becomes available and it is pleasing that the company has recently promoted a number of females into more senior positions. Discussions are held regularly by the corporate and divisional executive with the aim of identifying potential opportunities for the transfer of high potential staff across the divisions. as outlined in the company’s 2013 Workplace Gender equality report, the overall workforce consists of 27% female and 73% male. This is a slight fall in the percentage of female employees from the prior year. However, as outlined above the company has undertaken significant restructuring during the year resulting in lower overall employee numbers. The company also acquired a new business, aPi locksmiths, in October 2012 which employs approximately 150 staff consisting of 11% female and 89% male. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTThe following table outlines the company’s workplace profile at 31 march 2013: Title Board senior executives senior managers managers Team leader/supervisor Professional skilled Workers admin staff Production/Distribution staff sales staff service staff apprentice Total % Female 0 14% 14% 11% 32% 20% 4% 73% 20% 20% 66% 0 27% % Male 100% 86% 86% 89% 69% 80% 96% 27% 80% 80% 34% 100% 73% On 30 may 2013, the company lodged its 2013 Workplace Gender equality report with the Workplace Gender equality agency in accordance with the Workplace Gender Equality Act 2012. The company notified its employees and employee organisations that it lodged its report and advised how it may be accessed. The company also allowed employees and employee organisations to make comments on the report. The report is available on the company’s website under Workplace Gender equality reporting. PrinciPle 4 – saFeGuarD inTeGriTy in Financial rePOrTinG audit committee The audit committee meets as required and at least four times throughout the year. For membership and attendance details of the audit committee, refer to the Directors’ report. The composition of the audit committee is based on the following principles: • • • • • the audit committee should consist of non-executive directors only; The audit committee should consist of a majority of independent directors; the chairperson of the audit committee must be an independent director and not chairperson of the Board; the audit committee should consist of at least three members; and the audit committee should include members who are financially literate with at least one member who has financial and accounting related expertise. The audit committee is governed by a charter which outlines the committee’s role and responsibilities, composition, structure and membership requirements. The charter is reviewed annually to ensure it remains consistent with the Board’s objectives and responsibilities. refer to the company’s website for a copy of the charter. a detailed Terms of reference has been developed to ensure the audit committee meeting agenda is consistent with the committee’s role and responsibilities as outlined in the charter. The external auditor, managing Director, chief Financial Officer, executive Director, Group commercial manager, Group risk manager and other company executives (as required) attend audit committee meetings, by invitation, to present the relevant statutory information, Financial statements, reports, and to answer the questions of the members. at the audit committee meetings, the members will meet with the external auditor without management present. The main responsibilities of the audit committee include: • review of financial statements and external financial reporting; • assess the management processes supporting external reporting; • assess whether the external reporting is adequate to meet the • • • • information needs for shareholders; recommendations on the appointment and removal of the external auditor; review and monitor the performance and independence of the external audit function; review of tax planning and tax compliance systems and processes; review and monitor risk management and internal compliance and control systems; • assess the performance and objectivity of the internal audit function; and • reporting to the Board on the committee’s role and responsibilities covering all the functions in its charter The executive Director prepares the draft minutes for each audit committee meeting, which are tabled at the next audit committee meeting for review and approval. The draft minutes are also included in the Board papers of the next Board meeting following the audit committee meeting. certification of Financial reports The managing Director and chief Financial Officer state in writing to the Board each reporting period that in their opinion the company’s financial reports present a true and fair view of the company’s financial position and performance, and are in accordance with relevant accounting standards. The statements from the managing Director and chief Financial Officer are based on a formal sign-off framework established throughout the company and reviewed by the audit committee as part of the financial reporting process. external auditor independence The Board recognises the importance of a truly independent external audit firm to ensure that the audit function delivers, for the benefit of the Board and all other stakeholders, an unbiased confirmation of both the Financial statements and the state of affairs of the company. consistent with the Board’s commitment to an independent audit firm, a policy has been approved by the Board on the role of the external auditor, which is designed to ensure the independence of the external audit function. The audit committee reviews the independence of the external audit function annually and makes a recommendation to the Board on continuing independence. as part of this review, the audit committee examines the non-audit roles performed by the external auditor to satisfy itself that the auditor’s independence is not compromised. Whilst the value of non-audit services could, in extreme cases, 23 cOrPOraTe GOvernance sTaTemenT (cOnT) FOr THe year enDeD 30 June 2013 compromise audit independence, more important is to ensure that the external auditor is not passing an audit opinion on the non-audit work of its own firm. as a further measure to ensure the independence of the audit function, the chairman of the audit committee must pre-approve all audit services provided by the external auditor and non-audit services with a value of greater than $5,000. During the year, the company’s external auditor, KPmG, provided an auditor independence Declaration to the Board (refer to the Directors’ report) that, to the best of their knowledge and belief, there have been no contraventions of: • the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and • any applicable code of professional conduct in relation to the audit. in considering the KPmG independence declaration and the recommendation of the audit committee, the Board is satisfied with the continuing independence of the external audit function. For details of the non-audit roles performed by KPmG during the year, please refer to the notes to the Financial statements. selection and appointment of external auditor Following shareholder approval at the 2004 annual General meeting, KPmG were appointed external auditor for the financial year commencing 1 July 2004 after a comprehensive tender process conducted by the audit committee. KPmG replaced ernst & young who had been the external auditor since 1995. rotation of external auditor KPmG has advised the company that their policy of audit partner rotation requires a change in the lead engagement partner and review partner after a period of five years. an audit partner rotation plan has been reviewed and approved by the audit committee to ensure the transition process is managed effectively. in accordance with the plan, effective from 1 July 2010, mr Greg Boydell was appointed the lead engagement Partner following the rotation of mr mark epper. PrinciPle 5 – maKe Timely anD BalanceD DisclOsure The company is committed to ensuring the timely disclosure of material price sensitive information through compliance with the continuous disclosure obligations in the asX listing rules and the Corporations Act 2001. The company includes continuous disclosure as a permanent item on the agenda for Board meetings. The Board has approved a continuous Disclosure Policy to ensure the company complies with the continuous disclosure requirements and to ensure accountability at the executive and senior management level for that compliance. The managing Director is the company’s continuous Disclosure compliance Officer and is responsible for ensuring compliance with the continuous disclosure requirements and overseeing and authorising disclosure of information to the asX. all media releases which contain material price sensitive information must be approved by the Board prior to release to the asX. The executive Director coordinates the communications with the asX including ensuring compliance with regulatory requirements and overseeing information released to the asX, shareholders and other interested parties. announcements made to the asX are published on the company’s website immediately after release. PrinciPle 6 – resPecT THe riGHTs OF sHareHOlDers The company is committed to ensuring shareholders and the financial markets are provided with full, open and timely information about its activities. This is achieved by the following: • ensuring that shareholder communications (including the annual report and notice of annual General meeting) satisfy relevant regulatory requirements and guidelines. The company is committed to producing shareholder communications in plain english with full and open disclosure about the company’s policies and procedures, operations and performance; • ensuring that shareholders have the opportunity to receive external announcements by the company through the corporate website, www.gwagroup.com.au. all company announcements and information released to the market (including half and full year results) are located on the website and may be accessed by shareholders. There is a corporate Governance section on the website which outlines the company’s governance practices and policies and other information including details of the company’s sustainability and environmental performance; the Board is committed to the use of electronic communications with shareholders to reduce the environmental impact and costs. shareholders can elect to receive company communications electronically, although at present not all communications are made available electronically. annual reports are no longer printed and mailed to shareholders, unless specifically requested. annual reports are made available to shareholders on the company’s website in an accessible and user friendly format. shareholders are mailed the notice of annual General meeting and Proxy Form, which includes details on accessing the online annual report and proxy voting; the company encourages shareholders to attend and participate at the annual General meeting to canvass the relevant issues of interest with the Board. if shareholders are unable to attend the annual General meeting personally, they are encouraged to participate through proxy voting. The company has implemented online proxy voting to make it easier for shareholders to lodge their proxy votes if they are unable to attend the annual General meeting. The company endeavours to set the timing and the location of the annual General meeting so that it is convenient for shareholders generally; and the external auditor attends the annual General meeting and is available to answer questions from shareholders about the conduct of the external audit and the preparation and content of the independent auditor’s report. shareholders attending the annual General meeting are made aware they can ask questions of the external auditor concerning the conduct of the audit. • • • GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTPrinciPle 7 – recOGnise anD manaGe risK The Board recognises that effective risk management processes help ensure the business is more likely to achieve its business objectives and that the Board meets its corporate governance responsibilities. in meeting its responsibilities, the Board has ensured that management has put in place comprehensive risk management policies and practices across the company which addresses each of the key elements and requirements of as/nZs standard 4360: 2004 – risk management. such processes include defining the risk oversight responsibilities of the Board and the responsibilities of management in ensuring risks are both identified and effectively managed. The agreed policies and practices are made effective through the combined activities of: • an audit committee that reports to the Board on risk management and internal control matters in accordance with its main responsibilities as outlined in the audit committee charter. Whilst ultimate responsibility for risk oversight rests with the Board, the audit committee is an efficient mechanism for focusing the company on risk oversight, risk management and internal controls; • an executive risk committee (erc) comprising the executive and senior management of the company which has been established to identify business risks in the organisation and review status and risk mitigation activities. Formal enterprise risk profiles have been prepared for the businesses and these are reviewed half yearly by the erc. The major business risks are reported to the audit committee at the may and november meetings together with risk mitigation activities. The erc reports to the audit committee on its activities as outlined in the erc charter; • a Finance committee comprising the executive and senior management of the company which has been established to review and monitor the financial risks in the organisation and oversee the execution of finance policies and risk mitigation activities. The Finance committee reports to the audit committee on its activities as outlined in the Finance committee charter; • a Group commercial manager who has primary responsibility for designing, implementing and coordinating the overall risk management and internal control practices of the company. The Group commercial manager attends the audit committee meetings to present the internal audit report and prepares a monthly commercial risk report for the Board. Whilst reporting to the chief Financial Officer on a day to day basis, the Group commercial manager has the authority to report directly to the Board on any matter; • a Group risk manager who has specific responsibilities in respect of operational risks including occupational health and safety, business continuity, environmental and sustainability risks. The Group risk manager prepares a monthly Group risk report for the Board and attends the may and november audit committee meetings to present the Operational risk report; • a co-sourced internal audit structure under the management of Grant Thornton. The internal audit activities are carried out by a combination of internal and appropriately qualified external resources based on an audit committee approved program of work. such activities link to the company’s risk management practices by ensuring risks are being adequately identified and managed through the effective and efficient operation of control procedures. The internal audit function is independent of the external audit function; and • external audit activities undertaken by the external auditor, KPmG, to review internal controls as part of the year end audit procedures. internal control weaknesses are identified by the external auditor and communicated to management to address through a formal reporting process. The actions taken by management are reviewed by the chief Financial Officer as part of the stewardship review process for the half and full year accounts. The company has implemented risk management software across the Group for the purpose of identifying and managing occupational health and safety, business continuity and environmental risks. The software is a critical tool for executives and senior management and has enhanced the identification, reporting and monitoring of actions in this important area in order to support management’s objectives. risk management is embedded in the company’s policies and procedures which have enabled the company to pro-actively identify and manage all types of risk within the organisation. The Board aims to continually evaluate and re-assess the risk management and internal control practices of the company to ensure current good practice is maintained and to preserve and create value within the organisation. certification of risk management controls in conjunction with the certification of financial reports, the managing Director and chief Financial Officer state in writing to the Board each reporting period that in their opinion: • • the statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and the company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. The statements from the managing Director and chief Financial Officer are based on a formal sign-off framework established throughout the company and reviewed by the audit committee as part of the financial reporting process. PrinciPle 8 – remuneraTe Fairly anD resPOnsiBly remuneration committee The remuneration committee meets as required and on several occasions throughout the year. For membership and attendance details of the remuneration committee, refer to the Directors’ report. The composition of the remuneration committee is based on the following principles: • • • • the remuneration committee should consist of non-executive directors only; the remuneration committee should consist of a majority of independent directors; the remuneration committee should consist of a minimum of three members; and the chairperson of the remuneration committee should be an independent director. 25 cOrPOraTe GOvernance sTaTemenT (cOnT) FOr THe year enDeD 30 June 2013 The remuneration committee operates under a charter that details the committee’s role and responsibilities, composition, structure and membership requirements. The charter is reviewed annually to ensure it remains consistent with the Board’s objectives and responsibilities. refer to the company’s website for a copy of the charter. The main responsibilities of the committee include: • • • • • review of the company’s remuneration and incentive policies; review of executive and senior management remuneration packages; review of the company’s recruitment, retention and termination policies and procedures; review of the company’s superannuation arrangements; and reporting to the Board on the committee’s role and responsibilities covering all the functions in its charter. in performing its responsibilities, the remuneration committee receives appropriate advice from independent external advisers. During the year, the remuneration committee engaged the services of Guerdon associates to provide market benchmarking data to assist with the 2013/14 executive remuneration review. The executive Director prepares the draft minutes for each remuneration committee meeting which are tabled at the next remuneration committee meeting for review and approval. The draft minutes are also included in the Board papers of the next Board meeting following the remuneration committee meeting. remuneration Policies The Board’s objective in setting the company’s remuneration policies is to provide maximum stakeholder benefit from the retention of a high quality Board and executive team. This is achieved by remunerating directors and executives fairly and appropriately based on relevant market benchmarking data and the linking of the executives’ emoluments to the company’s financial and operating performance in order to align with shareholder wealth creation. The nomination committee is responsible for determining the remuneration for the non-executive directors, with the maximum aggregate amount approved by shareholders. The non-executive directors receive their remuneration by way of directors’ fees only (including statutory superannuation) and are not able to participate in the executive incentive schemes. There are no director retirement benefits other than statutory superannuation. The remuneration committee is responsible for reviewing and determining the remuneration and incentive arrangements for the executives. The remuneration committee obtains market benchmarking data from an independent external adviser to assist in determining market remuneration levels. The remuneration and incentive arrangements have been structured to ensure that performance is fairly rewarded and to attract, motivate and retain a high quality executive team. For details of the company’s remuneration policies and disclosures, refer to the remuneration report. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORT 27 27 DirecTOrs’ rePOrT as aT 30 June 2013 Your directors present their report on the consolidated entity of GWA Group Limited (“the Company”) and the entities it controlled during the financial year ended 30 June 2013. DirecTOrs The following persons were directors of the company during the financial year and up to the date of this report. Directors were in office this entire period unless otherwise stated. G J mcGrath, chairman and non-executive Director D D mcDonough, Deputy chairman and non-executive Director Director G J mcGrath D D mcDonough P c crowley* r m anderson W J Bartlett J F mulcahy P a Birtles r J Thornton* Total** Ordinary Shares 150,000 107,905 330,000 8,418,442 33,194 45,000 15,000 43,694 9,143,235 P c crowley, managing Director r m anderson, non-executive Director W J Bartlett, non-executive Director J F mulcahy, non-executive Director P a Birtles, non-executive Director r J Thornton, executive Director Details of the directors’ qualifications, experience and special responsibilities are located in the annual report. Details of the directorships of other listed companies held by each director in the three years prior to the end of the 2012/13 financial year, and the period for which each directorship has been held, are listed in the annual report. cOmPany secreTary mr r J Thornton was appointed company secretary of GWa Group limited in 2003. mr Thornton continued in his role as company secretary following his appointment as executive Director in may 2009. Details of mr Thornton’s qualifications and experience are located in the annual report. DirecTOrs’ inTeresTs The relevant interest of each director in the share capital of the company as notified by the directors to the australian securities exchange in accordance with section 205G(1) of the Corporations Act 2001 as at the date of this report is shown in the following table. * The executive directors, mr P c crowley and mr r J Thornton, are holders of Performance rights under the GWa Group limited long Term incentive Plan. For details of the Performance rights held, please refer to the remuneration report. ** note 34 to the Financial statements sets out the number of shares held directly, indirectly or beneficially by directors or their related entities at balance date as prescribed in accounting standard aasB 124, this being 19,129,596 shares (last year 19,624,906 shares). cOrPOraTe sTrucTure GWa Group limited is a company limited by shares that is incorporated and domiciled in australia. GWa Group limited has prepared a consolidated Financial report incorporating the entities that it controlled during the financial year ended 30 June 2013, which are outlined in note 31 of the Financial statements. PrinciPal acTiviTies The principal activities during the year within the consolidated entity were the research, design, manufacture, import and marketing of building fixtures and fittings to households and commercial premises and the distribution of these various products through a range of distribution channels in australia, new Zealand and selected international markets. The company acquired aPi services and solutions Pty ltd (aPi locksmiths) on 2 October 2012. aPi locksmiths is an australian supplier of safes, locks, alarms and locksmithing services to major commercial enterprises. There have been no other significant changes in the nature of the activities of the consolidated entity during the year. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTemPlOyees The consolidated entity employed 1,680 employees as at 30 June 2013 (last year 1,788 employees). The consolidated entity recognises the productivity benefits to be gained from investing in its employees to improve motivation and individual skills. The consolidated entity remains committed to ensuring that staff are provided access to appropriate training and development programs. The consolidated entity has implemented employment policies aimed at encouraging diversity in the workforce to attract and retain the best people, including a stronger representation of women. all companies in the consolidated entity are active equal opportunity employers. The company’s latest Workplace Gender equality report lodged with the Workplace Gender equality agency is available on the company’s website. OPeraTinG anD Financial revieW The Operating and Financial review for the consolidated entity during the financial year ended 30 June 2013 is provided in the managing Director’s review of Operations, and forms part of this Directors’ report. seGmenT PerFOrmance The segment performance of the company for the financial year ended 30 June 2013 is outlined in the table at the bottom of this page. sTaTe OF aFFairs changes in the state of affairs of the consolidated entity during the financial year resulted from the pursuit of acquisition opportunities to expand the core building fixtures and fittings business to provide access to new markets and product extensions. Details of the changes are as follows: • on 2 October 2012, the consolidated entity purchased the shares of aPi locksmiths for $12.4 million. aPi locksmiths is an australian supplier of safes, locks, alarms and locksmithing services to major commercial enterprises. aPi locksmiths has been included in the GWa Door & access systems division to further strengthen the consolidated entity’s market offer in residential and commercial access systems and provide a service capability to complement its product offerings. in the opinion of the directors, there were no other significant changes in the state of affairs of the consolidated entity during the financial year, other than disclosed in the Directors’ report or referred to in the Financial statements or notes thereto. DiviDenDs Dividends paid or declared by the company to shareholders since the end of the previous financial year were: Declared and paid during 2012/13 financial year earninGs Per sHare Earnings Per Share Basic earnings per share Basic earnings per share – continuing operations 2012/13 cents 2011/12 cents 10.6 10.6 13.2 15.3 Dividend Final 2011/12 Ordinary interim 2012/13 Ordinary Cents per share Total Amount $’000 8.5 25,670 6.0 18,283 Franked Date of Payment Fully Franked 4 October 2012 Fully Franked 4 april 2013 Franked dividends declared and paid during the year were franked at the corporate tax rate of 30%. Business Segment Sales Revenue Trading EBIT 2012/13 $’000 2011/12 $’000 % change 2012/13 $’000 2011/12 $’000 Bathrooms & Kitchens Heating & cooling Door & access systems Other Total 367.5 58.8 140.9 (1.8) 565.4 404.7 62.5 138.6 (3.7) 602.1 -9% -6% 2% 64.5 5.2 10.9 (14.8) 65.8 67.8 6.5 14.1 (13.0) 75.4 % change -5% -19% -23% 29 DirecTOrs’ rePOrT (cOnT) as aT 30 June 2013 Declared after end of the 2012/13 financial year after balance date the following dividend was approved by the directors. The dividend has not been provided and there are no income tax consequences. Dividend Final 2012/13 Ordinary Cents per share Total Amount $’000 6.0 18,392 Franked Date of Payment Fully Franked 4 October 2013 The financial effect of the dividend has not been brought to account in the Financial statements for the year ended 30 June 2013 and will be recognised in subsequent Financial reports. The record date for the final dividend is 9 september 2013 and the dividend payment date is 4 October 2013. The Dividend reinvestment Plan was suspended by the Board in august 2013 and will not be offered to shareholders for the final dividend. siGniFicanT evenTs aFTer Balance DaTe On 21 august 2013, the directors declared a final ordinary dividend of 6.0 cents per share in respect of the financial year ended 30 June 2013. The dividend will be fully franked at the 30% corporate tax rate. The total amount of the dividend is $18.392 million (last year $25.670 million). in accordance with accounting standards, the dividend has not been provided for in the Financial statements for the year ended 30 June 2013. There has not been any other matter or circumstance, other than that referred to in the Financial statements or notes thereto, that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity. liKely DevelOPmenTs anD eXPecTeD resulTs likely developments and expected results of the operations of the consolidated entity are provided in the managing Director’s review of Operations. in the next financial year, the consolidated entity will continue to pursue strategies for increasing the profitability and market share of the businesses. There will be further investment in research and new product development to ensure that the consolidated entity generates the best possible returns from the businesses. Further information on likely developments and expected results of the operations of the consolidated entity have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. envirOnmenTal reGulaTiOn anD PerFOrmance environmental licenses The consolidated entity holds licenses issued by environmental protection and water authorities that specify limits for discharges to the environment which arise from the operations of entities that it controls. These licenses regulate the management of discharge to air, storm water run-off, removal and transport of waste associated with the manufacturing operations in australia. Where appropriate, an independent review of the consolidated entity’s compliance with license conditions is made by external advisers. The consolidated entity, in conjunction with external advisers, monitors storage and treatment of hazardous materials within particular operations. Prior to any discharge to sewers, effluent is treated and monitored to ensure strict observance with license conditions. The directors are not aware of any breaches of the consolidated entity’s license conditions during the financial year ended 30 June 2013. environmental remediation in previous financial years, the consolidated entity investigated and reported two environmental contamination issues at factory sites at revesby new south Wales and eagle Farm Queensland. The revesby site was previously leased and occupied by mcilwraith-Davey Pty ltd, a wholly owned subsidiary of the ultimate parent, GWa Group limited. The site was exited on the lease expiry date of 30 april 2013. The eagle Farm site was previously occupied by corille limited (formerly rover mowers limited) and was exited in a prior financial year following the sale of the rover mowers business. The remediation activities at the revesby site were substantially completed at 30 June 2013. The final environmental auditor’s report was submitted to the new south Wales Office of environment and Heritage (OeH) in July 2012. in august 2012, OeH advised the company that the site no longer needed to be regulated under the new south Wales contaminated land management act. Post remediation groundwater testing has continued during the 2012/13 financial year. The company expects to finalise all OeH remediation requirements at the revesby site after the final post remediation groundwater testing report is validated which should occur during the 2013/14 financial year. The remediation activities at the eagle Farm site were completed during the 2011/12 financial year. The final environmental auditor’s report has been submitted to the Queensland Department of environment and Heritage Protection (DeHP). The company received notification from the DeHP in april 2013 that the site management Plan has been approved. inDemniFicaTiOn anD insurance OF DirecTOrs anD eXecuTives indemnification The company’s constitution provides that, to the extent permitted by the law, every current (and former) director or secretary of the company shall be indemnified out of the assets of the company against all costs, expenses and liabilities which results directly or indirectly from facts or circumstances relating to the person serving (or having served) in their capacity as director or secretary of the company, but excluding any liability arising out of conduct involving a lack of good faith or conduct known to the person to be wrongful or any liability to the company or related body corporate. insurance Premiums The company has paid premiums in respect of insurance contracts which provide cover against certain liabilities of every current (and former) director and officer of the company and its controlled entities. The contracts of insurance prohibit disclosure of the total amount of the premiums paid, or the nature of the liabilities covered under the policies. Premiums were paid in respect of every current (and former) director and officer of the company and controlled entities, including the GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTdirectors named in the Directors’ report, the chief Financial Officer and all persons concerned or taking part in the management of the company and its controlled entities. Both the nomination committee and the remuneration committee have the authority to engage external professional advisers without seeking approval of the Board or management. remuneraTiOn rePOrT – auDiTeD The remuneration report provides information about the remuneration arrangements for key management personnel (KmP), which includes non-executive directors and the most senior group executives, for the year ended 30 June 2013. reference to ‘executives’ in this report means KmP executives. The report covers the following matters: 1. board role in setting remuneration strategy and principles; 2. relationship between remuneration policy and company performance; 3. description of non-executive director remuneration; 4. description of executive remuneration; 5. details of director and executive remuneration; 6. key terms of employment contracts; and 7. legacy equity based remuneration plan. 1. BOarD rOle in seTTinG remuneraTiOn sTraTeGy anD PrinciPles GWa’s strategy is to provide remuneration that is fair and sufficient to attract and retain management and directors with the experience, knowledge, skills and judgment required for the consolidated entity’s success. The key principle is that remuneration varies between the median and third quartiles (or higher if warranted by superior performance) relative to companies of comparable size and scope to GWa. The Board engages with shareholders, management and other stakeholders to continuously refine and improve executive and director remuneration polices and practices. The nomination committee is responsible for determining the remuneration arrangements for the non-executive directors, with the annual maximum aggregate amount approved by shareholders. The remuneration committee deals with remuneration matters for executives. During the reporting period, the remuneration committee obtained advice from Guerdon associates for the 2013/14 executive remuneration review. Guerdon associates does not provide other services to management and is considered to be independent. consulting fees of $42,993 were paid to Guerdon associates for their services during 2012/13. in response to feedback from shareholders and advice from Guerdon associates a number of important changes were implemented to the remuneration structure in 2011/12 which are consistent with GWa’s remuneration strategy. These changes are outlined in section 1.1. 1.1 executive remuneration strategy – 2011/12 changes as a result of shareholder feedback on its remuneration practices, GWa’s executive remuneration structure was changed with effect from the start of the 2011/12 financial year. The remuneration committee aims to ensure that the mix of fixed and variable remuneration for executives is appropriate for the cyclical, mature, competitive and lower growth industries in which GWa operates, having regard to: • • the need to protect the market leading positions of established products against large global competitors in order to maintain competitiveness; and the importance of developing growth opportunities whilst maintaining stability of earnings and a high operating cash flow to fund the fully franked dividend payments to shareholders. The remuneration committee acknowledges that this strategy has generally resulted in the approval of a higher proportion of fixed remuneration and a lower proportion of variable remuneration for some executives compared to peer companies. Key concerns raised by shareholders and the changes implemented to GWa’s remuneration structure in the 2011/12 financial year are summarised in the table below. Shareholder Concern GWA Board Response Fixed remuneration for managing Director and some executives is above third quartile measured against peer companies long term incentives are too high long term incentives are subject to “cliff” vesting with low targets incentives could encourage excessive risk taking managing Director’s fixed remuneration will be frozen for three years from 1 July 2011 to 30 June 2014. reduce long term incentives with more emphasis on short term incentives with part deferred subject to further testing and potential clawback. remove “cliff” reward vesting that may encourage excessive risk taking as a performance threshold is approached. The long Term incentive plan has graduated vesting scales to more closely align reward with performance. Performance targets have been increased for reasonably achievable levels and stretch targets applied for full vesting. shift some of the incentive from longer term to shorter term requirements for growth with payment of deferred amounts subject to further testing and potential clawback if performance is unsustainable. 31 DirecTOrs’ rePOrT (cOnT) as aT 30 June 2013 1.2 managing Director’s remuneration The managing Director’s fixed remuneration has been established over the past 10 years of service to shareholders where he has consistently delivered value and positioned the consolidated entity for sustainable performance. The managing Director has been instrumental in the restructuring of the GWa businesses over recent years to compete in the cyclical australian building industry with the high australian dollar increasing import competition in its primary markets. During that time, the company has successfully executed its growth strategies through the divestment of its non-core businesses and surplus properties, and through strategic acquisitions to provide options for growth and expand its core australian building fixtures and fittings business. The strong financial position has enabled the company to maintain a high dividend pay-out ratio and fund growth opportunities as they arise. During the 10 years of service, the managing Director has received only modest incentive payments due to the low activity levels in the building sector during that period. The Board believes the above changes to the 2011/12 remuneration structure represented an appropriate balance between addressing the issues raised by shareholders and maintaining a competitive compensation package for key executives. 2. relaTiOnsHiP BeTWeen remuneraTiOn POlicy anD cOmPany PerFOrmance remuneration is linked to performance by: • applying challenging financial and non-financial measures to assess performance; and • ensuring that these measures focus management on operational and strategic business objectives that create shareholder value. GWa measures performance on the following key corporate measures: • earnings per share (ePs) growth; • total shareholder return (Tsr) relative to companies with similar scope, operations, customers or products; and • economic Profit, defined as the pre tax profit after deducting the cost of capital for funds used. remuneration for all executives varies with performance on these key measures together with achievement of key personal goals which underpin delivery of these financial outcomes, and are linked to the consolidated entity’s performance review process. The graph at the bottom of the page shows the company’s relative performance over a rolling 3 year period to 30 June 2013 compared to the peer group companies used for the 2013 grant of Performance rights. The companies comprise reece australia limited, Brickworks limited, csr limited, Goodman Fielder limited, super retail Group limited, Premier investments limited, Breville Group limited, GuD Holdings limited, Hills industries limited, Bradken limited, Dulux Group limited, Pacific Brands limited, adelaide Brighton limited and ansell limited. The following is a summary of key shareholder wealth statistics for the company over the last five years: Financial Year 2008/09 2009/10** 2010/11 2011/12** 2012/13 Trading EBIT* ($m) Trading EPS* (cents) Total DPS (cents) Share Price ($) 86.4 94.5 99.9 75.4 65.8 17.9 18.5 19.6 15.1 12.7 18.0 18.0 18.0 18.0 12.0 2.30 3.01 2.75 2.10 2.40 *excludes restructuring expenses **excludes discontinued operations 3 Year Rolling TSR^ GWA 3 Year Rolling TSR Peer Group 3 Year Rolling TSR 50th Percentile Source: Guerdon Associates ^ Assuming 36 months in each rolling period 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% -20.00% -40.00% June 10 Oct 10 Feb 11 June 11 Oct 11 Feb 12 June 12 Oct 12 Feb 13 June 13 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 Apr 12 Aug 12 Dec 12 Apr 13 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTThe remuneration and incentive framework which has been put in place by the Board has ensured that executives are focused on both sustaining short term operating performance with moderate long term strategic growth. This has contributed to the company maintaining the shareholder returns outlined in the table above despite the low levels of building activity in recent years. This includes a total of 84 cents in fully franked dividends paid to shareholders in the last five financial years. The decline in the company’s profitability performance in 2012/13 has been primarily driven by the continuation of the cyclical decline in domestic dwelling construction and weak consumer confidence impacting renovation activity. import competition has increased with the high australian dollar which has led to further restructuring in the past year. The remuneration and incentive framework has allowed the company to respond to the downturn. sTi payments to executives related to economic Profit targets are lower in 2012/13. lTi rewards to executives related to earnings per share growth have failed to meet targets to date. However, sTi payments related to performance improvement and restructuring in the downturn have encouraged management to respond quickly and make long term decisions to maintain competitiveness and profitability. an assessment of the managing Director’s key performance goals and financial targets subject to sTi incentive payments for 2012/13 is provided in the following table: 2012/13 Goals Results Assessment achieve leading safety performance to work towards an injury free workplace an 11% improvement in the total injury frequency rate (TiFr) in 2012/13 has continued the group’s strong safety performance over the past 8 years. Whilst the TiFr target of 7.5 for 2012/13 was not achieved, the actual result of 7.7 still represents a significantly improved outcome and demonstrates the commitment to an injury free workplace. improved working capital management by lowering inventory levels Deliver the strategic repositioning of the group and lead the restructuring execute an acquisition to grow the core building fixtures and fittings business Develop succession plans for key company and divisional executive roles Demonstrate progress with achieving synergies with the new acquisitions Financial targets Group inventory levels have reduced by 12% in 2012/13, delivering strong operating cash flow. The improved outcome has been driven by management focus, stock ordering discipline and range rationalisation initiatives to simplify the business. The strategic plans for the Bathrooms & Kitchens and Door & access systems divisions were approved by the Board in December 2012 as part of the strategic re-positioning of the business to better service the market, deliver cost savings and improve efficiency. The plans have been successfully implemented during 2012/13 resulting in changed divisional structures (ie, Dux combined with Bathrooms & Kitchens and Gliderol combined with Gainsborough) delivering a positive contribution to eBiT and operating cash flow of $8 million in 2012/13 with full year cost savings expected in 2013/14. Whilst the group was focused on implementing the strategic plans approved by the Board in December 2012, aPi locksmiths was acquired in October 2012 which further strengthened the company’s market offer in residential and commercial access systems and provides a service capability to complement its product offerings. This followed the termination of the scheme implementation agreement with Q Technology Group ltd, the owner of aPi locksmiths, in July 2012. The significant restructuring occurring during 2012/13 and consequential changes to divisional structures and executive roles meant that this objective was not progressed. This task will be prioritised in 2013/14 to ensure succession plans are in place for the key executive roles under the changed divisional structures including recruitment for vacant management positions and the development of talent within the business. The achievement of synergies has been slower than expected and focus is continuing on leveraging the group’s capabilities to derive synergies from the acquisitions. Gliderol was consolidated with Gainsborough during 2012/13 which should provide more scope for synergies as a combined business. Brivis now operates as a standalone business unit following the consolidation of Dux with Bathrooms & Kitchens during 2012/13. synergy opportunities exist for group shared services and group marketing opportunities with home builders. For the 2012/13 year the company’s lower profitability performance has meant the sTi financial targets at both the divisional and corporate level have not been achieved, except for the Brivis business unit. = Fully achieved = Partially achieved = not achieved 33 DirecTOrs’ rePOrT (cOnT) as aT 30 June 2013 3. DescriPTiOn OF nOn-eXecuTive DirecTOr remuneraTiOn There has been no change to the basis of non-executive director fees since the prior reporting period. Fees for non-executive directors are fixed and are not linked to the financial performance of the consolidated entity. The Board believes this is necessary for non-executive directors to maintain their independence. at the 2004 annual General meeting, shareholders approved non- executive director fees up to an annual maximum aggregate amount of $1.09 million (including statutory superannuation). The actual fees paid to the non-executive directors are outlined in the remuneration Tables (see section 5.1). non-executive director remuneration consists of base fees and statutory superannuation, plus an additional fee for each Board committee on which a director sits. The payment of committee fees recognises the additional time commitment required by directors who serve on one or more committees. non-executive directors are not able to participate in the executive incentive schemes. The nomination committee obtains market benchmarking data from an external remuneration adviser to ensure that the level and allocation of non-executive director remuneration is market based and fairly represents the responsibilities and time spent by the directors on company matters. The benchmarking survey from Guerdon associates in 2011 sampled the same companies used for executive remuneration benchmarking (see section 4.2) and found the fees received by most non-executive directors were positioned at about the 60th percentile. retirement benefits are not available for non-executive directors of the company, other than statutory superannuation. 4. DescriPTiOn OF eXecuTive remuneraTiOn 4.1 executive remuneration structure executive remuneration has a fixed component and a component that varies with performance. The variable component ensures that total pay varies with performance. The short term incentive (sTi) provides rewards for performance over a 1 year period. The long term incentive (lTi) provides rewards for performance over a 3 year period. The maximum total remuneration that can be provided to an executive is capped, with maximum incentive payments expressed as a percentage of total fixed remuneration. Total fixed remuneration for the purposes of the incentives includes superannuation and non-monetary benefits. The sTi and lTi maximum percentages are less than most market peers given the emphasis on stability of earnings, cash flow and dividends and the relatively high fixed pay for some executives. The 2011/12 changes to the remuneration structure implemented for all executives, including the managing Director, resulted in a shift in incentives from longer term to shorter term requirements to focus on responding to the short term challenges posed by cyclical factors, sustain competitiveness, deliver value and growth, and maintain cash flows for dividends. However, to ensure sustainability or performance over time, there is a requirement that 50% of the financial component of the sTi be deferred and subject to further testing and potential clawback with payment at the discretion of the Board at the time of signing the following year’s annual audited Financial statements. The further testing involves the Board verifying the integrity of the achievement of the sTi financial targets. interest at market rates will be earned by the executives on the deferred component. 4.1.1 Managing Director remuneration structure The 2012/13 incentives structure for the managing Director is provided in the table below: Maximum STI as % of fixed remuneration LTI % of fixed remuneration (grant date fair value) Total performance pay as % of fixed remuneration 80 40 120 Managing Director 2012/13 The 2012/13 sTi for the managing Director is provided in the table below: Reasonably Achievable – Personal Goals as % of fixed remuneration Reasonably Achievable – Financial Targets as % of fixed remuneration Total Reasonably Achievable as % of fixed remuneration Stretch – Financial Targets as % of fixed remuneration Maximum STI as % of fixed remuneration Managing Director 2012/13 20 30 50 30 80 The 2012/13 total performance pay outcomes for the managing Director as reflected in the remuneration Tables is provided in the table below. Achievement of STI and LTI as % of fixed remuneration Forfeiture of STI and LTI as % of fixed remuneration Total performance pay as % of fixed remuneration 11 30 41 69 30 99 80 60 140 Managing Director sTi lTi* Total * This relates to the lTi plan prior to the changes implemented to the remuneration structure in 2011/12 as outlined in section 1.1 above. Previously, the managing Director was eligible to receive Performance rights under the lTi plan to the value of 60% of his fixed remuneration. This was reduced to 40% of his fixed remuneration as part of the 2011/12 changes, together with graduated vesting scales and higher performance hurdles. 4.1.2 Other Executives remuneration structure The 2012/13 incentives structure for other executives is provided in the table below: Maximum STI % of fixed remuneration LTI % of fixed remuneration (grant date fair value) Total performance pay as % of fixed remuneration 50 30 80 Other Executives 2012/13 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTThe 2012/13 sTi for the other executives is provided in the table below: Reasonably Achievable – Personal Goals as % of fixed remuneration Reasonably Achievable – Financial Targets as % of fixed remuneration Total Reasonably Achievable as % of fixed remuneration Stretch – Financial Targets as % of fixed remuneration Maximum STI as % of fixed remuneration Other Executives 2012/13 20 20 40 10 50 4.2 Fixed remuneration Fixed remuneration is the sum of salary and the direct cost of providing employee benefits, including superannuation, motor vehicles, car parking and fringe benefits tax. The level of fixed remuneration is set: • • • to retain proven performers with difficult to source experience in manufacturing and global supply chain management; to attract external recruits with depth and breadth of expertise usually acquired while working with larger companies; and in recognition that the primary focus in recent years has been on conserving market leadership, cash flow and dividends during the downturn in the building cycle where the opportunities for outperformance and subsequent incentive payments are more limited. The Board targets the setting of fixed remuneration for executives between the median and third quartiles (or higher if warranted by superior performance) relative to companies of comparable size and scope to GWa. Based on an independent survey by Guerdon associates for the 2013/14 executive remuneration review, the fixed remuneration for most executive positions at GWa is at or above the 50th percentile for companies of comparable revenues. However, the Guerdon associates survey concluded that compared to the prior year, fixed remuneration for most GWa executives is relatively lower in positioning against comparator companies. The 23 listed companies included in the survey provided reliable and robust statistical remuneration benchmarking and shared some common attributes with GWa, but few direct competitors and good position matches exist for precise remuneration positioning. Judgment was therefore exercised by the remuneration committee in determining appropriate remuneration levels, having regard to the background and experience of the individuals. While market levels of remuneration are monitored on a regular basis, there is no contractual requirement or expectation that pay will be adjusted each year. Where these levels are above the 75th percentile, fixed remuneration will either be frozen or increases will be below market levels. consistent with this approach, the managing Director agreed in 2011 to a freeze on his fixed remuneration for 3 years to 30 June 2014. 4.3 short-term incentive (‘sTi’) 4.3.1 STI overview The sTi plan provides for an annual payment that varies with performance measured over the company’s financial year to 30 June 2013. The sTi is aligned to shareholder interests as executives will only become entitled to the majority of payments if profitability improves (allowing for the building cycle), with maximum incentive payments above the reasonably achievable level linked directly to shareholder wealth creation. as noted in section 4.1, the maximum sTi that can be earned is capped to minimise excessive risk taking. The sTi payment is made in cash after finalisation of the annual audited Financial statements. as outlined in the remuneration Tables, 50% of the financial target component of the sTi has been deferred for the executives that achieved their sTi financial targets for 2012/13. The deferred component will be subject to further testing to confirm the integrity of the achievement of the sTi financial targets following finalisation of the 2013/14 audited Financial statements. if the Board is satisfied then the deferred component will be paid to the executives together with interest at market rates. However, if the Board is not satisfied then the sTi payment will be subject to clawback. 4.3.2 STI performance requirements 4.3.2.1 Personal Goals The personal goals set for each executive includes achievement of key milestones to improve or consolidate the company’s or business unit’s strategic position. The goals vary with the individual’s role, risks and opportunities. The achievement of personal goals reinforces the company’s leadership model for improved performance management through achieving measurable personal goals established during the performance review process at the beginning of the financial year. strict criteria have been established by the remuneration committee for the setting of personal goals in order for them to be approved. The goals can be drawn from a number of areas specific to individual roles but must be specific, measurable, aligned, realistic and time based. Weightings are allocated to the personal goals based on their importance to the individual’s role and the company. Personal goals include both measurable financial goals and measurable business improvement goals. The measurable financial goals to improve economic Profit are financial outcomes which the individual aims to achieve through their effort and their team. examples may include achieving working capital reductions, sales/ margin targets or cost reduction targets. The measurable business improvement goals are outcomes which drive business improvement and which may or may not have an immediate financial outcome but will improve the business in the short to medium term. examples may include improved safety and environmental performance, delivering a major project on time and budget, market share and productivity improvements or implementing a change or strategic initiative. assessment of the personal goals sTi component for 2012/13 has been determined following a formal performance review process conducted for the executives. The performance reviews for the executives are conducted semi-annually by the managing Director with the outcomes approved by the remuneration committee. The managing Director’s performance review is conducted semi-annually by the chairman with the outcomes approved by the remuneration committee. The personal goals of the executives for 2013/14 were established at the performance reviews. 35 DirecTOrs’ rePOrT (cOnT) as aT 30 June 2013 The inclusion of personal goals in the remuneration structure ensures that executives can be recognised for good business performance whether or not the company or business unit achieves its sTi financial performance targets. The company operates in the cyclical building industry so fluctuations in profitability can occur through the cycle which is out of the control of the executives. The reward for achievement of personal goals provides specific focus on responding to changes in the economic cycle, as well as on continuous performance improvement. Hence the personal goals are a key part of the company’s performance management process. 4.3.2.2 Financial Targets Financial performance targets are based on a combination of improving revenue, margin and/or improved return on Funds employed (rOFe). This will be calculated using the principle of economic Profit which is the pre tax profit after deducting the cost of funds used in generating the profit. The formula is: economic Profit = eBiT – (Funds employed x pre tax cost of capital) Pre tax cost of capital is 15% per annum (nB: Where significant restructuring has been undertaken in a division, trading eBiT will be used for the calculation of economic Profit) under the sTi framework, a business unit head may receive an sTi payment if business unit economic Profit has grown, although the overall corporate economic Profit may not have grown, and vice versa. The ‘reasonably achievable’ and ‘stretch’ sTi financial targets are determined by the remuneration committee at the beginning of the financial year following approval of the divisional and corporate budgets by the Board. The budget performance levels are taken into consideration in setting the financial targets but different targets may be set (either higher or lower than budget) to motivate management and reflect the degree of difficulty in achieving the budget. Performance between the ‘reasonably achievable’ and ‘stretch’ levels is rewarded on a pro rata basis. The Board retains the right to vary from policy in exceptional circumstances. However, any variation from policy and the reasons for it will be disclosed. There were no variations from policy during the period. For the 2012/13 year the company’s lower profitability performance has meant the sTi financial targets at both the divisional and corporate level have not been achieved, except for the Brivis business unit which achieved their financial targets at the ‘stretch’ level. 50% of the incentive payment has been deferred for Brivis executives and will be subject to further testing and potential clawback under the sTi plan rules. This is reflected in the sTi cash bonus amounts in the remuneration Tables. The deferred component of the sTi incentive payment for 2011/12 for Brivis executives was tested by the Board in august 2013 to confirm the integrity of the achievement of the sTi financial targets in 2011/12. Following their satisfaction with the testing, the Board approved the payment of the deferred component to Brivis executives together with interest at market rates. 4.3.2.3 Financial Targets – 2013/14 changes For the 2013/14 year, the Board proposes to change the basis for determining the sTi financial performance targets for executives. The sTi targets will be based on specified trading eBiT and operating cash flow targets as determined by the remuneration committee at the beginning of the financial year following approval of the divisional and corporate budgets. The Board is of the view that a combination of trading eBiT and operating cash flow targets is a more effective basis for sTi targets as they are currently key metrics used in the business and are better understood than economic Profit. it is proposed that the two metrics will be weighted equally and assessed separately and on an aggregated basis for divisional and corporate executives. Further details of the changes will be reported in next year’s remuneration report. 4.4 long-term incentive (‘lTi’) 4.4.1 LTI overview executives participate in a lTi plan. This is an equity based plan that provides for a reward that varies with company performance over three year periods. Three years is considered to be the maximum time period over which financial projections and detailed business plans can reasonably be made. The lTi is provided as Performance rights, with each right entitling the holder to an ordinary share in the company (or in limited cases to a cash payment), subject to meeting financial performance hurdles and the holder remaining in employment with the company until the nominated vesting date. if the vesting conditions and performance hurdles are achieved, ordinary shares will be issued to the participants at no cost. until that time, the participants have no right to dividends or voting rights on unvested Performance rights. if the performance hurdles are not met then the Performance rights are cancelled. The lTi rules do not allow for re-testing of the performance hurdles after the initial performance period. The performance hurdles for the lTi are selected by the remuneration committee. Half of the Performance rights are based on Total shareholder returns (Tsr) for GWa compared to a peer group of companies (which is a relative performance requirement) and half of the Performance rights are based on growth in earnings Per share (ePs) (which is an absolute performance requirement). The ePs performance condition is calculated as net profit after tax as set out in the company’s annual audited Financial statements divided by the weighted average of ordinary shares on issue. The Board has discretion to make reasonable adjustments to base year ePs where it is unduly distorted by significant or abnormal events. any such adjustments will be disclosed. a participant may not dispose of the ordinary shares issued under the lTi until the seventh anniversary of the grant date and the shares are subject to a holding lock upon issue. There are limited circumstances where a participant may dispose of the shares before the end of the seven year period, including cessation of employment with the company or where the Board grants approval. in considering an application from a participant to dispose of the shares, the Board will consider whether the sale is in the best interests of the company, relevant policies and regulations and other factors. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTin accordance with the rules of the lTi plan, the executives are prohibited from entering into hedging transactions or arrangements which reduce or limit the economic risk of holding unvested Performance rights. The Board has discretion to adjust the comparator group to take into account events including, but not limited to, takeovers, mergers, de-mergers and similar transactions that might occur over the performance period. 4.4.2.2 EPS Hurdle For the 2013 lTi grant, ePs growth is measured over the three years from 1 July 2012 to 30 June 2015. The ePs hurdle is calculated as net profit after tax, as set out in the company’s annual audited Financial statements, divided by the weighted average number of ordinary shares on issue. The base year ePs for the 2013 lTi grant was 15.1 cents. The Board exercised its discretion to adjust the base year ePs by excluding the significant items in the 2011/12 year comprising net restructuring income and the loss from discontinued operations. This adjustment made the performance hurdle more demanding as it increased the base year ePs from 13.2 cents to 15.1 cents to ensure the hurdle was reflective of underlying business performance. The performance hurdles and vesting proportions for the ePs performance measure that applied to the 2013 lTi grant is outlined in the table below. Compound annual EPS Growth less than 3% per annum 3% per annum Between 3% and 8% per annum 8% or higher per annum Proportion of Performance Rights to Vest if EPS growth hurdle is met 0% 25% straight line vesting between 25% and 50% 50% (i.e. 50% of total grant) 5. DeTails OF DirecTOr anD eXecuTive remuneraTiOn 5.1 remuneration Tables Details of the nature and amount of each element of remuneration of each director of the company and other key management personnel for the year ended 30 June 2013 are outlined in the remuneration Tables on the following pages. in the event of a change of control, all outstanding Performance rights granted to executives will vest and be exercised into ordinary shares, except to the extent the Board determines in its discretion that the vesting conditions are unlikely to be satisfied. if the Board makes the decision that not all Performance rights will vest on a change of control, then all remaining Performance rights will lapse. For the 2013 lTi grant, the proportion of Performance rights that can vest will be calculated and the shares will vest in august 2015 subject to achieving the performance hurdles. all unvested rights will be forfeited if the Board determines that an executive has committed an act of fraud, defalcation or gross misconduct or in other circumstances specified by the Board. The maximum number of outstanding Performance rights granted to executives must not exceed 5% of the total number of shares on issue by the company. The total number of outstanding Performance rights granted to executives at 30 June 2013 was 2,137,000 which represents 0.7% of the company’s total issued shares. 4.4.2 LTI performance requirements For the 2013 lTi grant, the performance hurdles continue to provide for vesting scales graduated with performance and demanding performance hurdles. The comparator group for the 2013 lTi plan includes selected comparator group companies used by Guerdon associates for benchmarking executive fixed remuneration levels for the 2012/13 remuneration review. 4.4.2.1 TSR Hurdle The performance hurdles and vesting proportions for the Tsr performance measure that applied to the 2013 lTi grant is outlined in the table below. TSR of GWA Group Limited relative to TSRs of Comparator Companies less than the 50th percentile 50th percentile Between the 50th percentile and 75th percentile 75th percentile or higher Proportion of Performance Rights to Vest if TSR hurdle is met 0% 25% straight line vesting between 25% and 50% 50% (i.e. 50% of total grant) The group of comparator companies for the Tsr hurdle includes 14 domestic asX listed companies with comparable market capitalisation or revenues, including: reece australia limited, adelaide Brighton limited, ansell limited, Brickworks limited, csr limited, Goodman Fielder limited, Bradken limited, Dulux Group limited, super retail Group limited, Premier investments limited, Pacific Brands limited, GuD Holdings limited, Breville Group limited and Hills Holdings limited. 37 Short-term Long-term Post-employment y r a l a S s e e F & h s a C I T S s u n o B y r a t e n o M - n o N n a l P e r a h S e e y o l p m E t s e r e t n I $ $(a) $(b) $(c) - e r a h S f o e u l a V s d r a w A d e s a B $(d) n o i t a u n n a s t fi e n e B - r e p u S n o i t a n i m r e T s t fi e n e B $ $ Non-Executive Directors G mcGrath chairman D mcDonough Deputy chairman r anderson non-executive Director W Bartlett non-executive Director P Birtles non-executive Director J mulcahy non-executive Director 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 318,723 306,465 130,353 69,078 75,415 61,054 142,096 136,631 122,789 118,066 112,861 108,520 Total – Non-Executive Directors 2013 902,237 2012 799,814 – – – – – – – – – – – – – – – – – – – – – – – – – – 2,606 – 2,606 – – – – – – – – – – – – – – – – – – – – – – – – – – 28,685 27,581 24,999 49,998 40,387 50,293 12,789 12,296 11,051 10,626 10,157 9,766 – 128,068 – 160,560 Executive Directors P crowley managing Director 2013 1,438,646 171,600 88,648 38,080 160,633 50,000 2012 1,413,522 280,800 103,055 82,420 204,650 50,000 r Thornton executive Director 2013 2012 367,295 75,600 365,207 72,000 9,562 8,921 10,998 18,466 45,142 16,470 29,925 24,639 Total – Directors Remuneration 2013 2,708,178 247,200 98,210 49,078 205,775 194,538 2012 2,578,543 352,800 114,582 100,886 234,575 235,199 Executives i Brannan chief Financial Officer (appointed 30 July 2012) (e) l Patterson chief executive – GWa Bathrooms & Kitchens (appointed 17 October 2012) (f) c camillo General manager – Brivis (appointed 1 December 2012) (g) G Oliver chief executive – GWa Door & access systems (appointed 1 may 2012) W saxelby chief Financial Officer 2013 2012 645,063 275,000 8,864 – – – – – 62,720 22,550 – – 2013 491,459 104,000 122,103 28,537 53,625 24,999 2012 449,529 57,850 9,162 46,689 40,242 57,066 2013 2012 204,658 145,500 – – – – 2013 430,655 54,960 7,000 2012 444,203 173,550 29,330 1,875 33,973 9,913 – – – – – 47,092 25,000 40,242 49,999 2013 2012 241,227 – 17,883 613,113 135,100 16,548 16,409 54,549 – – 24,000 48,000 l a t o T $ 347,408 334,046 155,352 119,076 115,802 111,347 154,885 148,927 133,840 128,692 123,018 120,892 – – – – – – – – – – – – – 1,030,305 – – – – – 962,980 1,947,607 2,134,447 525,067 519,158 – 3,502,979 – 3,616,585 – – – – – – – – – – 1,014,197 – 824,723 660,538 395,919 – 564,707 737,324 299,519 867,310 (ceased employment 31 October 2012) n evans chief executive – GWa Bathrooms & Kitchens (ceased employment 17 October 2012) 2013 2012 200,895 – 15,699 521,156 108,180 13,047 – – (169,875) 14,583 450,750 512,052 56,750 50,000 – 749,133 Total – Executives Remuneration Total – Directors and Executives Remuneration 2013 2,213,957 579,460 171,549 46,821 27,535 121,045 450,750 3,611,117 2012 2,028,001 474,680 68,087 101,238 137,234 205,065 – 3,014,305 2013 4,922,135 826,660 269,759 95,899 233,310 315,583 450,750 7,114,096 2012 4,606,544 827,480 182,669 202,124 371,809 440,264 – 6,630,890 f o n o i t r o p o r P n o i t a r e n u m e r e c n a m r o f r e p d e s a b % h s a C I T S d e t s e v s u n o B % r a e y n i h s a C I T S d e t i e f r o f s u n o B % r a e y n i – – – – – – – – – – – – 17.1 22.7 23.0 19.6 33.3 – 19.1 14.9 45.3 – 18.1 29.0 – 15.6 – 22.0 – – – – – – – – – – – – 14 23 40 40 100 – 40 26 97 – 24 78 – 40 – 36 – – – – – – – – – – – – 86 78 60 60 – – 60 74 3 – 76 22 – 60 – 64 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORT Notes to the Remuneration Tables (e) mr ian Brannan was appointed chief Financial Officer on 30 July 2012. The employment contract for mr Brannan provided for the payment of a guaranteed short term cash bonus for the year ended 30 June 2013 equal to 40% of his fixed remuneration. mr Brannan will participate in the sTi plan in future periods which rewards performance based on the achievement of personal goals and financial performance targets. mr Brannan will also participate in the lTi plan in future periods. (f) mr les Patterson was appointed chief executive – GWa Bathrooms & Kitchens on 17 October 2012. He was formerly chief executive – GWa Heating & cooling until that date. mr Patterson is considered Key management Personnel under both his former and current role. (g) mr celeste camillo was appointed General manager – Brivis on 1 December 2012 and is considered Key management Personnel from that date. (a) The short Term incentive (sTi) cash bonus is for the performance during the financial year ended 30 June 2013 based on the achievement of personal goals and financial performance targets. Brivis achieved their sTi financial performance targets during the year and in accordance with the sTi plan rules, 50% of the amount has been deferred and will be subject to further testing as outlined in the remuneration report. The sTi cash bonuses are paid annually following the end of the preceding financial year. The amounts have been determined following individual performance reviews and have been approved by the remuneration committee. (b) The short term non-monetary benefits include the provision of motor vehicles, medical benefits membership, salary continuance and life insurance and any applicable fringe benefits tax thereon. an amount of $60,019 has been included as a short term non-monetary benefit for mr les Patterson during 2012/13 representing the waiver of an outstanding loan from the company under the legacy GWa employee share Plan. The Board agreed to the waiver of the loan as part of the arrangements for the wind down of the plan in march 2013. (c) The employee share Plan interest includes an amount representing commercial interest that would have been charged during the period on the executives outstanding employee loan balances owed to the company had these loans not been interest free. The benefit is classified as a long term benefit in the remuneration Tables which reflects the long term nature of the incentive. as outlined in section 7, the employee share Plan has been discontinued and there will be no further share issues to employees under the plan. (d) The long Term incentive (lTi) Plan was approved by shareholders at the 2008 annual General meeting. The outstanding Performance rights at 30 June 2013 were granted to executives in each of the years 30 June 2011, 2012 and 2013 and are subject to vesting conditions and the achievement of the ePs and Tsr performance hurdles over the three year performance periods. During the year, 50% of the Performance rights in respect of the 2010 lTi grant vested following the achievement of the Tsr hurdle and 50% of the Performance rights lapsed as the ePs hurdle was not achieved. The fair value of the Performance rights granted in each of the years were calculated using Binomial option pricing model (ePs hurdle) and monte carlo simulation (Tsr hurdle) valuation methodologies and allocated to each financial year evenly over the three year performance period. if the ePs and Tsr performance hurdles are not achieved, then no benefits will be received by the executives under the lTi plan. 39 DirecTOrs’ rePOrT (cOnT) as aT 30 June 2013 5.2 share based payments 5.2.1 Performance Rights The table below shows details of the Performance rights granted to key management personnel during the year ended 30 June 2013 and in prior years that affects compensation in this or future reporting periods. The testing of Performance rights granted on 12 march 2010 in respect of the three year performance period of 1 July 2009 to 30 June 2012 occurred on 14 august 2012. The ePs hurdle was not achieved and 50% of the Performance rights lapsed (in the prior period). The Tsr hurdle was achieved and 50% of the Performance rights vested and were automatically exercised into ordinary shares at no cost to the executives. a total of 375,000 shares were purchased on-market for the executives at an average price of $1.94 following the achievement of the Tsr hurdle in respect of the 2010 lTi grant. Number of rights granted Grant date* % vested in year % forfeited in year Fair value of rights at grant date $* Issue price used to determine number of rights granted Executive Directors P crowley managing Director r Thornton executive Director Executives i Brannan chief Financial Officer (appointed 30 July 2012) l Patterson, chief executive – GWa Bathrooms & Kitchens (appointed 17 October 2012) c camillo, General manager – Brivis (appointed 1 December 2012) G Oliver, chief executive – GWa Door & access systems (appointed 1 may 2012) n evans, chief executive – GWa Bathrooms & Kitchens (ceased employment 17 October 2012) 2013 2012 2011 2010 2013 2012 2011 2010 2013 2012 2011 2010 2013 2012 2011 2010 2013 2012 2011 2010 2013 2012 2011 2010 2013 2012 2011 2010 345,000 260,000 300,000 305,000 65,000 45,000 30,000 30,000 25 February 2013 17 February 2012 21 February 2011 – – – 12 march 2010 50 25 February 2013 17 February 2012 21 February 2011 – – – 12 march 2010 50 96,000 25 February 2013 – – – 90,000 55,000 50,000 50,000 52,000 – – – 80,000 55,000 50,000 50,000 – 75,000 75,000 75,000 – – – – – – – – – – 25 February 2013 17 February 2012 21 February 2011 12 march 2010 50 25 February 2013 – – – 25 February 2013 17 February 2012 21 February 2011 – – – – – – – 12 march 2010 50 – 17 February 2012 21 February 2011 – – – 12 march 2010 50 – – 50 – – – 50 – – – – – – – 50 – – – – – – – 50 – – 100 100 – 676,200 375,700 802,500 785,375 127,400 65,025 80,250 77,250 188,160 – – – 176,400 79,475 133,750 128,750 101,920 – – – 156,800 79,475 133,750 128,750 – 108,375 200,625 193,125 1.70 2.35 3.00 2.84 1.70 2.35 3.00 2.84 1.70 – – – 1.70 2.35 3.00 2.84 1.70 – – – 1.70 2.35 3.00 2.84 – 2.35 3.00 2.84 * The issue price used to determine the number of rights offered to all participants during the year, including mr crowley and other key management personnel, was $1.70 being the volume weighted average price of the company’s shares calculated over the 20 trading days after the company’s annual General meeting on 25 October 2012. The grant dates and corresponding fair values per right in the above table have been determined in accordance with australian accounting standards. Fair values have been calculated using Binomial option pricing model (ePs hurdle) and monte carlo simulation (Tsr hurdle) valuation methodologies. The fair value of rights issued during the year under the ePs hurdle was $2.18 per right and the Tsr hurdle was $1.74 per right. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTall of the rights on the opposite page carry an exercise price of nil. The rights granted on 21 February 2011, 17 February 2012 and 25 February 2013 will vest on the date of the release to the australian securities exchange of the company’s annual audited Financial statements for the years 30 June 2013, 2014 and 2015 respectively, subject to the achievement of the performance hurdles. The rights granted to mr crowley and mr Thornton were approved by shareholders at the 2010, 2011 and 2012 annual General meetings in accordance with asX listing rule 10.14. rights were forfeited where an employee ceased employment with the company during the year in accordance with the rules of the long Term incentive Plan. For the rights granted to key management personnel on 21 February 2011, the company has not achieved the ePs hurdle for the performance period of 1 July 2010 to 30 June 2013. This has resulted in the forfeiture of 290,000 rights with a value of $884,500. The number of rights outstanding at 30 June 2013 also represents the balance yet to vest. 6. Key Terms OF emPlOymenT cOnTracTs 6.1 notice and termination payments The specified executives in the Directors’ report are on open-ended contracts, except for the managing Director, mr Peter crowley, whose employment contract specifies an initial term of twelve months with subsequent rolling terms of twelve months. The employment contract for mr crowley provides that if either the company or mr crowley wishes to terminate employment for any reason, three months notice of termination is required. The company retains the right to terminate the employment contract of mr crowley immediately, by making payment equal to three months salary in lieu of providing notice. On termination by the company, mr crowley will be entitled to receive payment of twelve months salary. For the other specified executives, the company is required to give reasonable notice of termination of up to six months. The company retains the right to terminate the employment contracts of the executives immediately, by making payment equal to the relevant notice period (of up to six months) in lieu of providing notice. The executives are also entitled to receive on termination of employment their statutory entitlements of accrued annual and long service leave, together with any superannuation benefits. The termination arrangements for the executives are specified in their employment contracts and any other termination payments require approval of the remuneration committee. shareholder approval is required for termination payments in excess of twelve months salary. Performance rights held by executives under the lTi plan will lapse upon the cessation of employment with the company. 7. leGacy eQuiTy BaseD remuneraTiOn Plan as outlined in the 2012 remuneration report, the Board decided to discontinue the use of the legacy GWa employee share Plan as it had failed to achieve its objectives as a long term incentive for employees. in march 2013 the Board approved the wind down of the plan with employees being given the option to sell their shares on-market and re-pay the loans provided by the company. if an employee decided not to sell their shares, then they would remain subject to the plan rules. as a result of the wind down process of the plan, total loan repayments of $8.3 million (inclusive of dividends) were received by the company from employees during the year ended 30 June 2013. at 30 June 2013, there were 162,500 shares held by employees under the plan with outstanding loans from the company of $263,111. The plan has been discontinued and there will be no further share issues to employees under the plan. DirecTOrs’ meeTinGs The number of meetings of directors (including meetings of committees of directors) held during the financial year ended 30 June 2013 and the number of meetings attended by each director are shown in the table below. Director Board Audit Committee Remuneration Committee Nomination Committee G J mcGrath D D mcDonough P c crowley(1) r m anderson W J Bartlett J F mulcahy P a Birtles r J Thornton(2) note: A 9 9 9 9 9 9 9 9 B 9 9 9 9 9 9 9 9 A 4 – – – 4 – 4 – B 4 – – – 4 – 3 – A 2 – – – 2 2 – – B 2 – – – 2 2 – – A 1 1 – – 1 – – – B 1 1 – – 1 – – – A number of meetings held during the time the director held office during the year (1) P c crowley attends committee meetings by invitation of the Board B number of meetings attended (2) r J Thornton attends committee meetings as company secretary 41 DirecTOrs’ rePOrT (cOnT) as aT 30 June 2013 as at the date of this report, the company had an audit committee, remuneration committee and nomination committee of the Board of Directors. The charter for each committee outlines its role and responsibilities, a summary of which is provided in the corporate Governance statement in the annual report. The members of the audit committee are: • mr W Bartlett (chairman) • mr P Birtles • mr G mcGrath The members of the remuneration committee are: • mr W Bartlett (chairman) • mr J mulcahy • mr G mcGrath The members of the nomination committee are: • mr G mcGrath (chairman) • mr D mcDonough • mr W Bartlett Details of the committee members qualifications and experience are located in the annual report. nOn-auDiT services Details of the non-audit services provided by the external auditor, KPmG, during the financial year ended 30 June 2013 are outlined in note 8 of the Financial statements. Based on advice from the audit committee, the directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. leaD auDiTOr’s inDePenDence DeclaraTiOn The lead auditor’s independence Declaration is set out in the annual report and forms part of the Directors’ report for the financial year ended 30 June 2013. rOunDinG The company is of a kind referred to in class Order 98/100 issued by the australian securities investment commission relating to the rounding of amounts in the Directors’ report. amounts in the Directors’ report have been rounded off in accordance with that class Order to the nearest thousand dollars, unless otherwise stated. signed in accordance with a resolution of the directors. G McGrath chairman P C Crowley managing Director Brisbane, 21 august 2013 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORT GWa GrOuP limiTeD Financial rePOrT GWa GrOuP limiTeD anD iTs cOnTrOlleD enTiTies aBn 15 055 964 380 CONTENTS consolidated statement of profit or loss and other comprehensive income consolidated statement of financial position consolidated statement of cash flows consolidated statement of changes in equity NOTE 1 significant accounting policies 2 Operating segments 3 Discontinued operations 4 Other income 5 Other expenses 6 restructuring expenses 7 Personnel expenses 8 auditors’ remuneration 9 net financing costs 10 income tax expense 11 earnings per share 12 cash and cash equivalents 13 Trade and other receivables 14 inventories 15 acquisitions of subsidaries 16 current tax assets and liabilities 17 Deferred tax assets and liabilities 18 Property, plant and equipment 19 intangible assets Directors’ Declaration 48 56 58 59 59 59 59 59 60 60 61 62 62 63 63 63 64 65 66 20 Trade and other payables 21 loans and borrowings 22 employee benefits 23 share-based payments 24 Provisions 25 capital and reserves 26 Financial instruments and financial risk management 27 Operating leases 28 capital commitments 29 contingencies 30 Deed of cross guarantee 31 consolidated entities 32 Parent entity disclosures 33 reconciliation of cash flows from operating activities 34 related parties 35 subsequent events independent auditor’s report to the members of GWa Group limited 44 45 46 47 67 68 69 70 71 72 73 81 81 81 82 84 85 86 86 88 89 90 43 43 ConsolidAtEd stAtEmEnt of Profit or loss And othEr ComPrEhEnsivE inComE For the year ended 30 June 2013 in thousands of auD Continuing operations sales revenue cost of sales Gross profit Other income selling expenses administrative expenses Other expenses Results from operating activities Finance income Finance expenses Net financing costs Profit before tax income tax expense Profit from continuing operations Discontinued operations loss from discontinued operations, net of income tax Profit for the period Other comprehensive income Items that may be reclassified subsequently to profit or loss: Foreign currency translation differences for foreign operations, net of income tax Translation differences for disposed business transferred to profit or loss, net of income tax effective portion of changes in fair value of cash flow hedges, net of income tax Other comprehensive income for the period, net of income tax Total comprehensive income for the period Earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Continuing operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) note 2013 2012 2 4 5 9 10 3 11 11 565,365 (367,956) 197,409 6,518 (84,062) (49,682) (14,844) 55,339 1,479 (14,803) (13,324) 42,015 (9,625) 32,390 602,128 (384,978) 217,150 12,847 (93,788) (50,719) (13,452) 72,038 1,979 (16,226) (14,247) 57,791 (11,618) 46,173 – 32,390 (6,518) 39,655 669 – 1,959 2,628 35,018 10.64 10.59 10.64 10.59 (199) 2,975 (1,600) 1,176 40,831 13.15 13.08 15.31 15.23 The statement of profit or loss and other comprehensive income is to be read in conjunction with the notes to the financial statements set out on pages 48 to 88. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTConsolidated statement of finanCial position As at 30 June 2013 In thousands of AUD Current assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Other Total current assets Non-current assets Receivables Deferred tax assets Property, plant and equipment Intangible assets Other Total non-current assets Total assets Current liabilities Trade and other payables Employee benefits Income tax payable Provisions Total current liabilities Non-current liabilities Loans and borrowings Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity Note 2013 2012 12 13 14 16 13 17 18 19 20 22 16 24 21 22 24 32,757 111,461 80,336 – 2,223 226,777 – 15,064 109,470 387,248 1,118 512,900 739,677 75,371 11,812 919 10,760 98,862 195,000 12,693 6,380 214,073 312,935 426,742 408,100 (408) 19,050 426,742 30,528 99,187 91,766 1,564 2,691 225,736 4,747 17,488 113,292 383,537 3,521 522,585 748,321 68,099 13,536 169 13,857 95,661 205,000 12,346 8,330 225,676 321,337 426,984 398,930 (2,489) 30,543 426,984 45 The statement of financial position is to be read in conjunction with the notes to the financial statements set out on pages 48 to 88. GWA Group Limited And its controLLed entities ABN 15 055 964 380Consolidated statement of Cash flows For the year ended 30 June 2013 In thousands of AUD Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest paid and facility fees Interest received Income taxes paid Note 2013 2012 628,637 (544,999) 83,638 (15,478) 1,024 (5,835) 63,349 2,278 (11,374) (3,329) (12,443) – (24,868) 8,284 (22) (10,000) (34,761) (36,499) 1,982 30,528 247 32,757 703,744 (604,859) 98,885 (17,284) 1,305 (22,407) 60,499 18,361 (21,339) (4,459) – 23,743 16,306 1,235 (5) (29,874) (54,275) (82,919) (6,114) 36,573 69 30,528 Net cash from operating activities 33 Cash flows from investing activities Proceeds from sale of property, plant and equipment Acquisition of property, plant and equipment Acquisition of intangibles Acquisition of subsidiary, net of cash acquired Disposal of subsidiaries, net of cash disposed Net cash from investing activities Cash flows from financing activities Repayment of employee share loans Share listing fees paid Repayment of bank bills Dividends paid, net of dividend reinvestment plan Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 July Effect of exchange rate fluctuations on cash held Cash and cash equivalents at 30 June 12 The statement of cash flows is to be read in conjunction with the notes to the financial statements set out on pages 48 to 88. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtementsConsolidated statement of Changes in equity For the year ended 30 June 2013 In thousands of AUD Balance at 1 July 2011 Total comprehensive income for the period Profit for the period Other comprehensive income Foreign currency translation differences for foreign operations, net of income tax Translation differences for disposed business transferred to profit or loss, net of income tax Effective portion of changes in fair value of cash flow hedges, net of income tax Total other comprehensive income Total comprehensive income for the period Transactions with owners, recorded directly in equity Share-based payments, net of income tax Dividends to shareholders Issue of ordinary shares Total transactions with owners Balance at 30 June 2012 Share capital Translation reserve Hedging reserve Equity compensation reserve Retained earnings Total 397,844 (5,430) (648) 2,802 45,427 439,995 – – – – – – – – 1,086 1,086 – (199) 2,975 – 2,776 2,776 – – – – – – – (1,600) (1,600) (1,600) – – – – 398,930 (2,654) (2,248) – – – – – – 39,655 39,655 – – – – 39,655 (199) 2,975 (1,600) 1,176 40,831 (389) (264) (653) – – (389) 2,413 (54,275) (54,275) – 1,086 (54,539) (53,842) 30,543 426,984 Balance at 1 July 2012 398,930 (2,654) (2,248) 2,413 30,543 426,984 Total comprehensive income for the period Profit for the period Other comprehensive income Foreign currency translation differences for foreign operations, net of income tax Effective portion of changes in fair value of cash flow hedges, net of income tax Total other comprehensive income Total comprehensive income for the period Transactions with owners, recorded directly in equity Share-based payments, net of income tax Dividends to shareholders Issue of ordinary shares Total transactions with owners Balance at 30 June 2013 – – – – – – – 9,170 9,170 – 669 – 669 669 – – – – – – 1,959 1,959 1,959 – – – – – – – – – 32,390 32,390 – – – 669 1,959 2,628 32,390 35,018 (547) 70 (477) – – (43,953) (43,953) – 9,170 (547) (43,883) (35,260) 408,100 (1,985) (289) 1,866 19,050 426,742 The statement of changes in equity is to be read in conjunction with the notes to the financial statements set out on pages 48 to 88. 47 GWA Group Limited And its controLLed entities ABN 15 055 964 3801. signifiCant aCCounting poliCies GWA Group Limited (the ‘Company’) is a for-profit company domiciled in Australia. The consolidated financial report of the Company for the financial year ended 30 June 2013 comprises the Company and its subsidiaries (together referred to as the ‘consolidated entity’). The principal activities of the consolidated entity during the year were the research, design, manufacture, import and marketing of building fixtures and fittings to households and commercial premises and the distribution of these various products through a range of distribution channels in Australia, New Zealand and selected international markets. The financial report was authorised for issue by the directors on 21 August 2013. (a) statement of compliance The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (‘AASBs’) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. The consolidated entity’s financial report complies with International Financial Reporting Standards (‘IFRSs’) adopted by the International Accounting Standards Board (‘IASB’). (b) Basis of preparation The financial report is presented in Australian dollars which is the Company’s functional currency and the functional currency of the majority of the consolidated entity. The entity has elected not to early adopt any accounting standards or amendments. The financial report is prepared on the historical cost basis except that derivative financial instruments are measured at their fair value. The Company is of a kind referred to in ASIC Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the financial report and Directors’ Report have been rounded off to the nearest thousand dollars, unless otherwise stated. The preparation of a financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: • note 19 – measurement of the recoverable amounts of intangible assets; • note 23 – fair value of share-based payments; • note 24 and 29 – provisions and contingencies; and • note 26 – valuation of financial instruments. The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial report. The accounting policies have been applied consistently by all entities in the consolidated entity. (c) Basis of consolidation (i) subsidiaries Subsidiaries are entities controlled by the consolidated entity. Control exists when the consolidated entity has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (ii) transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. (iii) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the consolidated entity. For every business combination, the consolidated entity identifies the acquirer, which is the combining entity that obtains control of the other combining entities or businesses. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the consolidated entity takes into consideration potential voting rights that currently are exercisable. Measuring goodwill The consolidated entity measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements1. signifiCant aCCounting poliCies (Continued) (iii) net investment in foreign operations (c) Basis of consolidation (continued) (iii) Business combinations (continued) Measuring goodwill (continued) Consideration transferred includes the fair values of the assets transferred, liabilities incurred by the consolidated entity to the previous owners of the acquiree, and equity interests issued by the consolidated entity. Transaction costs Transaction costs the consolidated entity incurs in connection with a business combination, such as finder’s fees, legal fees, due diligence fees, and other professional and consulting fees, are expensed as incurred. (d) foreign currency (i) foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are retranslated to Australian dollars using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the dates the fair value was determined. (ii) financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated to Australian dollars at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised in other comprehensive income, and presented in the foreign currency translation reserve (FCTR) in equity. When a foreign operation is disposed such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. Foreign exchange differences arising from the retranslation of the net investment in foreign operations (including monetary items neither planned to be settled or likely to be settled in the foreseeable future), and of related hedges are recognised in the FCTR to the extent that the hedge is effective. They are released into profit or loss upon disposal. (e) derivative financial instruments The consolidated entity uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognised in profit or loss, unless the derivative qualifies for hedge accounting, in which case the recognition of any resultant gain or loss depends on the nature of the item being hedged (see accounting policy (f)). The fair value of interest rate swaps is the estimated amount that the consolidated entity would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the reporting date, being the present value of the quoted forward price. (f) hedging The consolidated entity holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. On initial designation of the derivative as the hedging instrument, the consolidated entity formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The consolidated entity makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to hedged risk, and whether the actual results of each hedge are within a range of 80-125 percent. 49 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements1. signifiCant aCCounting poliCies (Continued) (iii) hedge of net investment in foreign operation (f) hedging (continued) For a cash flow hedge of a forecast transaction, the transaction should be highly probably to occur and should present an exposure to variations in cash flows that could ultimately affect reported profit or loss. Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described below. (i) Cash flow hedges When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. When the hedged item is a non-financial asset, the amount recognised in equity is included in the carrying amount of the asset when the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss in the same period the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss. Separable embedded derivatives Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss. Other non-trading derivatives When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss. (ii) hedge of monetary assets and liabilities Where a derivative financial instrument is used to hedge economically the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in profit or loss. The portion of the gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective hedge is recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. The ineffective portion is recognised immediately in profit or loss. (g) property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other income” or “other expenses” in profit or loss. (i) subsequent costs The consolidated entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs are recognised in profit or loss as an expense as incurred. (ii) depreciation With the exception of freehold land, depreciation is recognised in profit or loss as incurred on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives in the current and comparative periods are as follows: • buildings • plant and equipment • fixtures and fittings • motor vehicles 40 years 3-15 years 5-10 years 4-8 years The residual value, the useful life and the depreciation method applied to an asset are reassessed annually. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements1. signifiCant aCCounting poliCies (Continued) (vi) amortisation (h) intangible assets (i) Research and development Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised only if the product or process is technically and commercially feasible and the consolidated entity has sufficient resources to complete development. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. (ii) Brand names Acquired brand names are stated at cost. Expenditure incurred in developing, maintaining or enhancing brand names is recognised in profit or loss in the year in which it is incurred. The brand names are not amortised as the directors believe that the brand names have an indefinite useful life. The carrying values of brand names are tested each year to ensure that no impairment exists. (iii) goodwill Goodwill acquired in business combinations of the consolidated entity is measured at cost less accumulated impairment losses. Goodwill represents the excess of the cost of the acquisition over the consolidated entity’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired business. (iv) other intangible assets Other intangible assets that are acquired by the consolidated entity are measured at cost less accumulated amortisation and impairment losses. (v) subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life are systematically tested for impairment at each balance date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives in the current and comparative periods are as follows: • designs • patents 15 years 3-19 years (based on patent term) • customer relationships 8 years • trade names 10-20 years • capitalised software development costs • brand names 4 years nil (i) trade and other receivables Trade and other receivables are initially measured at fair value and subsequently at their amortised cost less impairment losses. (j) inventories Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. (k) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity date of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the consolidated entity’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (l) impairment (i) non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that the loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably. 51 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements1. signifiCant aCCounting poliCies (Continued) (l) impairment (continued) (i) non-derivative financial assets (continued) Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Financial assets measured at amortised cost The consolidated entity considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment the consolidated entity uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Available-for-sale financial assets Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available- for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. (ii) non-financial assets The carrying amounts of the consolidated entity’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and indefinite life intangible assets are tested annually for impairment. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its recoverable amount. The recoverable amount of an asset or CGU unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (or group of CGUs) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements1. signifiCant aCCounting poliCies (Continued) (m) share capital (i) ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. (ii) dividends Dividends are recognised as a liability in the period in which they are declared. (iii) transaction costs Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit. (n) interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are measured at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest basis. (o) employee benefits (i) defined contribution superannuation funds A defined contribution superannuation fund is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution superannuation funds are recognised as an employee benefit expense in profit or loss in the periods during which the services are rendered by employees. (ii) other long-term employee benefits The consolidated entity’s net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates, and is discounted to present value. (iii) short-term benefits Liabilities for employee benefits for wages, salaries, annual leave and sick leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to reporting date, are calculated at undiscounted amounts based on remuneration wage and salary rates that the consolidated entity expects to pay as at reporting date including related on-costs, such as workers compensation insurance and payroll tax. Non-accumulating non-monetary benefits, such as medical care, housing, cars and free or subsidised goods and services, are expensed based on the net marginal cost to the consolidated entity as the benefits are taken by the employees. (iv) share-based payment transactions The grant date fair value of performance rights granted to employees is recognised as a personnel expense, with a corresponding increase in equity, over the specified period that the performance rights vest to employees. The amount recognised as an expense is adjusted to reflect the actual number of performance rights for which the related service and non-market vesting hurdles are met, such that the amount ultimately recognised as an expense is based on the number of awards that do not meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. (p) provisions A provision is recognised when the consolidated entity has a present legal or constructive obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (i) warranties A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities. (ii) Restructuring A provision for restructuring is recognised when the consolidated entity has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for. (iii) site restoration A provision for restoration in respect of owned and leased premises is recognised when the obligation to restore arises. The provision is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date. Future restoration obligations are reviewed annually and any changes are reflected in the present value of the provision at the end of the reporting period. The unwinding of the effect of discounting on the provision is recognised as a finance cost. 53 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtementsDeferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; • temporary differences related to investments in subsidiaries and associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and • taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. In determining the amount of current and deferred tax the consolidated entity takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The consolidated entity believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the consolidated entity to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. 1. signifiCant aCCounting poliCies (Continued) (q) trade and other payables Trade and other payables are initially measured at fair value and subsequently at their amortised cost. (r) Revenue goods sold Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, discounts and rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. (s) expenses (i) Cost of goods sold Cost of good sold comprises the cost of manufacture and purchase of goods including supply chain costs such as freight and warehousing. (ii) operating lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense and spread over the lease term. (iii) net financing costs Net financing costs comprise interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested and gains and losses on hedging instruments that are recognised in profit or loss. Borrowing costs are expensed as incurred unless they relate to qualifying assets. Interest income is recognised in profit or loss as it accrues, using the effective interest method. (t) income tax Tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements1. signifiCant aCCounting poliCies (Continued) (w) discontinued operations A discontinued operation is a component of the consolidated entity’s business that represents a separate line of business operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale if earlier. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income is re-presented as if the operation had been discontinued from the start of the period. (x) segment reporting Segment results that are reported to the CEO include items that are directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, loans and borrowings, treasury financial instruments and income tax assets and liabilities. (y) new standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 July 2013, and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the consolidated entity, except for AASB 9 Financial Instruments, which becomes mandatory for the consolidated entity’s 2016 consolidated financial statements and could change the classification and measurement of financial assets. The consolidated entity does not plan to adopt this standard early and the extent of the impact has not been determined. (t) income tax (continued) A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income tax expenses that arise from the distribution of cash dividends are recognised at the same time that the liability to pay the related dividend is recognised. The consolidated entity does not distribute non-cash assets as dividends to its shareholders. The Company and its wholly-owned Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is GWA Group Limited. (u) goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (v) earnings per share The consolidated entity presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. 55 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements2. opeRating segments The consolidated entity has three reportable segments, as described below. The segments are managed separately because they operate in different markets and require different marketing strategies. For each segment the CEO reviews internal management reports on a monthly basis. The following describes the operations in each of the consolidated entity’s reportable segments: • Bathrooms & Kitchens – This segment includes the sale of vitreous china toilet suites, basins, plastic cisterns, tapware, baths, spas, kitchen sinks, laundry tubs, bathroom accessories and water heaters; • Door & Access Systems –This segment includes the sale of garage doors, door locks and levers and supply and maintenance of commercial door systems; • Heating & Cooling – This segment includes the sale of ducted heating and climate control systems; and • Discontinued operations – This segment includes the sale of education, hospitality and aged care furniture and stadia seating. It also includes the sale of sanitaryware in the North American market. Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before interest and income tax as included in the management reports that are reviewed by the CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of the segments relative to other entities that operate in these industries. In thousands of AUD 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Bathrooms & Kitchens Door & Access Systems Heating & Cooling Discontinued operations Total External sales revenue 367,547 404,702 140,878 138,568 56,935 58,784 Inter-segment revenue – 5 – – 1,815 3,682 Total sales revenue 367,547 404,707 140,878 138,568 58,750 62,466 Segment result before restructuring 64,519 67,754 10,859 14,057 5,237 6,470 Restructuring income/(expense) (9,569) 3,477 1,749 (6,104) (625) – Segment profit/(loss) before income tax 54,950 71,231 12,608 7,953 4,612 6,470 Depreciation Amortisation Capital expenditure 9,643 3,683 8,975 4,354 6,799 17,363 2,745 1,134 5,158 2,455 926 681 1,280 3,893 662 912 1,220 1,811 Reportable segment assets 478,726 499,022 121,499 106,100 61,516 61,722 Reportable segment liabilities 48,496 51,511 19,466 18,935 15,096 14,520 – – – – – – – – – – – 12,438 565,360 614,492 3 1,815 3,690 12,441 567,175 618,182 (7,792) 80,615 80,489 – (8,445) (2,627) (7,792) 72,170 77,862 267 13,314 12,609 – 6,097 6,255 195 12,619 23,262 – 661,741 666,844 – 83,058 84,966 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements 2. opeRating segments (Continued) Reconciliations of reportable segment revenues, profit or loss, assets and liabilities In thousands of AUD Revenues Total revenue for reportable segments Unallocated amounts: corporate revenue Elimination of inter-segment revenue Elimination of discontinued operations Consolidated revenue from continuing operations Profit Total profit for reportable segments Elimination of discontinued operations Restructuring expenses: corporate Unallocated amounts: corporate expenses Profit from operating activities Net financing costs Consolidated profit before tax from continuing operations Assets Total assets for reportable segments Unallocated amounts: corporate assets* Consolidated total assets Liabilities Total liabilities for reportable segments Unallocated amounts: corporate liabilities* Consolidated total liabilities 2013 2012 567,175 5 (1,815) – 565,365 72,170 – (1,986) (14,845) 55,339 (13,324) 42,015 661,741 77,936 739,677 83,058 229,877 312,935 618,182 74 (3,690) (12,438) 602,128 77,862 7,792 (699) (12,917) 72,038 (14,247) 57,791 666,844 81,477 748,321 84,966 236,371 321,337 * Corporate assets include cash and cash equivalents, tax assets, employee share loans and treasury financial instruments at fair value. Corporate liabilities include loans and borrowings, tax liabilities and treasury financial instruments at fair value. Reconciliations of other material items In thousands of AUD Depreciation Total depreciation for reportable segments Unallocated amounts: depreciation on corporate assets Consolidated total depreciation Amortisation Total amortisation for reportable segments Unallocated amounts: amortisation on corporate assets Consolidated total amortisation Capital expenditure Total capital expenditure for reportable segments Unallocated amounts: corporate capital expenditure Consolidated total capital expenditure 2013 13,314 429 13,743 6,097 558 6,655 12,619 2,084 14,703 2012 12,609 242 12,851 6,255 114 6,369 23,262 2,536 25,798 57 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements2. opeRating segments (Continued) Geographical segments The business segments are managed on a worldwide basis, but operate mainly in one geographical area being Australia. Sales offices are operated in New Zealand and Asia. Sales revenue from geographical areas outside Australia comprised only 4% of the consolidated entity’s total sales revenue for the current year (2012: 5%). In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. In thousands of AUD External sales revenue Segment assets Capital expenditure Major customers Australia Unallocated Consolidated 2013 541,675 733,498 14,597 2012 584,531 743,303 25,693 2013 23,690 6,179 106 2012 30,035 5,018 105 2013 565,365 739,677 14,703 2012 614,566 748,321 25,798 The consolidated entity conducts business with 3 customers where the gross revenue generated from each customer exceeds 10% of the consolidated entity’s total gross revenue. Gross revenue from these customers represent approximately $92,000,000 (2012: $97,000,000), $76,000,000 (2012: $84,000,000) and approximately $71,000,000 (2012: $71,000,000) respectively of the consolidated entity’s total gross revenues for the current year of approximately $633,000,000 (2012: $674,000,000). The difference between gross revenue and reported sales revenue is due to industry rebates. The revenues from these customers are reported in the Bathrooms & Kitchens, Door & Access Systems and the Heating & Cooling segments. 3. disContinued opeRations In the prior financial year, the commercial furniture and the North American sanitaryware businesses were sold. The results of these businesses are reported as discontinued operations in the prior period. In thousands of AUD Results of discontinued operations Revenue Expenses Results from operating activities Income tax Results from operating activities, net of income tax Loss on sale of the discontinued operations Income tax benefit on loss on sale of discontinued operations Loss for the period Basic earnings per share (cents per share) Diluted earnings per share (cents per share) In thousands of AUD Cash flows from discontinued operations Net cash (used in) operating activities Net cash from investing activities Net cash from discontinued operations 2013 2012 – – – – – – – – – – 2013 – – – 12,441 (15,002) (2,561) 362 (2,199) (5,231) 912 (6,518) (2.16) (2.15) 2012 (1,975) 23,559 21,584 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements4. otheR inCome In thousands of AUD Foreign currency gains – realised Foreign currency gains – unrealised Net gain on disposal of property, plant and equipment and intangible assets Compensation income Other 5. otheR expenses In thousands of AUD Foreign currency losses – realised Foreign currency losses – unrealised Restructuring expenses Acquisition costs 6. RestRuCtuRing expenses In thousands of AUD Restructuring income – gains on disposal of property Restructuring expenses Tax benefit Net restructuring expense/(income) after tax 7. peRsonnel expenses In thousands of AUD Wages and salaries – including superannuation contributions, annual leave, long service leave and on-costs Equity-settled share-based payment transactions 8. auditoRs’ RemuneRation In AUD Audit services Auditors of the Company KPMG Australia: Audit and review of financial reports Other regulatory services Overseas KPMG Firms: Audit and review of financial reports Other services Auditors of the Company KPMG Australia: Taxation services Other services Overseas KPMG Firms: Taxation services 2013 11 29 3,335 1,993 1,150 6,518 2013 37 – 13,968 839 14,844 2013 (3,537) 13,968 (4,190) 6,241 2012 233 1,204 9,632 742 1,036 12,847 2012 86 53 13,180 133 13,452 2012 (9,854) 13,180 (3,947) (621) 2013 2012 139,461 277 139,738 148,211 321 148,532 2013 2012 466,000 3,500 12,000 481,500 10,860 – 17,121 27,981 455,000 3,500 12,000 470,500 28,682 45,660 31,132 105,474 59 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements9. net finanCing Costs In thousands of AUD Finance income Interest income on call deposits Unwinding of discount on loans and provisions Other Finance expense Interest expense on financial liabilities Interest expense on swaps Facility fees on financial liabilities Establishment fee amortisation Other Net financing costs 10. inCome tax expense Recognised in the consolidated statement of profit or loss and other comprehensive income In thousands of AUD Current tax expense Current year Adjustments for prior years Deferred tax expense Origination and reversal of temporary differences Income tax expense from continuing operations Income tax (benefit)/expense from discontinued operations (excluding loss on sale) Income tax benefit on loss on sale of discontinued operations 2013 880 455 144 1,479 7,119 1,892 4,891 854 47 14,803 13,324 2013 8,569 (560) 8,009 1,616 9,625 – – 2012 1,226 674 79 1,979 10,061 674 4,897 521 73 16,226 14,247 2012 14,818 (2,374) 12,444 (826) 11,618 (362) (912) Total income tax expense in the consolidated statement of profit or loss and other comprehensive income 9,625 10,344 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements 10. inCome tax expense (Continued) Numerical reconciliation between tax expense and pre-tax net profit In thousands of AUD Profit before tax Income tax using the domestic tax rate of 30% (2012: 30%) Increase in income tax expense due to: Non-deductible expenses Non-deductible acquisition and disposal costs Tax losses not recognised Decrease in income tax expense due to: Effect of tax rate in foreign jurisdictions Capital gains offset with prior capital losses Deductible share-based payments Building depreciation allowance Rebateable research and development Over provided in prior years Income tax expense on pre-tax net profit Deferred tax recognised directly in equity In thousands of AUD Derivatives 11. eaRnings peR shaRe Basic earnings per share 2013 42,015 12,605 170 55 25 – (1,771) (164) (23) (712) 10,185 (560) 9,625 2013 840 2012 49,999 15,000 274 – 437 (10) (2,477) (116) (33) (357) 12,718 (2,374) 10,344 2012 (631) Calculation of basic earnings per share at 30 June 2013 was based on the profit attributable to ordinary shareholders of $32,390,000 (2012: $39,655,000) and a weighted average number of ordinary shares of 304,439,000 (2012: 301,662,000) calculated as follows: Cents per share Profit attributable to ordinary shareholders In thousands of AUD Continuing operations Discontinued operations Profit for the year Weighted average number of ordinary shares In thousands of shares Issued ordinary shares at 1 July Effect of shares issued Weighted average number of ordinary shares at 30 June 2013 10.64 2013 32,390 – 32,390 2013 302,006 2,433 304,439 2012 13.15 2012 46,173 (6,518) 39,655 2012 301,525 137 301,662 61 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements11. eaRnings peR shaRe (Continued) Diluted earnings per share Calculation of diluted earnings per share at 30 June 2013 was based on the profit attributable to ordinary shareholders of $32,390,000 (2012: $39,655,000) and a weighted average number of ordinary shares of 305,872,000 (2012: 303,232,000) calculated as follows: Cents per share Profit attributable to ordinary shareholders (diluted) In thousands of AUD Continuing operations Discontinued operations Profit for the year Weighted average number of ordinary shares (diluted) In thousands of shares Weighted average number of ordinary shares (basic) Effect of performance rights on issue Weighted average number of ordinary shares (diluted) 12. Cash and Cash equivalents In thousands of AUD Bank balances Call deposits Cash and cash equivalents in the statement of cash flows 2013 10.59 2013 32,390 – 32,390 2013 304,439 1,438 305,877 2013 15,711 17,046 32,757 2012 13.08 2012 46,173 (6,518) 39,655 2012 301,662 1,570 303,232 2012 12,998 17,530 30,528 The consolidated entity’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in note 26. 13. tRade and otheR ReCeivaBles In thousands of AUD Current Trade receivables Provision for impairment Derivatives used for hedging Employee share loans Other Non-current Employee share loans 2013 2012 82,242 (1,489) 23,988 263 6,457 111,461 80,549 (1,666) 18,495 660 1,149 99,187 – 4,747 The consolidated entity’s exposure to credit and currency risk and impairment losses related to trade and other receivables are disclosed in note 26. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements14. inventoRies In thousands of AUD Raw materials and consumables Work in progress Finished goods 2013 20,126 2,062 58,148 80,336 2012 21,310 2,571 67,885 91,766 15. aCquisitions of suBsidiaRies On 2 October 2012 the consolidated entity acquired 100% of the shares in API Services and Solutions Pty Limited for $12,442,000. In the nine months to 30 June 2013 the business contributed revenue of $16,994,000 and a loss before tax of $218,000. If the acquisition had occurred on 1 July 2012, management estimates that consolidated revenue from continuing operations for the period would have been $571,740,000 and consolidated profit before tax of continuing operations would have been $42,168,000. In determining those amounts, management has assumed that the fair values on the date of acquisition would have been the same if the acquisition occurred on 1 July 2012. The acquisition had the following effect on the consolidated entity’s assets and liabilities on acquisition date: Amounts recognised on acquisition API Services and Solutions Pty Limited In thousands of AUD Trade and other receivables Inventories Other current assets Property, plant and equipment Intangible assets Deferred tax assets Trade and other payables Employee benefits Net identifiable assets and liabilities Goodwill on acquisition Consideration paid, satisfied in cash 2013 3,348 2,905 286 2,709 2,453 32 (2,329) (1,517) 7,887 4,556 12,443 The goodwill recognised on the acquisition is attributable mainly to the skills and technical expertise of the acquired business’ work force and the synergies expected to be achieved from integrating the business into the consolidated entity’s existing businesses. The consolidated entity incurred acquisition related costs of $839,000 (2012: $133,000) related to external legal fees and due diligence costs. 16. CuRRent tax assets and liaBilities The current tax liability for the consolidated entity of $919,000 (2012: $169,000) represents the amount of income taxes payable in respect of the current period. There is no current tax asset for the consolidated entity in the current year (2012: $1,564,000). In accordance with the tax consolidation legislation, the Company as the head entity of the Australian tax-consolidated group has assumed the current tax liability initially recognised by the members in the tax-consolidated group. 63 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements 17. defeRRed tax assets and liaBilities Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following: In thousands of AUD Property, plant and equipment Intangible assets Inventories Employee benefits Provisions Other items Tax assets / (liabilities) Set off of tax Net tax assets / (liabilities) Assets Liabilities Net 2013 685 1,063 3,093 7,349 6,348 3,600 22,138 (7,074) 15,064 2012 562 509 2,578 7,762 8,082 4,462 23,955 (6,467) 17,488 2013 (1,349) (5,458) – – – (267) (7,074) 7,074 – 2012 (1,144) (5,240) – – – (83) (6,467) 6,467 – 2013 (664) (4,395) 3,093 7,349 6,348 3,333 15,064 – 15,064 2012 (582) (4,731) 2,578 7,762 8,082 4,379 17,488 – 17,488 Unrecognised deferred tax assets Deferred tax assets have not been recognised in respect of the following items: In thousands of AUD Capital losses Revenue losses 2013 6,199 74 2012 7,779 1,463 The deductible tax losses accumulated at balance date do not expire under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which to offset the tax benefit of these losses. Movement in temporary differences during the year In thousands of AUD Property, plant and equipment Intangible assets Inventories Employee benefits Provisions Other items In thousands of AUD Property, plant and equipment Intangible assets Inventories Employee benefits Provisions Other items Balance 1 July 11 Recognised in income Recognised in equity Acquired in business combinations Disposals Balance 30 June 12 (128) (5,477) 2,545 8,963 9,738 1,417 17,058 (691) 823 33 (399) (1,336) 2,396 826 – – – – – 631 631 – – – – – – – 237 (77) – (802) (320) (65) (582) (4,731) 2,578 7,762 8,082 4,379 (1,027) 17,488 Balance 1 July 12 Recognised in income Recognised in equity Acquired in business combinations Disposals Balance 30 June 13 (582) (4,731) 2,578 7,762 8,082 4,379 17,488 (82) 1,056 251 (868) (1,734) (239) (1,616) – – – – – (840) (840) – (720) 264 455 – 33 32 – – – – – – – (664) (4,395) 3,093 7,349 6,348 3,333 15,064 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtementsLand and buildings Plant and equipment Motor vehicles Work in progress 18. pRopeRty, plant and equipment In thousands of AUD Cost Balance at 1 July 2011 Additions Disposals Transfers Effect of movements in foreign exchange Balance at 30 June 2012 59,622 364 (11,294) 9,534 – 58,226 186,624 16,076 (34,333) 4,021 70 172,458 1,682 30 (400) – 4 1,316 1,316 1,406 – Balance at 1 July 2012 58,226 172,458 Acquisitions through business combinations Additions Disposals Transfers Effect of movements in foreign exchange – 2,285 (3,013) – – 1,303 9,089 (10,031) (1,676) 6,950 105 – 5 Balance at 30 June 2013 57,498 179,874 1,051 Depreciation and impairment losses Balance at 1 July 2011 Depreciation charge for the year Disposals Effect of movements in foreign exchange (9,249) (1,061) 2,794 – (137,042) (11,548) 29,514 (46) Balance at 30 June 2012 (7,516) (119,122) Balance at 1 July 2012 Depreciation charge for the year Disposals Effect of movements in foreign exchange (7,516) (1,084) 626 – (119,122) (12,348) 9,421 (89) Balance at 30 June 2013 (7,974) (122,138) Carrying amounts At 1 July 2011 At 30 June 2012 At 1 July 2012 At 30 June 2013 50,373 50,710 50,710 49,524 49,582 53,336 53,336 57,736 (718) (242) 179 (2) (783) (783) (311) 495 (5) (604) 964 533 533 447 17,741 4,869 (342) (13,555) – 8,713 8,713 – – – (6,950) – 1,763 – – – – – – – – – – 17,741 8,713 8,713 1,763 Total 265,669 21,339 (46,369) – 74 240,713 240,713 2,709 11,374 (14,720) – 110 240,186 (147,009) (12,851) 32,487 (48) (127,421) (127,421) (13,743) 10,542 (94) (130,716) 118,660 113,292 113,292 109,470 65 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements19. intangiBle assets In thousands of AUD Cost Balance at 1 July 2011 Acquisitions through business combinations Additions Effect of movements in foreign exchange Trade names, designs, patents and customer relationships Software Brand names Goodwill Total 22,151 4,459 (486) – 321,111 21,547 46,358 – (12,400) 6 – – – – – – 411,167 4,459 (12,886) 6 Balance at 30 June 2012 26,124 308,717 21,547 46,358 402,746 Balance at 1 July 2012 Acquisitions through business combinations Additions Disposals Effect of movements in foreign exchange 26,124 53 3,329 (78) – 308,717 – – – 29 21,547 2,400 46,358 4,556 – – – – – – 402,746 7,009 3,329 (78) 29 Balance at 30 June 2013 29,428 308,746 23,947 50,914 413,035 Amortisation Balance at 1 July 2011 Amortisation for the year Disposals Balance at 30 June 2012 Balance at 1 July 2012 Amortisation for the year Disposals Balance at 30 June 2013 Carrying amounts At 1 July 2011 At 30 June 2012 At 1 July 2012 At 30 June 2013 (11,297) (5,149) 49 (16,397) (16,397) (5,301) 77 (21,621) 10,854 9,727 9,727 7,807 – – – – – – – – 321,111 308,717 308,717 308,746 (1,592) (1,220) – (2,812) (2,812) (1,354) – (4,166) 19,955 18,735 18,735 19,781 – – – – – – – – 46,358 46,358 46,358 50,914 (12,889) (6,369) 49 (19,209) (19,209) (6,655) 77 (25,787) 398,278 383,537 383,537 387,248 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements19. intangiBle assets (Continued) Carrying value of brand names and goodwill for each cash generating unit and segment In thousands of AUD CaromaDorf Dux Bathrooms & Kitchens API Locksmiths Gainsborough Gliderol Door & Access Systems Heating & Cooling 2013 284,146 6,000 290,146 4,556 20,049 24,075 48,680 20,834 359,660 2012 284,117 6,000 290,117 – 20,049 24,075 44,124 20,834 355,075 Impairment testing for brand names and goodwill The recoverable amounts of all brand names and goodwill were assessed at 30 June 2013 based on internal value in use calculations and no impairment was identified for any cash generating units (2012: nil for all cash generating units). Value in use was determined by discounting the future cash flows to be generated from the continuing use of the business unit and to which the brand or goodwill is attached and was based on the following assumptions: • Cash flows were projected based on actual operating results and business plans of the units approved by the Board, with projected cash flows to five years before a terminal value was calculated. Maintainable earnings were adjusted for an allocation of corporate overheads; • Management used a constant growth rate of 2.5% (2012: 2.5%) in calculating terminal values of the units, which does not exceed the long-term average growth rate for the industry; and • A pre-tax discount rate of 12.30% was used (2012: 12.26%). The key assumptions relate to dwelling completions, economic activity and market share. The values assigned to the key assumptions represent management’s assessment of future trends in the Bathrooms & Kitchens, Door & Access Systems and Heating & Cooling industries and are based on both external sources and internal sources (historical data). The recoverable amount of the cash generating units exceeds their carrying values at 30 June 2013. The recoverable amount of the Gliderol business exceeds it carrying value by $8,200,000. An increase in the discount rate of 1.5% or a reduction in long term forecast dwelling completions that reduce the cash flow forecast by 15% would reduce the recoverable amount of the Gliderol business to its carrying value. Management believe no other reasonably probable changes to the key assumptions used in the calculations would cause the carrying amount to exceed the recoverable amount of the cash generating units. 20. tRade and otheR payaBles In thousands of AUD Current Trade payables and accrued expenses Derivatives used for hedging Non-trade payables and accrued expenses The consolidated entity’s exposure to currency risk and liquidity risk related to trade and other payables are disclosed in note 26. 2013 2012 50,176 24,400 795 75,371 45,069 21,706 1,324 68,099 67 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements 21. loans and BoRRowings This note provides information about the contractual terms of the consolidated entity’s loans and borrowings, which are measured at amortised cost. For more information about the consolidated entity’s exposure to interest rate and foreign currency risk, see note 26. Non-current liabilities In thousands of AUD Unsecured cash advance facilities Terms and debt repayment schedule In thousands of AUD Unsecured cash advance facilities Unsecured cash advance facilities Currency AUD AUD 2013 195,000 Year of maturity 2016 2018 2013 Face value 195,000 – 2013 Carrying amount 195,000 – 195,000 195,000 2012 Face value 200,000 5,000 205,000 2012 205,000 2012 Carrying amount 200,000 5,000 205,000 The unsecured cash advance facilities mature over the next 3 to 5 financial years and have variable rates ranging from 4.68% – 5.03% at 30 June 2013 (2012: 5.36% – 5.66%). Financing facilities In thousands of AUD Bank overdraft Standby letters of credit Bank guarantees Unsecured cash advance facility Facilities utilised at reporting date Bank overdraft Standby letters of credit Bank guarantees Unsecured cash advance facility Facilities not utilised at reporting date Bank overdraft Standby letters of credit Bank guarantees Unsecured cash advance facility 2013 1,000 12,000 9,200 275,000 297,200 – – 2,965 195,000 197,965 1,000 12,000 6,235 80,000 99,235 2012 1,000 12,000 4,200 300,000 317,200 – 135 1,445 205,000 206,580 1,000 11,865 2,755 95,000 110,620 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements 21. loans and BoRRowings (Continued) Bank overdraft The bank overdraft facility available to the consolidated entity is unsecured. Interest on the bank overdraft facility is charged at prevailing market rates. No drawdowns against this facility had been made as at 30 June 2013. Unsecured cash advance facility Bank loans are provided to GWA Finance Pty Limited under the Multi-currency Revolving Facility Agreement. The bank loans at reporting date are denominated in Australian dollars. The bank loans are unsecured with a negative pledge in favour of the banks, and are split between three year and five year terms. The loans bear interest at market rates and interest is typically payable every 30 to 90 days. The consolidated entity hedges its exposure to variable interest rates through interest rate swap transactions. Letter of credit The letter of credit facilities are committed facilities available to be drawn down under the facility agreements. The limits are specified in the facility agreements. Bank guarantees The bank guarantees are committed facilities available to be drawn down under the facility agreement. The limits are specified in the facility agreement. 22. employee Benefits In thousands of AUD Current Liability for annual leave Liability for long-service leave Non-current Liability for long-service leave 2013 2012 9,588 2,224 11,812 11,195 2,341 13,536 12,693 12,346 Defined contribution superannuation funds The consolidated entity makes contributions to a defined contribution superannuation fund. Contributions are charged against income as they are made based on various percentages of each employee’s gross salaries. The amount recognised as expense was $9,723,000 for the financial year ended 30 June 2013 (2012: $10,440,000). Employee share plan During the financial year, the consolidated entity discontinued the employee share plan (‘the Plan’) as it failed to achieve its objectives as a long term incentive for employees. In March 2013, employees were given the option of selling their shares on-market with any loan deficiency being waived by the consolidated entity. If an employee did not choose this option, the employee would remain subject to the Plan rules which require loans to be repaid in full by the employee. Due to the cessation of the Plan no shares were issued to employees in 2013. In the prior year, 480,500 ordinary shares were issued to employees at the market price of $2.27, being total market value of $1,090,000 with listing fees of $5,000. As at 30 June 2013, loans are issued for 162,500 shares (2012: 4,051,750) and the remaining balances of these loans is $263,000 (2012: $8,769,000). During 2013, dividends of $503,000 (2012: $660,000) were paid against the loans, a further $7,781,000 (2012: $575,000) was paid by employees against these loans and $222,000 was written-off. 69 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements23. shaRe-Based payments The Long Term Incentive (Equity) Plan was approved by shareholders at the 2008 Annual General Meeting. Under the plan, the Board may offer performance rights to participants which entitle the holder to ordinary shares in the Company (or in limited cases cash payments made), subject to meeting certain financial performance hurdles and the holder remaining in employment with the Company until the nominated vesting date. The performance hurdles are subject to financial performance conditions which measure Total Shareholder Returns (TSR) compared to a peer group of companies, and growth in Earnings Per Share (EPS). The performance hurdles are challenging but achievable and focus senior executives on sustained long term growth consistent with shareholder wealth creation. The plan runs over a three year performance period and the rights will only vest if the performance hurdles are achieved based on a 50% allocation of each grant to the two performance hurdles. If the vesting conditions and performance hurdles are achieved, ordinary shares will be issued to the participants at no cost. If the performance hurdles are not met, then the rights are cancelled after three years. For performance rights granted to executives in the 2012/13 year, the performance hurdles and vesting proportions for the EPS performance measure is outlined in the table below. The base year EPS for the 2013 Long Term Incentive (Equity) Plan grant was 15.1 cents. Compound annual EPS Growth Proportion of Performance Rights to Vest if EPS growth hurdle is met Less than 3% per annum 3% per annum 0% 25% Between 3% and 8% per annum Straight line vesting between 25% and 50% 8% or higher per annum 50% (i.e. 50% of total grant) For performance rights granted to executives in the 2012/13 year, the performance hurdles and vesting proportions for the TSR performance measure is outlined in the table below. TSR of GWA Group Limited relative to TSRs of Comparator Companies Less than the 50th percentile 50th percentile Proportion of Performance Rights to Vest if TSR hurdle is met 0% 25% Between the 50th percentile and 75th percentile Straight line vesting between 25% and 50% 75th percentile or higher 50% (i.e. 50% of total grant) For further details of the Long Term Incentive (Equity) Plan, please refer to the Remuneration Report. Tranche Grant date Expiry date Balance at beginning of the year Granted during the year Cancelled during the year Vested during the year Forfeited during the year Balance at end of the year Number Number Number Number Number Number 2013 (i) (ii) (iii) (iv) 2012 (i) (ii) (iii) (iv) 12/03/2010 30/06/2012 21/02/2011 30/06/2013 17/02/2012 30/06/2014 375,000 680,000 780,000 – – – 25/02/2013 30/06/2015 – 972,000 – (375,000) – (100,000) (195,000) – – – – (290,000) – – – 290,000 585,000 972,000 1,835,000 972,000 (295,000) (375,000) (290,000) 1,847,000 27/02/2009 30/06/2011 12/03/2010 30/06/2012 21/02/2011 30/06/2013 470,000 845,000 720,000 – – – 17/02/2012 30/06/2014 – 780,000 – (470,000) – (95,000) (40,000) – – – – (375,000) – – – 375,000 680,000 780,000 2,035,000 780,000 (135,000) (470,000) (375,000) 1,835,000 No performance rights were vested and exercisable at 30 June 2013. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements 23. shaRe-Based payments (Continued) Fair value During the current financial year 972,000 performance rights were granted to employees (2012: 780,000) at a weighted average fair value of $1.96 (2012: $1.44). The fair value of the performance rights subject to the EPS hurdle for vesting (50%) was determined as $2.18 by using a Binomial option pricing model. The fair value of the performance rights granted subject to the TSR hurdle for vesting (50%) was determined as $1.74 by using a Monte Carlo simulation. When determining the fair values it was assumed the Company would have a dividend yield of 5.5%, the risk free rate was 2.85% and volatility ranged between 30-35% for the Company and its comparator companies listed for the TSR hurdle. The fair value of the performance rights granted will be allocated to each financial year evenly over the specified three year service period. The amount recognised as personnel expenses in the current financial year was $277,000 (2012: $321,000). Refer to the Remuneration Report for further details. 24. pRovisions In thousands of AUD Balance at 1 July 2012 Provisions made during the year Provisions used during the year Effect of movements in foreign exchange Balance at 30 June 2013 Current Non-current Warranties Warranties Restructuring Site restoration 13,698 4,129 (6,044) – 11,783 6,989 4,794 11,783 2,483 13,960 (14,581) 17 1,879 1,783 96 1,879 3,513 8 (1,527) – 1,994 604 1,390 1,994 Other 2,493 48 (1,057) – 1,484 1,384 100 1,484 Total 22,187 18,145 (23,209) 17 17,140 10,760 6,380 17,140 The total provision for warranties at balance date of $11,783,000 relates to future warranty expense on products sold during the current and previous financial years. The major warranty expense relates to water heating products. The provision is based on estimates made from historical warranty data associated with similar products and services. The consolidated entity expects to expend $6,989,000 of the total provision in the financial year ending 30 June 2014, and the majority of the balance of the liability over the following four years. The net present value of the provision has been calculated using a discount rate of 3.54%. Restructuring The restructuring provision relates to the estimated costs of redundancies, site closures and product rationalisation related to the business restructuring announced in December 2012. During the financial year ended 30 June 2013, restructuring was undertaken across all operating segments with $13,960,000 being provided and $14,581,000 being utilised. At balance date the balance of the restructuring provision was $1,879,000 with the majority to be utilised in the next financial year. Site restoration The provision for site restoration at balance date of $1,994,000 relates to site remediation and the removal of plant installed in leased premises where there is a liability under the lease for the plant to be removed on expiry and the leased premises made good. Payments of $1,527,000 were made in the current financial year. The balance remaining will be utilised when leased sites are exited. 71 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements25. Capital and ReseRves Share capital In thousands On issue at 1 July – fully paid Issue of shares under the dividend reinvestment plan Issue of shares under the employee share plan On issue at 30 June – fully paid Ordinary shares 2013 302,006 4,528 – 306,534 2012 301,525 AUD 2013 398,930 2012 397,844 – 9,170 – 481 302,006 – 408,100 1,086 398,930 The Company does not have authorised capital or par value in respect of its issued shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets. Translation reserve The translation reserve comprises all foreign exchange differences arising from the retranslation of the financial statements of foreign operations where their functional currency is different from the presentation currency of the reporting entity, as well as from the retranslation of liabilities that hedge the Company’s net investment in a foreign subsidiary. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred. Equity compensation reserve The equity compensation reserve represents the fair value of the cumulative net charges of the performance rights. Dividends Dividends recognised in the current year are: In thousands of AUD Cents per share Total amount Franked Date of payment 2013 Interim 2013 ordinary Final 2012 ordinary Total amount 2012 Interim 2012 ordinary Final 2011 ordinary Total amount 6.0 8.5 14.5 9.5 8.5 18.0 18,283 25,670 43,953 28,645 25,630 54,275 100% 100% 100% 100% 4th April 2013 4th Oct 2012 4th April 2012 6th Oct 2011 Franked dividends declared or paid during the year were franked at the tax rate of 30%. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements25. Capital and ReseRves (Continued) Dividends (continued) After balance date the following dividends were approved by the directors. The dividends have not been provided for. The declaration and subsequent payment of dividends has no income tax consequences. In thousands of AUD Cents per share Total amount Final ordinary 6.0 18,392 Franked 100% Date of payment 4th Oct 2013 The financial effect of these dividends has not been brought to account in the financial statements for the financial year ended 30 June 2013 and will be recognised in subsequent financial reports. Dividend franking account In thousands of AUD 30 per cent franking credits available to shareholders of GWA Group Limited for subsequent financial years The Company 2013 4,513 2012 14,722 The above available amounts are based on the balance of the dividend franking account at year-end adjusted for: (a) franking credits/debits that will arise from the payment/settlement of the current tax liabilities/assets; and (b) franking debits that will arise from the payment of dividends recognised as a liability at year-end. The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact on the dividend franking account of dividends proposed after balance date, but not recognised as a liability, is to reduce it by $7,882,000 (2012: $11,001,000). In accordance with the tax consolidation legislation, the Company as the head entity in the tax-consolidated group has also assumed the benefit of $4,513,000 (2012: $14,722,000) franking credits. 26. finanCial instRuments and finanCial Risk management Exposure to credit, interest rate and currency risks arises in the normal course of the consolidated entity’s business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates. Risk management policy The Board has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Executive Risk Committee, which is responsible for developing and monitoring risk management policies. The Committee is required to report regularly to the Board on its activities. Risk management policies are established to identify and analyse the risks faced by the consolidated entity, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the consolidated entity’s activities. The Board Audit Committee oversees how management monitors compliance with the risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the consolidated entity. The Board Audit Committee is assisted in its oversight role by the Internal Audit team. The Internal Audit team conducts both regular and ad hoc reviews of risk management controls and procedures. The results of the reviews are reported to the Board Audit Committee. Capital management policy The Board’s policy is to maintain a strong capital base and grow shareholder wealth. The Board monitors debt levels, cash flows and financial forecasts to establish appropriate levels of dividends and funds available to reinvest in the businesses or invest in growth opportunities. The Board focuses on growing shareholder wealth by monitoring the performance of the consolidated entity by reference to the return on funds employed. The Board defines return on funds employed as trading earnings before interest and tax divided by net assets after adding back net debt. There were no changes to the Boards approach to capital management during the year. 73 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements26. finanCial instRuments and finanCial Risk management (Continued) Credit risk Credit risk is the risk of financial loss to the consolidated entity if a customer or other counterparty to a financial instrument fails to discharge their obligations. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. A risk assessment process is used for customers requiring credit and credit insurance is utilised for major concentrations of trade debts. Goods are sold subject to retention of title clauses in most circumstances. The consolidated entity does not require collateral in respect of financial assets. The consolidated entity maintains an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. Transactions involving derivative financial instruments are with counterparties with sound credit ratings. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations. The consolidated entity has three major customers which comprise 40% of the trade receivables carrying amount at 30 June 2013 (2012: 41%). At balance date there were no material uninsured concentrations of credit risk. The carrying amount of financial assets represents the maximum credit exposure of the consolidated entity. The maximum exposure to credit risk at balance date was: In thousands of AUD Cash and cash equivalents Trade receivables Employee share loans Forward exchange contracts used for hedging 2013 32,757 82,242 263 23,988 139,250 2012 30,528 80,549 5,407 18,495 134,979 The ageing of trade receivables for the consolidated entity at balance date is as follows: In thousands of AUD Not yet due Past due 0-30 days Past due 31-60 days Past due 61-120 days Past due 120+ days Less accrued rebates and credit claims There were no trade receivables with re-negotiated terms. 2013 Receivable 2013 Impairment 2012 Receivable 2012 Impairment 61,663 33,913 2,904 755 2,458 (19,451) 82,242 (70) (40) (4) (80) (1,295) – (1,489) 68,186 30,161 1,797 1,264 2,984 (23,843) 80,549 (70) (61) (35) (312) (1,188) – (1,666) The movement in the allowance for impairment in respect of trade receivables during the year for the consolidated entity was as follows: In thousands of AUD Balance at 1 July Impairment loss (recognised)/reversed Impairment losses applied Acquired through business combinations Disposals Effect of movements in foreign exchange Balance at 30 June 2013 (1,666) (610) 949 (162) – – 2012 (2,200) (231) 646 – 122 (3) (1,489) (1,666) GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements26. finanCial instRuments and finanCial Risk management (Continued) Liquidity risk Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due. The consolidated entity prepares cash flow forecasts and maintains financing and overdraft facilities with a number of institutions to ensure sufficient funds will be available to meet obligations without incurring excessive costs. The cash flows of the consolidated entity are controlled by management and reported monthly to the Board who is ultimately responsible for maintaining liquidity. The contractual maturities of financial liabilities and derivatives that are cash flow hedges of the consolidated entity, including estimated interest payments are as follows: Maturity analysis In thousands of AUD 2013 Non-derivative financial liabilities Carrying amount Contractual cash flows Less than 6 months 6–12 months 1–2 years 3–5 years 5+ years Unsecured cash advance facilities (195,000) (252,702) (9,329) (9,329) (18,659) (215,385) Trade and other payables (50,176) (50,176) (50,176) – – – Derivative financial liabilities Interest rate swaps designated as hedges Forward exchange contracts designated as hedges – outflow Forward exchange contracts designated as hedges – inflow (1,939) (2,045) (784) (629) (452) (180) (22,461) (22,461) (22,461) 23,988 23,988 23,988 – – – – – – Total at 30 June 2013 (245,588) (303,396) (58,762) (9,958) (19,111) (215,565) – – – – – – 2012 Non-derivative financial liabilities Unsecured cash advance facilities (205,000) (279,454) (12,515) (12,515) (25,030) (224,394) (5,000) Trade and other payables (45,069) (45,069) (45,021) (48) – – Derivative financial liabilities Interest rate swaps designated as hedges Forward exchange contracts designated as hedges – outflow Forward exchange contracts designated as hedges – inflow (3,096) (2,026) (806) (599) (559) (62) (18,610) (18,610) (18,610) 18,495 18,495 18,495 – – – – – – – – – – Total at 30 June 2012 (253,280) (326,664) (58,457) (13,162) (25,589) (224,456) (5,000) The unsecured cash advance facilities are split between three year and five year terms. The periods in which the cash flows associated with derivatives arise match the periods of profit and loss impact. 75 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements26. finanCial instRuments and finanCial Risk management (Continued) Market risk Market risk is the risk that changes in market prices such as interest rates and foreign exchange rates will affect the consolidated entity’s income or value of holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters. The consolidated entity enters into derivatives in order to manage market risks. All transactions are carried out within the guidelines set by the Executive Risk Committee. a) interest rate risk Interest rate risk is the risk that changes in interest rates will affect the consolidated entity’s income. The consolidated entity’s variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates. The consolidated entity adopts a policy of ensuring that its exposure to changes in interest rates on borrowings is reduced. Interest rate swaps, denominated in Australian dollars, have been entered into to achieve an appropriate mix of fixed and floating rate exposure. The swaps mature over the next 3 years and have fixed swap rates ranging from 3.37% to 5.20% (2012: 3.86% to 5.42%). At 30 June 2013, the consolidated entity had interest rate swaps in operation with a notional contract amount of $125,000,000 (2012: $125,000,000). The consolidated entity classifies interest rate swaps as cash flow hedges and states them at fair value. The net fair value of swaps at 30 June 2013 was $1,939,000 recognised as a fair value derivative liability. (2012: $3,096,000 fair value derivative liability). (i) profile At balance date the consolidated entity’s interest bearing financial instruments were: In thousands of AUD Notional value Carrying amount Notional value Carrying amount 2013 2013 2012 2012 Variable rate financial instruments Unsecured cash advance facilities Bank balances Call deposits Fixed rate financial instruments Interest rate swap derivatives Total (195,000) 15,711 17,046 (162,243) 125,000 (37,243) (195,000) 15,711 17,046 (162,243) (1,939) (164,182) (205,000) 12,998 17,530 (174,472) 125,000 (49,472) (205,000) 12,998 17,530 (174,472) (3,096) (177,568) GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements26. finanCial instRuments and finanCial Risk management (Continued) Market risk (continued) a) interest rate risk (continued) (ii) fair value sensitivity analysis for fixed rate instruments The consolidated entity does not account for fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss. A change of 100 basis points in interest rates at balance date would have affected the consolidated entity’s equity and financial assets and liabilities as follows: In thousands of AUD Increase of 100 basis points Hedging reserve (increase)/decrease Financial assets increase/(decrease) Financial liabilities (increase)/decrease Decrease of 100 basis points Hedging reserve (increase)/decrease Financial assets increase/(decrease) Financial liabilities (increase)/decrease 2013 2012 (2,135) 196 1,939 – 2,181 – (2,181) – (2,622) – 2,622 – 2,690 – (2,690) – (iii) Cash flow sensitivity analysis for fixed and variable rate instruments A change of 100 basis points in interest rates during the period would have affected the consolidated entity’s profit or loss as follows: In thousands of AUD Increase of 100 basis points Unsecured cash advance facilities (AUD) Unsecured cash advance facilities (USD) Bank balances Interest rate swap derivatives Call deposits variable rate Call deposits fixed rate Decrease of 100 basis points Unsecured cash advance facilities (AUD) Unsecured cash advance facilities (USD) Bank balances Interest rate swap derivatives Call deposits variable rate Call deposits fixed rate 2013 2012 (2,259) – 157 1,388 266 39 (409) 2,259 – (157) (1,388) (266) (39) 409 (2,519) (25) 130 1,141 269 8 (996) 2,519 9 (130) (1,141) (267) (8) 982 77 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements26. finanCial instRuments and finanCial Risk management (Continued) Market risk (continued) b) foreign currency risk The consolidated entity is exposed to foreign currency risk on sales, purchases and asset and liability holdings that are denominated in a currency other than the respective functional currencies of its subsidiaries. The consolidated entity is also exposed to foreign currency risk on retranslation of the financial statements of foreign subsidiaries. The currencies giving rise to this risk are primarily USD, NZD, EUR and RMB. The consolidated entity hedges its foreign currency exposure in respect of forecasted sales and purchases by entering into forward exchange contracts. The forward exchange contracts have maturities of less than six months after the balance date. The consolidated entity classifies its forward exchange contracts hedging forecasted transactions as cash flow hedges and states them at fair value. The estimated forecast sales and purchases in the tables below are for the six month period after the respective balance dates. (i) exposure to currency risk In thousands of AUD equivalent Currency transaction risk 2013 Trade receivables Trade payables Cash Net balance sheet exposure Estimated forecast sales Estimated forecast purchases Net forecast transaction exposure Forward exchange contracts Net exposure 30 June 2013 Foreign exchange rates at balance date 2012 Trade receivables Trade payables Cash Net balance sheet exposure Estimated forecast sales Estimated forecast purchases Net forecast transaction exposure Forward exchange contracts Net exposure 30 June 2012 Foreign exchange rates at balance date Currency translation risk 2013 Net assets 2012 Net assets USD NZD EUR RMB – (2,816) 1,546 (1,270) – (39,172) (39,172) 19,623 (20,819) 0.9275 285 (1,120) 2,030 1,195 – (32,795) (32,795) 15,602 (15,998) 1.0191 – – – (5) 51 46 9,351 (5,397) 3,953 (3,791) 209 1.1871 – (49) 1,669 1,620 8,983 (4,422) 4,561 (1,762) 4,419 1.2771 2,441 1,708 – (331) 78 (253) – (3,452) (3,452) 493 (3,211) 0.7095 – (839) 553 (286) – (5,943) (5,943) 1,050 (5,179) 0.8092 – – – (372) 377 5 – (4,299) (4,294) – (4,294) 5.6991 – (299) 6 (293) – (4,817) (4,817) – (5,110) 6.4776 45 134 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements 26. finanCial instRuments and finanCial Risk management (Continued) Market risk (continued) b) foreign currency risk (continued) (ii) sensitivity analysis The impact of exchange rate movements on profit is subject to other variables including competitor exchange rate positions and movement in market prices. The impact of exchange rate movements on equity is not material. Fair values The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position are as follows: In thousands of AUD Cash and cash equivalents Trade and other receivables Interest rate swaps: Liabilities Forward exchange contracts: Assets Liabilities Unsecured cash advance facilities Trade payables and accrued expenses Estimation of fair values Carrying amount 2013 32,757 87,473 Fair value 2013 32,757 87,473 Carrying amount 2012 30,528 85,439 Fair value 2012 30,528 85,439 (1,939) (1,939) (3,096) (3,096) 23,988 (22,461) (195,000) (50,971) (126,153) 23,988 (22,461) (195,000) (50,971) (126,153) 18,495 (18,610) (205,000) (46,393) (138,637) 18,495 (18,610) (205,000) (46,393) (138,637) The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table. (i) derivatives Forward exchange contracts are marked to market by discounting the contractual forward price and deducting the current spot rate. Commodity contracts are marked to market by discounting the contractual forward price and deducting the current commodity spot price. For interest rate swaps broker quotes are obtained. These quotes are back tested using discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market related data at the balance sheet date. (ii) loans and borrowings The notional amount of the interest-bearing loans is deemed to reflect the fair value. The interest-bearing loans are split between three year and five year terms. (iii) trade and other receivables / payables All receivables / payables are either repayable within twelve months or repayable on demand. Accordingly, the notional amount is deemed to reflect the fair value. (iv) employee share loans and other employee loans Employee share loans and other employee loans are carried at fair value using discounted cash flow techniques. 79 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements26. finanCial instRuments and finanCial Risk management (Continued) Estimation of fair values (continued) (v) interest rates used for determining fair value The consolidated entity uses the government yield curve as of 30 June 2013 plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows: Derivatives Employee share loans and other loans Loans and borrowings (vi) fair value hierarchy 2013 2012 2.66% – 3.65% 3.14% – 3.58% n/a 7.40% – 7.80% 4.68% – 5.03% 5.36% – 5.66% The consolidated entity recognises the fair value of its financial instruments using the level 2 valuation method. The different levels have been defined as follows: • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs) In thousands of AUD 30 June 2013 Forward exchange contracts used for hedging Interest rate swaps used for hedging Forward exchange contracts used for hedging Interest rate swaps used for hedging 30 June 2012 Forward exchange contracts used for hedging Interest rate swaps used for hedging Forward exchange contracts used for hedging Interest rate swaps used for hedging Level 1 Level 2 Level 3 Total – – – – – – – – – – – – 23,988 – 23,988 (22,461) (1,939) (24,400) 18,495 – 18,495 (18,610) (3,096) (21,706) – – – – – – – – – – – – 23,988 – 23,988 (22,461) (1,939) (24,400) 18,495 – 18,495 (18,610) (3,096) (21,706) GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements27. opeRating leases Leases as lessee Non-cancellable operating lease rentals are payable as follows: In thousands of AUD Less than one year Between one and five years More than five years 2013 13,017 28,678 3,132 44,827 2012 12,401 28,411 5,431 46,243 The consolidated entity leases warehouse, factory and office facilities and motor vehicles under operating leases. The warehouse, factory and office facility leases typically run for a period of 3 to 8 years, with an option to renew the lease after that date. None of the leases include contingent rentals. During the financial year ended 30 June 2013, $16,576,000 (2012: $14,111,000) was recognised as an expense in profit or loss in respect of operating leases. 28. Capital Commitments In thousands of AUD Capital expenditure commitments Plant and equipment Contracted but not provided for and payable: Within one year 29. ContingenCies Environmental remediation 2013 2012 2,981 4,111 In previous financial years, the consolidated entity investigated and reported two environmental contamination issues at factory sites at Revesby, New South Wales and Eagle Farm, Queensland. The Revesby site was previously leased and occupied by McIlwraith-Davey Pty Ltd, a wholly owned subsidiary of GWA Group Limited. The site was exited on the lease expiry date of 30 April 2013. The Eagle Farm site was previously occupied by Corille Limited (formerly Rover Mowers Limited) and was exited in a prior financial year following the sale of the Rover Mowers business. The remediation activities at the Revesby site were substantially completed at 30 June 2013. Post remediation groundwater testing has continued during the current financial year and the consolidated entity expects to finalise all remediation requirements at the Revesby site during the 2014 financial year. The remediation activities at the Eagle Farm site were completed during the prior financial year. The remediation provision at 30 June 2013 is $87,000 which the directors consider adequate. Brivis evaporative cooler recalls Since the acquisition of Brivis in April 2010, the consolidated entity has continued product recalls commenced by the former owner, Carrier, for Brivis evaporative coolers manufactured between August 2000 and November 2003 due to defective components. The total cost of the product recalls and associated product liability claims cannot be reliably estimated at this stage. The Brivis purchase agreement provides that Carrier is responsible for product recall and product liability costs above specified thresholds with an overall cap on Carrier’s liability. A progress claim in the amount of $953,000 was submitted to Carrier in May 2013 under the Brivis purchase agreement. The directors believe the provision at 30 June 2013 of $970,000 in respect of potential product liability and product recall costs is adequate. 81 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements29. ContingenCies (Continued) Supplier dispute The consolidated entity received a demand letter in June 2013 from lawyers representing a former China sanitaryware supplier, Carlyle Sanitaryware Co Ltd, in relation to the termination of its business relationship with Caroma Industries Limited, a wholly owned subsidiary of GWA Group Limited. The letter demanded the immediate payment to Carlyle of specified amounts covering Carlyle’s stock holdings, compensation for lost sales revenue, interest and legal costs. Carlyle has threatened legal action if the payments are not made. The consolidated entity has rejected the demands expressed in the demand letter and denied any liability to Carlyle following the termination of its business relationship with Caroma Industries Limited. The consolidated entity has outlined its own claims against Carlyle for breach of contract and infringement of Caroma Industries Limited’s intellectual property rights. On that basis, no amount has been provided at 30 June 2013 in respect of this matter. 30. deed of CRoss guaRantee Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries as listed in Note 31 are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors’ Report. It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up. A consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, at 30 June 2013, is set out below. Summarised statement of profit or loss and other comprehensive income and retained profits In thousands of AUD Sales revenue Cost of sales Gross profit Operating expenses Finance income Finance expenses Profit before tax Income tax expense Profit after tax Total comprehensive income for the period, net of tax Retained earnings at beginning of year Dividends recognised during the year Share-based payments, net of income tax Retained earnings at end of the year 2013 547,663 (336,801) 210,862 (156,671) 1,476 (14,803) 40,864 (8,955) 31,909 31,909 26,266 (43,953) 70 14,292 2012 592,989 (362,493) 230,496 (168,038) 1,979 (16,226) 48,211 (9,597) 38,614 38,614 42,191 (54,275) (264) 26,266 GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements30. deed of CRoss guaRantee (Continued) Statement of financial position In thousands of AUD Assets Cash and cash equivalents Trade and other receivables Inventories Income tax receivable Other Total current assets Receivables Intercompany receivables Investments Deferred tax assets Property, plant and equipment Intangible assets Other Total non-current assets Total assets Liabilities Trade and other payables Income tax payable Employee benefits Provisions Total current liabilities Loans and borrowings Employee benefits Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Retained earnings Total equity 2013 2012 30,766 108,620 77,421 – 2,042 218,849 – 36,996 11,113 15,003 69,479 383,226 1,118 516,935 735,784 74,584 657 11,728 10,860 97,829 195,000 12,669 6,379 214,048 311,877 423,907 408,100 1,515 14,292 423,907 29,085 96,936 89,428 1,537 2,496 219,482 4,747 35,213 11,435 17,418 74,579 379,543 3,521 526,456 745,938 67,486 – 13,433 13,857 94,776 205,000 12,337 8,330 225,667 320,443 425,495 398,930 299 26,266 425,495 83 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements31. Consolidated entities Parent entity GWA Group Limited Subsidiaries API Services and Solutions Pty Limited Austral Lock Pty Ltd Brivis Climate Systems Pty Ltd Canereb Pty Ltd Caroma Holdings Limited Caroma Industries Limited Caroma Industries (NZ) Limited Caroma International Pty Ltd Caroma USA Inc Corille Limited Dorf Clark Industries Ltd Dorf Industries (NZ) Ltd Dux Manufacturing Limited G Subs Pty Ltd Gainsborough Hardware Industries Limited Gliderol International Pty Limited GWA Finance Pty Limited GWA Group Holdings Limited GWAIL (NZ) Ltd GWA Taps Manufacturing Limited GWA Trading (Shanghai) Co Ltd Industrial Mowers (Australia) Limited Mainrule Limited McIlwraith Davey Pty Ltd Sebel Furniture Holdings Pty Ltd Starion Tapware Pty Ltd Stylus Pty Ltd Warapave Pty Ltd Parties to cross guarantee Country of incorporation Ownership interest 2013 2012 Y Y Y Y N Y Y N Y N Y Y N Y Y Y Y Y Y N Y N Y N Y Y Y Y N Australia Australia Australia Australia Australia Australia Australia New Zealand Australia USA Australia Australia New Zealand Australia Australia Australia Australia Australia Australia New Zealand Australia China Australia New Zealand Australia Australia Australia Australia Australia 100% 100% 100% 100% 100% 100% 100% 100% – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% – 100% 100% 100% 100% 100% – 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements32. paRent entity disClosuRes As at, and throughout, the financial year ended 30 June 2013 the parent company of the consolidated entity was GWA Group Limited. In thousands of AUD Results of the parent entity Profit for the period Other comprehensive income Total comprehensive income for the period Financial position of the parent entity Current assets Total assets Current liabilities Total liabilities Shareholders equity of the parent entity Share capital Equity compensation reserve Retained earnings Total shareholders equity Parent entity contingencies Company 2013 30,363 – 30,363 216 607,001 551 178,000 408,100 1,866 19,035 429,001 2012 81,889 – 81,889 2,775 585,340 – 151,442 398,930 2,413 32,555 433,898 The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Contingent liabilities The directors are not aware of any contingent liabilities of the parent entity as at reporting date (2012: nil). Capital expenditure commitments The parent entity has entered into contractual commitments amounting to $455,000 on behalf of wholly-owned subsidiaries for the acquisition of property, plant or equipment as at reporting date (2012: nil). Parent entity guarantees in respect of debts of its subsidiaries The parent entity has entered into a Deed of Cross Guarantee with the effect that the parent entity has guaranteed the repayment of all current and future creditors in the event any of the entities party to the Deed is wound up. No deficiency in net assets exists in these companies at reporting date (2012: nil). Further details of the Deed of Cross Guarantee and the subsidiaries subject to the Deed are disclosed in Note 30 and 31. 85 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements33. ReConCiliation of Cash flows fRom opeRating aCtivities In thousands of AUD Cash flows from operating activities Profit for the period Adjustments for: Depreciation Amortisation Share-based payments Employee share loan waivers Foreign exchange gains Net financing costs Loss on disposal of discontinued operations, net of income tax Gain on sale of property, plant and equipment and intangible assets Income tax expense Operating profit before changes in working capital and provisions Decrease in trade and other receivables Decrease in inventories Decrease in trade and other payables Decrease in provisions and employee benefits Net interest paid Income taxes paid Net cash from operating activities 34. Related paRties Key management personnel compensation 2013 2012 32,390 39,655 13,743 6,655 (451) 222 (3) 13,324 – (3,335) 9,625 72,170 1,403 14,620 3,386 (7,941) 83,638 (14,454) (5,835) 63,349 12,851 6,369 (771) – (1,298) 14,247 4,319 (9,632) 11,256 76,996 21,941 3,835 (2,967) (920) 98,885 (15,979) (22,407) 60,499 The key management personnel compensation included in ‘personnel expenses’ (see note 7) are as follows: In AUD Short-term employee benefits Post-employment benefits Other long term benefits Termination benefits Share-based payments 2013 6,018,555 315,583 95,899 450,750 233,310 2012 5,980,847 463,822 202,124 50,000 344,678 7,114,097 7,041,471 Individual directors and executives compensation disclosures Information regarding individual directors and executives compensation is provided in the Remuneration Report section of the Director’s Report. Apart from the details disclosed in this note, no director has entered into a material contract with the consolidated entity since the end of the previous financial year and there were no material contracts involving directors’ interests existing at year end. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements34. Related paRties (Continued) Loans to key management personnel and their related parties (consolidated) Details regarding loans outstanding at the reporting date to key management personnel and their related parties, where the individual’s aggregate loan balance exceeded $100,000 at any time in the reporting period, are as follows: In AUD Directors P Crowley R Thornton Executives L Patterson W Saxelby Balance 1 July 2012 Balance 30 June 2013 Interest not charged in the reporting period Highest balance in period 798,008 227,496 580,073 671,600 – – – – 38,080 10,998 28,537 16,409 798,008 227,496 580,073 671,600 No loans were made to key management personnel or their related parties during the year (2012: nil). Details regarding the aggregate of loans made, guaranteed or secured by any entity in the consolidated entity to key management personnel and their related parties, and the number of individuals in each group, are as follows: In AUD Opening balance Closing balance Interest not charged in the reporting period Number in group at 30 June Total for key management personnel 2013 Total for key management personnel 2012 2,277,177 – 95,899 2,907,169 2,277,177 202,124 – 4 Other key management personnel transactions with the Company or its controlled entities The consolidated entity purchased components and tooling of $199,156 (2012: $78,769) from Great Western Corporation Pty Ltd, a company of which Mr R Thornton is a director. Amounts were billed based on normal market rates for such supplies and were due and payable under normal payment terms. The consolidated entity incurred legal fees of $332,195 (2012: $296,413) from Clayton Utz Lawyers, a legal firm of which Mr D McDonough is an equity partner. Amounts were billed based on normal market rates for such supplies and were due and payable under normal payment terms. Amounts receivable from and payable to key management personnel or to their related parties at reporting date arising from these transactions were as follows: In AUD Trade creditors 2013 29,801 2012 38,060 From time to time, key management personnel of the Company or its controlled entities, or their related entities, may purchase goods from the consolidated entity. These purchases are on the same terms and conditions as those entered into by other consolidated entity employees or customers and are trivial or domestic in nature. 87 GWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtements34. Related paRties (Continued) Movements in shares The movement during the reporting period in the number of ordinary shares in GWA Group Limited held, directly, indirectly or beneficially, by each key management person (KMP), including their related parties, is as follows: Directors: non-executive R Anderson G McGrath W Bartlett D McDonough P Birtles J Mulcahy Executive directors P Crowley R Thornton Executives G Oliver L Patterson W Saxelby (ceased employment 31/10/2012) N Evans (ceased employment 17/10/2012) Directors: non-executive R Anderson G McGrath W Bartlett D McDonough P Birtles J Mulcahy Executive directors P Crowley R Thornton Executives G Oliver L Patterson W Saxelby P Crossley (ceased KMP status 1/05/2012) G Welsh (ceased employment 30/09/2011) Held at 1 July 2012 Granted as compensation Purchases Sales 18,404,803 150,000 30,914 100,495 15,000 45,000 750,000 128,694 202,407 227,500 350,000 – – – – – – – 152,500 15,000 25,000 25,000 – 37,500 – – 2,280 7,410 – – – – 16,768 – – – – – – – – – (572,500) (100,000) – (200,000) – – Held at 1 July 2011 Granted as compensation Purchases Sales 18,399,803 150,000 30,914 100,495 15,000 25,000 750,000 116,313 174,907 200,000 320,000 – – – – – – – – 177,500 17,500 27,500 27,500 50,000 15,000 20,000 5,000 – – – – 20,000 – – – – – – – – – – – – – (177,500) (5,119) – – (20,000) – – Held at 30 June 2013 18,404,803 150,000 33,194 107,905 15,000 45,000 330,000 43,694 244,175 52,500 n/a n/a Held at 30 June 2012 18,404,803 150,000 30,914 100,495 15,000 45,000 750,000 128,694 202,407 227,500 350,000 n/a n/a The relevant interest of each director in the share capital of the Company as notified by the directors’ to the Australian Securities Exchange in accordance with Section 205G(1) of the Corporations Act 2001 as at 30 June 2013 is listed in the Directors’ Report. During the reporting period, 255,000 shares were granted to key management personnel compensation (2012: 335,000). The aggregate number of shares held by key management personnel or their related parties at 30 June 2013 was 19,426,271 (2012: 20,404,813). 35. suBsequent events To the directors’ best knowledge, there are no events that have arisen subsequent to 30 June 2013 that will, or may, significantly affect the operation or results of the consolidated entity. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtementsdiReCtoRs’ deClaRation 1 In the opinion of the directors of GWA Group Limited (‘the Company’): (a) the consolidated financial statements and notes, and the Remuneration Report in the Directors’ Report, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the group’s financial position as at 30 June 2013 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. There are reasonable grounds to believe that the Company and the group entities identified in Note 30 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2013. The directors draw attention to Note 1(a) to the consolidated financial statements which includes a statement of compliance with International Financial Reporting Standards. 2 3 4 Dated at Brisbane on 21 August 2013. Signed in accordance with a resolution of the directors: Geoff McGrath Director Peter Crowley Director lead auditoR’s independenCe deClaRation undeR seCtion 307C of the CoRpoRations aCt 2001 To: the directors of GWA Group Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2013 there have been: (i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and (ii) no contraventions of any applicable code of professional conduct in relation to the audit. KPMG 21 August 2013 Greg Boydell Partner 89 GWA Group Limited And its controLLed entities ABN 15 055 964 380 independent auditoR’s RepoRt to the memBeRs of gwa gRoup limited RepoRt on the finanCial RepoRt We have audited the accompanying financial report of GWA Group Limited (the Company), which comprises the consolidated statement of financial position as at 30 June 2013, and consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year ended on that date, notes 1 to 35 comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the Group comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. We performed the procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Directors’ responsibility for the financial report The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement whether due to fraud or error. In Note 1, the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements of the Group comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Auditor’s opinion In our opinion: (a) the financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2013 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1. Report on the remuneration report We have audited the Remuneration Report included on pages 31 to 41 of the Directors’ Report for the year ended 30 June 2013. The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the Remuneration Report of GWA Group Limited for the year ended 30 June 2013, complies with Section 300A of the Corporations Act 2001. KPMG Sydney, 21 August 2013 Greg Boydell Partner GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380 otheR statutoRy infoRmation as at 13 august 2013 statement of shaReholding In accordance with the Australian Securities Exchange Listing Rules, the directors state that, as at 13 August 2013, the share capital in the Company was held as follows:- Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total Ordinary Shareholders Ordinary Shares 1,718 5,219 2,606 2,048 105 11,696 867,575 15,606,452 19,894,370 43,783,529 226,381,844 306,533,770 % 0.28 5.09 6.49 14.28 73.86 100.00 The number of shareholders with less than a marketable parcel of 184 shares is 466. voting Rights The voting rights attached to shares are as set out in clause 9.20 of the Company’s Constitution. Subject to that clause, at General Meetings of the Company: 1. On a show of hands, every person present as a member, proxy, attorney or representative of a member has one vote; and 2. On a poll, every person present as a member, proxy, attorney or representative of a member, has one vote for each fully paid share. suBstantial shaReholdeRs The following information is extracted from the Company’s Register of Substantial Shareholders as at 13 August 2013:- Shareholder Ellerston Capital Limited Number of Shares % Shares on Issue 21,421,668 7.03 20 laRgest shaReholdeRs as at 13 august 2013 Shareholder J P Morgan Nominees Australia Limited National Nominees Limited HSBC Custody Nominees (Australia) Limited HGT Investments Pty Ltd KFA Investments Pty Ltd Erand Pty Ltd Citicorp Nominees Pty Limited JMB Investments Pty Ltd Ashberg Pty Ltd Theme (No 3) Pty Ltd Mr Peter Zinn Australian Foundation Investment Company Limited ITA Investments Pty Ltd CJZ Investments Pty Ltd Dabary Investments Pty Ltd BNP Paribus Noms Pty Ltd Citicorp Nominees Pty Limited Milton Corporation Limited Mr William Edward Duncan & Mr Rodney John Turner Mr Michael John McFadyen Number of Shares % Shares on Issue 41,105,140 25,911,015 23,121,595 15,300,000 11,209,542 9,898,229 9,304,756 9,186,434 8,418,442 8,220,985 6,371,621 5,220,000 5,152,338 4,221,500 3,553,830 2,992,026 2,975,950 2,275,000 2,219,714 2,171,136 13.41 8.45 7.54 4.99 3.66 3.23 3.04 3.00 2.75 2.68 2.08 1.70 1.68 1.38 1.16 0.98 0.97 0.74 0.72 0.71 Total 198,829,253 64.87 91 GWA Group Limited And its controLLed entities ABN 15 055 964 380shaReholdeR infoRmation annual geneRal meeting dividend Reinvestment plan The Annual General Meeting of GWA Group Limited will be held in The Conference Room, Emporium Hotel, 1000 Ann Street, Fortitude Valley on Wednesday 30 October 2013 commencing at 10:30am. Shareholders will be mailed their Notice of Annual General Meeting and Proxy Form during September 2013. shaReholdeR enquiRies Shareholders with enquiries about their shareholding or dividend payments should contact the Company’s share registry, Computershare Investor Services Pty Limited, on 1300 850505 or write to GPO Box 2975 Melbourne Victoria Australia 3001. Alternatively, you can view details of your holding or make changes to your personal information online at www.computershare.com.au. Change of addRess Shareholders who have changed their address should immediately notify the Company’s share registry in writing or online at www.computershare.com.au. The Dividend Reinvestment Plan was suspended by the Board in August 2013. At the present time the Company has access to sufficient capital to meet its funding requirements. The Board keeps this position under review. seCuRities exChange listing The Company’s shares are listed on the Australian Securities Exchange under the ASX code: GWA. Details of the trading activity of the Company’s shares are published in most daily newspapers, generally under the abbreviation GWA Grp. shaReholdeR timetaBle 2013 30 June Financial year end 21 August Year end result and final dividend announcement Consolidation of shaReholdings Shareholders who wish to consolidate their separate shareholdings into one holding should notify the Company’s share registry in writing. 3 September Ex dividend date for final dividend 9 September Record date for determining final dividend entitlement 20 September Notice of Annual General Meeting and Proxy Form mailed to shareholders 4 October Final ordinary dividend paid 28 October Proxy returns close 10:30am Brisbane time 30 October Annual General Meeting 31 December Half year end annual RepoRts Annual Reports are made available to shareholders on the Company’s website at www.gwagroup.com.au. Shareholders wishing to be mailed a copy of the Annual Report should notify the Company’s share registry in writing or online at www.computershare.com.au. Shareholders will be mailed the Notice of Annual General Meeting and Proxy Form which will include details on accessing the online Annual Report. dividends Dividends are determined by the Board having regard to the financial circumstances of the Company. Dividends are normally paid in April and October each year following the release of the Company’s half and full year results to the market. The latest dividend details can be found on the Company’s website at www.gwagroup.com.au. diReCt CRedit of dividends To minimise cost and ensure fast and efficient payment of dividends to shareholders, the Company mandates direct credit for payment of dividends. Dividends may be paid directly to a bank, building society or credit union account in Australia. Payments are electronically credited on the dividend payment date and confirmed by an advice mailed to shareholders on that date, or emailed where shareholders have requested this form of communication. Direct credit application forms can be obtained from the Company’s share registry or online at www.computershare.com.au. GWA GROUP LIMITED ∕ ∕ 2013 ANNUAL REPORTGWA Group Limited And its controLLed entities ABN 15 055 964 380notes to tHe consoLidAted FinAnciAL stAtementsHeAd office locAtions GWA Group Limited Level 2, HQ South Tower 520 Wickham Street Fortitude Valley QLD 4006 AUSTRALIA Telephone: 61 7 3109 6000 Facsimile: 61 7 3852 2201 www.gwagroup.com.au GWA Heating & Cooling Brivis Climate Systems Pty Limited 61 Malcolm Road Braeside VIC 3195 AUSTRALIA Telephone: 61 3 9264 9555 Facsimile: 61 3 9264 9400 www.brivis.com.au GWA Bathrooms & Kitchens GWA Door & Access Systems Caroma Industries Limited Level 1, 7-9 Irvine Place Bella Vista NSW 2153 AUSTRALIA Telephone: 61 2 8825 4400 Facsimile: 61 2 8825 4567 www.gwabathroomsandkitchens.com.au www.caroma.com.au www.fowler.com.au www.dorf.com.au www.irwell.com.au www.stylus.com.au www.clark.com.au www.radiantstainless.com.au www.epure.com.au www.starionaust.com.au Dux Manufacturing Limited Lackey Road Moss Vale NSW 2577 AUSTRALIA Telephone: 61 2 4868 0200 Facsimile: 61 2 4868 2014 www.dux.com.au www.ecosmart.com.au www.hotwaterrebate.com.au Gainsborough Hardware Industries Limited 31-33 Alfred Street Blackburn VIC 3130 AUSTRALIA Telephone: 61 3 9877 1555 Facsimile: 61 3 9894 1599 www.gainsboroughhardware.com.au www.ausloc.com Gliderol International Pty Limited 32 Jacobsen Crescent Holden Hill SA 5088 AUSTRALIA Telephone: 61 8 8261 9633 Facsimile: 61 8 8261 9700 www.gliderol.com.au API Services and Solutions Pty Limited 248 Normanby Road South Melbourne VIC 3205 AUSTRALIA Telephone: 131KEY(539) Facsimile: 61 3 9644 5887 www.apisec.com.au corporAte directory Directors G J McGrath, Chairman D D McDonough, Deputy Chairman P C Crowley, Managing Director R M Anderson, Non-Executive Director W J Bartlett, Non-Executive Director P A Birtles, Non-Executive Director J F Mulcahy, Non-Executive Director R J Thornton, Executive Director Chief Financial Officer I Brannan, ACMA Registered Office Level 2, HQ South Tower 520 Wickham Street Fortitude Valley QLD 4006 AUSTRALIA Telephone 61 7 3109 6000 Facsimile 61 7 3852 2201 www.gwagroup.com.au ASX code: GWA Auditor KPMG 10 Shelley Street Sydney NSW 2000 AUSTRALIA Company Secretary R J Thornton, CA B Com (Acc) LLB (Hons) LLM Telephone: 61 2 9335 7000 Facsimile: 61 2 9335 7001 Share Registry Computershare Investor Services Pty Limited 117 Victoria Street West End QLD 4101 AUSTRALIA GPO Box 2975 Melbourne VIC 3001 AUSTRALIA (within Australia) 1300 850 505 (outside Australia) 61 3 9415 4000 www.computershare.com.au Group Bankers Commonwealth Bank of Australia Australia and New Zealand Banking Group HSBC Bank Australia Westpac Banking Corporation Printed using Forestry Stewardship Council (FSC) certified paper. All paper sourced from responsibly managed plantation forests. ISO14001 environmental management system in use. G W A G r o u p | A n n u A l r e p o r t 2 0 1 3 Level 2, HQ South Tower 520 Wickham Street Fortitude Valley, QLD 4006 AUSTRALIA Telephone: 61 7 3109 6000 Facsimile: 61 7 3852 2201 Website: www.gwagroup.com.au

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