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8
2018
ANNUAL
REPORT
FY18
PERFORMANCE HIGHLIGHTS
REVENUE
$453.2 million
NET PROFIT
$56.0 million
Revenue 1.5% to $453.2 million. Sales in the
Bathrooms & Kitchens’ division increased by
2.5% ahead of market growth of approximately
2% from continued profitable share gains in
core segments and new product development
EARNINGS
Group Earnings Before Interest, Tax,
Depreciation and Amortisation1 (EBITDA)
3.8% to $89.5 million
Group Earnings Before Interest and Tax1 (EBIT)
4.7% to $84.4 million
Earnings Per Share1 (EPS) up 4.4% to 21.2 cents
per share (CPS)
4.4% to 21.2 CPS
FINAL DIVIDEND
Fully-franked final dividend of 9.5 cents per
share, bringing the FY18 full year dividend
to 18.0 cents per share fully-franked 9.1%
1 Normalised Before Significant Items – Significant Items of $1.9m before
tax relate to costs associated with the sale of Door & Access Systems.
Net Profit After Tax1 (NPAT)
4.3% to $56.0 million
RETURN
Return on Funds Employed1 (ROFE)
0.3pp to 20.5%
STRATEGY
Divestment of Door & Access Systems
business in early FY19 for gross proceeds
of $107 million
Strong financial metrics to leverage market-
leading position to grow Bathrooms &
Kitchens business through the cycle
GWA delivers solid full
year result – establishes
strong platform for
future growth
IN THIS REPORT
Five Year Financial Summary
Company Profile
Strategic Summary
Chairman’s Review
Managing Director’s Review of Operations
Workplace Health and Safety
1
2
3
4
8
12
Board of Directors
Directors’ Report
Financial Report
Other Statutory Information
Shareholder Information
14
16
33
77
78
FIVE YEAR
FINANCIAL SUMMARY
Continuing operations(1)
2013/14
$’000
2014/15
$’000
2015/16
$’000
2016/17
$’000
2017/18
$’000
Revenue from continuing operations
399,394
426,218
439,666
350,437
359,281
Profit/(loss) from discontinued operations (net of income tax)
(12,578)
(26,544)
Net profit/(loss) after tax for the period
18,596
(16,183)
Earnings before interest, tax, depreciation,
amortisation and significant items(3)
EBITDA margin (%)
Depreciation and amortisation
Earnings before interest, tax (EBIT) and significant items(3)
EBIT margin (%)
Interest (net)
Normalised profit before tax(3)
Normalised profit before tax margin (%)
Tax expense
Effective tax rate (%)
Normalised profit after tax(3)
Significant items after tax
Net profit after tax from continuing operations
Net cash from operating activities
Capital expenditure
Net debt(4)
Shareholders' equity
Other Ratios and Statistics
Interest cover (times)(7)
Gearing: net debt/(net debt + equity) (%)(4)
Return on shareholders' equity (%)
Dividend payout ratio (%)(6)
Dividend per share (cents)(8)
Franking (%)
Capital return (cents)(5)
Share price (30 June) ($)
Dividend yield at 30 June share price (%)
Number of employees
Basic earnings per share (cents) – Group
Basic earnings per share (cents) – Continuing
Normalised earnings per share (cents) – Continuing(2)
76,819
19.2
(12,328)
64,491
16.1
(11,201)
53,290
13.3
81,734
19.2
(8,970)
72,764
17.1
(7,329)
65,435
15.4
84,250
78,423
19.2
(5,985)
78,265
17.8
(6,508)
71,757
16.3
22.4
(4,122)
74,301
21.2
(5,338)
68,963
19.7
80,171
22.3
(3,929)
76,242
21.2
(4,813)
71,429
19.9
(15,452)
(20,278)
(19,837)
(19,712)
(21,290)
29.0
37,838
31.0
45,157
(6,664)
(34,796)
31,174
10,361
33,898
5,570
149,385
43,505
5,062
94,763
27.6
51,920
–
51,920
1,761
53,681
54,924
3,628
88,420
28.6
49,251
–
49,251
4,420
53,671
57,171
5,281
79,756
29.8
50,139
–
50,139
4,113
54,252
39,158
12,475
97,729
425,989
305,894
307,698
320,603
333,401
8.5
26.1
4.4
90.3
5.5
100
–
2.63
2.1
1,681
6.1
10.2
12.4
12.8
23.7
(5.3)
–
6.0
76.7
22.8
2.28
2.6
1,183
(5.3)
3.4
14.8
14.3
22.3
17.4
81.4
16.0
100
–
2.09
7.7
876
19.7
19.0
19.0
17.1
19.9
16.7
81.1
16.5
100
–
3.15
5.2
760
20.3
18.7
18.7
19.6
22.7
16.3
87.4
18.0
100
–
3.40
5.3
757
20.6
19.0
19.0
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
The Door and Access Systems’ business has been sold with an effective date of 3 July 2018. During the year ended 30 June 2016, the Gliderol business was sold with an
effective date of 31 July 2015. During the year ended 30 June 2015, the Dux Hot Water Business was sold with an effective date of 19 December 2014 and the Brivis heating
& Cooling business was sold with an effective date of 2 February 2015. Accordingly, the operating activities of Door and Access Systems were classified as discontinued
in FY18 and FY17, and Gliderol, Dux and Brivis were classified as discontinued operations in FY16, FY15 and FY14 and presented separately from the results of continuing
operations. FY14-FY16 includes the operating activities of Door and Access Systems as part of continuing operations.
Excludes significant items.
Normalised profit before significant items is a non-IFRS financial measure reported to provide a greater understanding of the underlying business performance of the
Group. The disclosures are extracted or derived from the financial reports and have not been subject to review or audit. The non-IFRS financial measures included in this
table exclude significant items that are detailed in the relevant years’ financial reports.
Net debt reflects the Group’s borrowings and bank guarantees less cash (including cash classified within assets held for sale).
A capital return of 22.8 cents per share and a special dividend of 6.0 cents per share from the Brivis and Dux net sale proceeds were paid to shareholders on 15 June 2015.
Dividend payout ratio is calculated as the Dividend per share (cents) divided by the Basic EPS for the Group (cents). Basic EPS is calculated using the weighted average
number of ordinary shares at 30 June. FY18’s normalised dividend payout ratio is 84.7%.
Interest cover (times) is calculated using EBITDA excluding non-recurring other significant items divided by net interest expense.
Dividend per share includes ordinary and special dividends.
COMPANY PROFILE
GWA Group Limited (GWA) listed on
the Australian Securities Exchange in
May 1993 and is a leading Australian
supplier of building fixtures and fittings
to households and commercial premises.
The Group has sales and distribution
facilities located across Australia and
a branch office in New Zealand.
GWA operates a central-led business with corporate functions
supporting its Bathrooms & Kitchens business. GWA is a
member of the ASX 200 index of listed Australian companies.
GWA Bathrooms & Kitchen is Australia’s foremost designer,
importer and distributor of iconic brands and products, servicing
and enhancing residential and commercial bathrooms and
kitchens across Australia and New Zealand. The product range is
distributed under market leading brands including Caroma, Dorf,
Clark, Fowler and Stylus.
GWA has grown since listing through the strong performance of
its Bathrooms & Kitchens business. The Group remains committed
to growing shareholder wealth through its strategic focus on
superior solutions for water within the Bathrooms & Kitchens
business which has strong market positions, market-leading
brands and significant growth opportunities.
2 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
STRATEGIC SUMMARY
WE MAKE LIFE BETTER WITH
SUPERIOR SOLUTIONS FOR WATER
Build GWA as the most trusted and respected water solutions company
Maximise shareholder value creation – NPAT growth, ROFE, TSR
CORPORATE PRIORITIES
CUSTOMER FOCUSED
Add value to customers through
superior execution, insights,
analytics and processes
CONSUMER DRIVEN
Deliver experiences to excite
consumers and drive revenue and
market share growth
BUSINESS EFFICIENCY
Simple, effective processes and plans delight consumers and customers
BEST COST
Continuous improvement to support profitability and fund selective reinvestment
GREAT PEOPLE
Continue to build “fit for future” culture, engagement and capability
GWA OPERATIONAL MEASURES
Market share, NSV, EBIT, ROFE, DIFOT, NPS, Safety, Engagement
GROWTH DRIVERS
SEGMENTS
Build on Commercial
leadership and grow
in R&R
CATEGORIES
Leverage sanitary
to win all of bathrooms
and kitchens
BRANDS
Deliver the best
water experiences
SOLUTIONS
Lead “smart water
management”
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 3
CHAIRMAN’S
REVIEW
The year under review is the third
consecutive year of increased earnings
per share and increased dividend
payments to shareholders.
Over that period we have continued to invest to strengthen our
business to drive future growth and sustainable value creation
for shareholders.
The Group will focus on superior water solutions in our
Bathrooms & Kitchens business which has strong market
positions, market leading brands and identified growth
opportunities.
GWA possesses an enviable and rich heritage in Bathrooms
& Kitchens with our brands and products possessing an
outstanding reputation for providing innovative water solutions.
We have identified growth opportunities in both existing and
adjacent segments where we believe we can leverage this
heritage and existing strong market position to maximise value
creation for shareholders.
Apart from its financial results, GWA has made significant
progress in FY18 in strengthening its business for the future.
Operationally, we continue to improve our supply chain
management which will benefit further from the investment
we have made in the new national Innovation and Distribution
Centre at Prestons, New South Wales which importantly
includes an expanded onsite research and development facility.
The opening of our flagship stores in Adelaide and Sydney
enable us to engage more effectively with consumers and
showcase our market-leading brands.
4 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
Our people remain critical to our future success and we
continue to invest in developing a high-performance culture,
including the appointment of Cara Reil as our General Manager
of People and Performance.
As a result, GWA is well placed to grow in our core Bathrooms
& Kitchens segment.
FINANCIAL OVERVIEW – CONTINUING1
AND DISCONTINUED OPERATIONS
Group net sales increased by 1.5 per cent to $453.2 million with
normalised2 Group earnings before interest and tax (EBIT)
increasing by 4.7 per cent to $84.4 million and the Group EBIT
margin improving by 0.5 percentage points to 18.6 per cent.
The results were driven by our continued focus on sales of higher
Net Debt
value product categories together with ongoing cost discipline.
$m
Normalised net profit after tax increased by 4.3 per cent to
$56.0 million with normalised earnings per share increasing
by 4.4 per cent to 21.2 cents per share.
On a reported basis, after significant items, net profit after tax
was $54.3 million.
DIVIDENDS AND CAPITAL MANAGEMENT
The Board resolved to pay a final dividend of 9.5 cents per
share, fully-franked consistent with its policy to pay 65-85 per
cent of net profit after tax as ordinary dividends. This brings
the full-year dividend to 18.0 cents per share, fully-franked
compared to 16.5 cents for the prior year, being an increase of
9.1 per cent on the prior year.
GWA’s financial metrics of leverage, gearing, and interest cover
ratios are consistent with investment grade.
STRATEGY
At the release of the Group’s interim results in February 2018, the
Board announced that following a strategic review, it decided to
divest the Door & Access Systems’ business as it was not core.
GWA successfully completed the sale of the Door & Access
Systems’ business to Allegion (Australia) Pty Ltd on 3 July 2018.
The purchase price (excluding transaction costs) was $107 million.
The Board believes the sale is a positive outcome for a number
of reasons.
The sale of the D&A business to Allegion represents a positive
opportunity for our employees and customers to leverage the
global scale and resources of Allegion to grow the business further.
17/18
16/17
15/16
14/15
13/14
0
50
100
150
200
GWA remains in a strong financial position with financial flexibility
to support strategic growth initiatives and manage through the
market cycle.
Dividend per share
cents
17/18
16/17
15/16
14/15
13/14
0
5
10
15
20
The Board resolved to pay a final dividend of 9.5 cents per share fully-
franked, bringing the full-year FY18 dividend to 18.0 cents per share
fully-franked.
The net proceeds from the sale provide strong funding
capability to pursue these growth opportunities and maximise
returns to shareholders while also ensuring the Group maintains
the necessary financial flexibility to manage through the
On behalf of the Board, I want to acknowledge and thank our
construction cycle.
employees in the Door & Access Systems’ business and wish
them every future success under Allegion’s ownership.
The divestment of the Door & Access Systems business now
The Group will focus on superior water solutions in our
Bathrooms & Kitchens business which has strong market
positions, market leading brands and identified growth
provides GWA with a clear strategic focus on the Bathrooms
opportunities.
& Kitchens segment where we have significant opportunities
to generate further growth to benefit shareholders over the
medium to long term.
1
2
Continuing Operations exclude the Door & Access Systems’ business
which is classified as an asset held for sale in the FY18 Financial Report
and the sale of which was completed on 3 July 2018.
Normalised is Before Significant Items – Significant Items of $1.9m pre-
tax relate to costs associated with the sale of Door & Access Systems.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 5
GOVERNANCE AND RISK MANAGEMENT
The Board is cognisant of its corporate governance and risk
management responsibilities. In particular, the Board is very
aware of the recent renewed emphasis on corporate governance.
SAFETY
GWA provides a safe workplace for employees, contractors,
visitors and customers, and seeks to drive a positive safety
culture and works to actively reduce and mitigate risks.
GWA takes a proactive approach to risk management and
manages a range of identifiable risks throughout the organisation.
The Board has mechanisms in place and is actively engaged with
management to ensure the Group’s objectives and activities are
managed in accordance with appropriate risk frameworks that
work at a practical level in a meaningful manner.
In addition, the Board appreciates the wider implications of its
risk management responsibilities and remains engaged with
its key stakeholders, including supply partners, employees,
regulatory authorities, government, shareholders and the
wider community.
The Group has identified the material risks to its future
prospects and has adopted and implemented mitigation
strategies which are outlined in the Managing Director’s
Review of Operations.
GWA measures a range of balanced safety performance
indicators. Proactive ‘LEAD’ indicators such as the number of
Safety Interactions conducted, hazards reported, and actions
closed were measured in FY18. GWA also measures key ‘LAG’
indicators that measure lost time and medically treated injuries,
hours lost due to injury and total injuries which represents a
combination of lost time and medically treated injuries.
Substantial progress continues to be made to improve the
Group’s safety culture with a number of safety initiatives being
implemented, and ownership and accountability for safety being
accepted at all levels in the business.
A safety plan for FY19 has been developed. The Board and
management remain focused on initiatives to improve GWA’s
safety performance and culture with the continued aim of an
injury free workplace.
Further details of the Group’s corporate governance and risk
management structures are set out on the GWA website at
DIVERSITY
GWA is committed to promoting diversity and inclusion through
www.gwagroup.com.au under Corporate Governance.
SUSTAINABILITY
GWA is committed to sustainable practices throughout its
operations and we continue to work with our key stakeholders
and communities.
the implementation of employment policies and initiatives to
achieve a diverse workforce. The Board believes that significant
benefits arise from increasing the pool of diverse talent across
the business.
In FY18 a talent acquisition specialist was appointed to increase
our ability to attract diverse talent, embed our employee value
We accept that a sustainable business is one that provides a
proposition and create career paths for our employees.
safe, rewarding and diverse environment for our people whilst
operating in an environmentally and socially responsible manner.
We also accept the increasingly important role our products
and superior solutions play in enabling our customers and
consumers to conserve and use water more efficiently.
GWA has a strong pedigree and history in developing innovative
solutions in water. Sustainability in the area of water solutions
has been our mantra for over 35 years.
Caroma was the first brand in the world to introduce dual
The Group continues to review employment policies and
practices to ensure that, among other things, flexibility is offered
to attract and retain talent.
During FY18 the Group had regular talent reviews to strengthen
our succession plans. As outlined in the Group’s 2018 Workplace
Gender Equality Report, the overall workforce consists of
37 per cent female which increased by two percentage points
from FY17. In addition, female representation across all levels
of management has increased on the prior year including two
flush technology in 1984 which has subsequently been further
female appointments to the Executive Leadership Team.
developed with dual flush and smart flush enhancements to
enable enhanced water conservation. Dual and Smart flush
continue to save on average 32,000 litres per year for each
toilet in which they are used – the equivalent of one Sydney
harbour saved each and every year.
CARBON EMISSIONS
The Board is committed to reducing energy, carbon
emissions, water and waste across the GWA Group operations.
GWA is a low emissions intensity entity but it continues to
voluntarily report its carbon emissions on the GWA website
More recently, GWA introduced its patented rimless design
www.gwagroup.com.au under Carbon Reporting.
technology with Caroma Cleanflush which embraces innovative
flush and flow technology.
Caroma leads the market in innovative water solutions with its
Caroma Smart Command® – an intelligent bathroom system
For FY18 total carbon emissions from GWA’s controlled facilities
were approximately 5,800 tonnes of carbon dioxide equivalent
(CO2e), representing a 15 per cent reduction on the prior year.
This reduction is due to a combination of factors including site
which includes a set of Bluetooth-enabled, touchless bathroom
closures and the implementation of energy efficiency measures
products that integrate into commercial building management
across the Group.
systems – that enables real time monitoring and management
of water. Caroma Smart Command® will be formally launched in
the first quarter of FY19.
During FY19, GWA will introduce a consolidated sustainability
report to provide shareholders and other stakeholders with
detailed information on our approach to sustainability. In the
meantime, we continue to provide information on the key
measures of Safety, Diversity and Carbon emissions.
ENERGY EFFICIENCY MEASURES
In July 2018 a 250kW solar array was commissioned on the roof
of the new Bathrooms & Kitchens 30,000m2 Innovation and
Distribution Centre (IDC) at Prestons NSW. The 1,368m2 solar
array is designed to reduce emissions by approximately 3,000
tonnes CO2e over the life of the installation. The IDC has been
rated as a five star sustainable building and harvests 60,000 litres
of rain water from the roof to water gardens and flush toilets.
6 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
The lighting at the Bathrooms & Kitchens’ warehouse at
During FY19, the Board will engage an independent
Pascoe Vale Victoria and the Door & Access Systems’ site at
remuneration consultant to review the executive remuneration
Blackburn Victoria were upgraded to LED lights in December
structure including the fixed and variable components. The
2017 and January 2018 respectively to save energy and reduce
purpose of the review is to ensure our executive remuneration
carbon emissions.
structure remains aligned with the Board’s remuneration
The Bathrooms & Kitchens’ flagship showroom, Caroma on
strategy and market practice.
Collins, opened in Alexandria NSW during May 2018, uses
The recommendations from the review will be considered for
innovative evaporative coolers to cool the space in summer with
implementation during FY20 and the changes outlined in the
substantial savings over conventional air conditioning. Installed
FY19 Remuneration Report.
rain water tanks harvest water from the roof to flush toilets and
water garden plants and are expected to save 200,000 litres
per annum.
EXECUTIVE REMUNERATION
The Board obtained market benchmarking data from Ernst &
Young for the FY19 executive remuneration review. The Board
aims to provide remuneration to executives which is fair and
sufficient to attract and retain a high-quality management team
with the requisite experience, knowledge, skills and judgement
The Board continued the freeze on executive fixed remuneration
for FY18 except for one executive who received a four per
cent increase. This is the third consecutive year executive fixed
remuneration has been frozen.
The short-term incentive payments for the Managing Director
and other executives for FY18 reflect the improved Group
profit performance driven by sales growth in the Bathrooms
& Kitchens business exceeding market growth for the period.
This enabled the Board to maintain the high dividend payout to
required for the business.
shareholders for FY18.
In order to achieve this objective, the key principle is that fixed
remuneration for executives varies between the median and
third quartiles relative to companies of comparable size and
scope. The remuneration package for the Managing Director,
Tim Salt, was determined by the Board in FY16 and was aligned
to the then market median in relation to a group of comparable
companies to GWA. Mr Salt’s remuneration arrangements have
not changed since then.
CONCLUSION
FY18 was another successful year for GWA. We continue to
execute our strategy and improve our financial performance
which has led to enhanced returns to shareholders on the
prior year.
On behalf of the Board I acknowledge and thank our Managing
Director and CEO Tim Salt, our executive leadership team and
employees across the Group for their contribution over the
past year.
Solar array on the roof at the new Caroma Innovation and Distribution Centre (IDC) at Prestons NSW.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 7
MANAGING
DIRECTOR’S
REVIEW OF
OPERATIONS
During FY18, GWA continued to deliver
profitable market share growth across our
core segments which has translated to
increased earnings and improved returns to
shareholders compared to the prior year.
We also continued to progress our strategy to build a stronger
competitive platform for future growth across our business. In
a transformational year for the Group, the sale of the Door &
Access Systems’ business now provides GWA with a clear focus
on our Bathrooms & Kitchens business where we have strong
market positions and market leading brands.
Our strong financial position means we can leverage this
platform to invest further and pursue accretive growth
opportunities to create additional value for shareholders.
MARKET CONDITIONS IN FY18
In total, GWA estimates that the increase in market activity
weighted across its end markets for Bathrooms & Kitchens was
approximately 2.0 per cent for the year ended 30 June 2018.
GWA’s revenue in Bathrooms & Kitchens increased ahead of
the market with net sales up 2.5 per cent.
GWA’s core markets are in Renovations and Replacements, our
largest and most important segment which continues to be
robust and also the Detached Housing and Commercial segments.
GWA is not overly exposed to the more volatile Multi-residential
apartment building segment, which represents only 11 per cent
of revenue but significantly less profit contribution.
• Market activity for home Renovations and Replacements,
(approximately 53% of GWA revenue) increased by
approximately 2.5 per cent
• Detached House completions (21 per cent of GWA revenue)
decreased by approximately 2.0 per cent
8 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
•
Medium and high-density dwelling completions
(approximately 11 per cent of GWA revenue) increased
by approximately 1.5 per cent
• On a value of work done basis, Commercial building
activity (approximately 15% of GWA revenue) increased
by approximately 4.0 per cent.
Initial response from customers has been very positive and
GWA expects to commence the full launch of Caroma Smart
Command® in the first quarter of FY19.
The sale of the Door & Access Systems’ business means
GWA has a clear focus and strong financial position to compete
in a $1.4 billion addressable market which offers significant
growth potential.
PROGRESS ON STRATEGY
During the year GWA outlined its strategic priorities to maximise
growth opportunities with a focus on providing superior
solutions for water.
GWA continues to build a stronger platform to harness this
growth potential and has identified a range of opportunities in
existing and adjacent segments to deliver growth to maximise
shareholder returns over the longer term.
GWA’s strategy is focused on enhanced engagement with
customers and consumers by making the transition from being
a push business to a pull business.
Our immediate priority is to continue to strengthen our core
business through organic growth and potential inorganic
expansion into category adjacencies.
To deliver this strategy, GWA continues to create solutions
that meet the needs of both our primary merchant customers
and secondary customers such as plumbers, developers and
builders and also through delivering value-added experiences to
consumers to drive revenue and market share growth.
In FY18 the business made significant progress on this strategy.
We have better aligned the Group to support the front end
of the business and embedded a continuous improvement
approach to deliver best cost to support profitability and fund
selective reinvestment.
GWA continued to work more collaboratively and build stronger
engagement with our primary and secondary customers
through our joint business planning initiative.
This approach has resulted in enhanced ranging as well as
listings for new products and stronger programmes in specific
growth segments such as aged care.
As part of the company’s focus to grow in the Renovations
& Replacements segment, GWA has further developed its
consumer insights model and utilised this to align its brand
portfolio to better target distinct consumer groups. GWA
relaunched its largest brand, Caroma and repositioned Clark,
supported by increased investment in traditional and digital
media to engage more effectively with consumers.
To further support the consumer engagement strategy and
provide physical brand and product experiences, GWA opened
two flagship stores in Adelaide and Sydney. Initial store visitation
metrics have exceeded expectations.
Meanwhile, the new 30,000 square metre Bathrooms & Kitchens’
distribution centre at Prestons, NSW was successfully opened in
April 2018. This facility includes a new warehouse management
system designed to efficiently deliver customer requirements.
We are committed to designing and developing new products
here in Australia for Australian/NZ consumers and conditions
that exceed stringent local standards. To enable this we have
built a state of the art 2,000 square metre innovation centre
adjacent to our new Prestons warehouse facility to house our
expanded research and development facilities.
In a first for the market, GWA has commenced the roll out of
Caroma Smart Command® – an intelligent bathroom system
which includes a set of Bluetooth-enabled, touchless bathroom
products that integrate into commercial building management
systems to enable the monitoring and management of water.
GWA has worked with key customers to test Caroma Smart
Command®.
GWA will continue to further develop its own intellectual
property while exploring opportunities to access new
technology through selective investment to accelerate
our market position in both Australia and New Zealand.
Group Financial Results – Continuing Operations1
and Discontinued Operations (Normalised2 – Before
Significant Items)
A$ million
(Before Significant Items)
FY17
FY18
% change
Revenue
EBITDA2
EBIT2
NPAT2
446.3
453.2
86.2
80.6
53.7
89.5
84.4
56.0
+1.5%
+3.8%
+4.7%
+4.3%
GWA continues to drive revenue growth with Group net sales
increasing by 1.5 per cent to $453.2 million.
Group EBIT increased by 4.7% to $84.4 million with Group
EBIT in the second half $42.6 million, which was slightly ahead
of the market guidance provided at the half year result in
February 2018.
Group EBIT margin increased by 0.5 percentage points to
18.6 per cent from a continued focus on higher value product
categories and ongoing cost discipline.
GWA continues to focus on generating strong return on funds
employed in the business resulting in Group Return on Funds
Employed (ROFE) increasing by 0.3 percentage points on the
prior year to 20.5 per cent from higher earnings, despite an
increase in funds employed.
Net profit after tax increased by 4.3 per cent to $56.0 million,
reflecting the increase in Group EBIT, together with lower
net interest expense compared to the prior year due to lower
average borrowings and lower interest rates.
The Group reported effective tax rate for the year was
30.2 per cent compared to the prior year’s rate of 28.7 per cent.
GWA’s earnings per share of 21.2 cents improved by 4.4 per cent
on the prior year.
Significant items (pre-tax) of $1.9 million relate to costs
associated with the sale of the Door & Access Systems business
incurred in FY18.
On a reported basis, including significant items, net profit after
tax was $54.3 million.
1
2
Continuing Operations exclude the Door & Access Systems’ business
which is classified as an asset held for sale in the FY18 Financial Report
and the sale of which was completed on 3 July 2018.
Normalised is Before Significant Items. Significant Items of $1.9m pre-tax
relate to costs associated with the sale of Door & Access Systems.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 9
FINANCIAL POSITION AND CAPITAL
MANAGEMENT
GWA continues to generate strong cashflow with cashflow from
operations of $71.6 million in FY18 compared to $88.8 million
in the prior year. The reduction in operating cash reflects an
increase in working capital related to an inventory build, as part
of the company’s transition to its new purpose-built warehouse
distribution centre in Prestons, NSW and also to support new
product development launches and customer service.
GWA remains in a solid financial position with financial flexibility
to support strategic growth initiatives and manage through the
construction cycle. Net debt at 30 June 2018 was $97.7 million
Continuing Operations – Bathrooms & Kitchens
The Bathrooms & Kitchens’ division delivered solid revenue
growth ahead of the market due to continued market share
gains in core categories and new product development.
GWA’s ongoing focus on customer engagement driving
profitable product mix and cost discipline continues to
provide margin resilience.
A$ million
Sales Revenue
EBIT
EBIT Margin
FY17
FY18
% change
350.4
359.3
87.6
89.8
+2.5%
+2.5%
25.0%
25.0% No change
compared to $79.8 million in the prior year. Net debt was slightly
Return on Funds
higher at year end due primarily to the increase in inventory.
Employed (ROFE)
25.2%
24.6%
(0.6) ppts
GWA’s credit metrics remain consistent with investment grade
with the company’s gearing ratio (net debt/net debt plus
equity) of 22.7 per cent compared to 19.9 per cent at
30 June 2017 and leverage ratio (net debt/EBITDA) of 1.1 times
compared to 0.9 times for the prior year. Meanwhile, GWA’s
strong financial position continues to be reflected in the
improved interest cover ratio (EBITDA/net interest) which at
30 June 2018 was 19.6 times compared to 17.1 times last year.
GWA maintains significant headroom within its three-year
revolving $225 million facility which matures in October 2020.
On 3 July 2018, GWA announced the completion of the sale
of the Door & Access Systems business with proceeds of
$107 million received after balance date.
As indicated at the half-year result in February 2018,
capital expenditure increased in FY18 to $12.5 million
(FY17: $4.9 million) primarily due to investments in the
new innovation and distribution centre, an increase in new
product development initiatives and flagship stores in Adelaide
(opened October 2017) and Sydney (opened May 2018).
DIVIDEND
The Board resolved to pay a final dividend of 9.5 cents per
share, fully-franked, bringing the full-year dividend to 18.0 cents
per share, fully-franked compared with 16.5 cents for the prior
year – an increase of 9.1 per cent.
This represents a normalised dividend payout ratio of 85 per cent
which is at the top end of the company’s dividend policy to pay
out as ordinary dividends 65-85 per cent of net profit after tax.
The record date for entitlement to receive the final dividend
will be 28 August 2018 with the dividend being paid on
6 September 2018. The Dividend Reinvestment Plan will
not be offered to shareholders for the final dividend.
FINANCIAL RESULTS
Continuing Operations – Group
For the third consecutive year, GWA’s Bathrooms & Kitchens’
business increased market share, helping to drive an increase in
revenue of 2.5 per cent.
Net sales (up 2.5 per cent) continue to grow ahead of the
market (up approximately 2.0 per cent) from continued
profitable market share growth in the core segments of
Renovations and Replacements, Commercial buildings and
Detached housing. The increase in net sales also reflected
customer initiatives to drive improved volumes and product mix
from sales in higher value categories.
GWA’s continued focus on joint business planning with its
major customers resulted in net sales growth with each of
the major merchants.
Geographically, revenue growth was stronger in the eastern
states with net sales in NSW and VIC both up ~9 per cent with
SA up ~3 per cent; partially offset by QLD down ~4 per cent,
and WA down ~12 per cent.
Sanitaryware sales benefitted from the continued strong market
response to the Caroma Cleanflush range of rimless toilets, with
Cleanflush sales increasing by 73 per cent compared to the prior
period. Tapware sales were boosted by new product launches
and enhanced ranging through the merchant channel.
GWA continues to invest for future growth across the
Bathrooms & Kitchens’ business with increased investment in
marketing, including digital and traditional media, Caroma and
Clark brand relaunches, new product development and new
flagship stores in Adelaide and Sydney which were successfully
opened during the year.
Despite this increased investment, EBIT margin has been
maintained through GWA’s ongoing cost efficiency initiatives
and also through the continued focus on sales in higher margin
product categories.
As a result, EBIT increased by 2.5 per cent to $89.8 million,
with EBIT margin of 25 per cent remaining constant with the
A$ million
Revenue
EBITDA
EBIT
NPAT
FY17
FY18
% change
prior year.
350.4
359.3
78.4
74.3
49.3
80.2
76.2
50.1
+2.5%
+2.3%
+2.6%
+1.6%
Despite higher EBIT, Return on Funds Employed was slightly
below the prior year, reflecting higher capital expenditure
supporting growth initiatives and the inventory build-up leading
to an increase in funds employed compared to the prior year.
Continuing Operations exclude the Door & Access Systems’
business which is classified as an asset held for sale in the FY18
Financial Report and was sold on 3 July 2018.
10 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
Discontinued Operations – Door & Access Systems
GWA’s commercial forward order book remains solid with
A$ million (Before
Significant Items)
Sales Revenue
Normalised EBIT
Normalised EBIT Margin
Return on Funds
Employed (ROFE)
FY17
95.9
6.3
6.6%
FY18
93.9
8.2
8.7%
% change
(2.1%)
+29.9%
+2.1ppts
several major commercial projects secured, primarily across
the eastern states.
GWA monitors foreign exchange rates closely and adopts
appropriate mitigation strategies as appropriate. At 30 June
2018, approximately 79 per cent of foreign exchange exposure
is hedged at $US0.78 for FY19.
12.3%
17.0%
+4.7ppts
GWA continues to pursue its strategy to increase revenue and
market share across its core product categories and segments
Revenue in Door and Access Systems declined by 2.1 per cent
through the launch of new products and solutions, working
on the prior year to $93.9 million.
collaboratively with key customers and engaging with end
However, normalised EBIT increased by 29.9 per cent to
consumers.
$8.2 million compared to $6.3 million in the prior year,
In the meantime, we remain focused on continuing to address the
following initiatives to strengthen and refocus the business
company’s cost base through SG&A and supply chain savings.
on its core markets.
OUTLOOK
For FY19, GWA expects the overall market to remain resilient.
The Renovation and Replacements segment, the largest
segment accounting for just over half of GWA’s revenue, is
forecast to remain robust.
While residential construction activity is expected to slow,
the pipeline of building work yet to be completed remains at
reasonably high levels which continues to support continued
demand for GWA’s brands into FY19.
The company’s financial position remains robust with the ability
to generate strong operating cashflow across the business.
GWA expects to provide a trading update at the company’s
Annual General Meeting on 26 October 2018.
RISKS
GWA has identified a number of risks to this outlook and has
implemented a range of measures to mitigate these risks,
where possible, as outlined in the table below.
Risk
Monitoring and Mitigation
A significant deterioration in building activity
GWA monitors building activity carefully and this is factored into the company’s
impacting sales growth and margins
monthly reporting, forecasting and annual budget and planning processes.
Approximately 53% of GWA’s revenue is generated from the Renovation and
Replacements segment which is the largest and most stable segment in the
overall market.
GWA’s forward order book for commercial projects remains solid with several
major projects secured.
A significant movement in the Australian dollar
GWA monitors foreign exchange rates closely and adopts appropriate
impacting the price of imported products
mitigation strategies as appropriate. Approximately 79 per cent of foreign
leading to changes in market pricing in order
exchange exposure is hedged at $US0.78 for FY19.
to maintain margins and competitiveness
GWA’s contracts with major customers include provisions for pricing based
on significant movements in the Australian dollar.
Unforeseen disruptions impacting product
GWA has exclusive long term supply partnerships with experienced suppliers.
supply from offshore suppliers leading to
reputational damage, lower sales and loss
of market share.
GWA’s supply chain processes include dual-sourcing strategies to mitigate the
risk of supplier disruption.
GWA has its own employees located in Asia working directly with its supply
partners.
Security risks around external threats to the
The Company has established a formal IT security risk and governance
digital network, IT systems and data could
framework to address current gaps and establish sustainable risk management
potentially result in adverse operational, financial
models and practices across the business.
and reputational impacts through possible
system failures and security/cyber breaches.
Workplace Health and Safety risks could
GWA remains committed to continuous improvement in workplace health
potentially result in physical injury to employees,
and safety performance and has implemented comprehensive safety systems
contractors or others, or damage to the
and processes, communication with employees and increased diligence in
Company’s reputation.
identifying and removing safety risks.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 11
WORKPLACE
HEALTH & SAFETY
GWA continues to ensure that it
provides a safe workplace for employees,
contractors, visitors and customers,
whilst driving a positive safety culture
and actively reducing and mitigating risk.
With “Caring for Each Other” as a cultural
pillar, GWA’s objective remains to ensure
everyone is safe... every day.
The GWA management structure for Workplace Health and
Safety (WHS) continues to follow a central-led approach with a
National WHS Manager. The National WHS Manager addresses
the Board and Executive Leadership Team (ELT) on a regular
basis to discuss all matters relating to WHS. This provides an
opportunity for updates, scope discussions and to monitor
progress of the WHS strategy and performance.
The ELT members continue to sponsor key risk areas
aligned with our business risk profile. These include Chain of
Responsibility, Health and Wellbeing, Environmental and Waste.
As a new safety initiative for FY18, GWA introduced a Safety
Homecoming Training Presentation which was designed to
develop and drive safety behaviour engagement for staff at
all levels. The intent was to acknowledge and celebrate safe
demonstrated behaviour, whilst engaging and addressing
at-risk behaviour.
In FY18 GWA rolled out the new Move 4 Life manual handling
program into the business. To accompany this initiative, and
similar to the Safety Interactions Program initiative introduced
in FY17, GWA has introduced Move Interactions to encourage
frequent physical movement behaviour. Daily routines known
as the ‘60 Second Investment’ have been introduced at all
warehouse sites to prevent workplace injuries.
With zero waste as a target, GWA continues to drive its
WHS strategy with the commencement of initiatives such as
Environmental and Waste Management in FY18. The safety team
was also centrally involved with the planning and execution of the
new Bathrooms & Kitchens Innovation and Distribution Centre in
Sydney and two new Flagship stores in Sydney and Adelaide.
12 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
In FY18 the new online safety reporting system Myosh was
implemented. Myosh has been introduced to improve the way
in which GWA reports and records safety events, hazards,
create and complete actions, manage visitors and contractors,
and training.
SAFETY PERFORMANCE INDICATORS
GWA measures a range of balanced safety performance
indicators. Proactive ‘LEAD’ indicators such as number of Safety
Interactions conducted, hazards reported, and actions closed
were measured in FY18. GWA also measures key ‘LAG’ indicators
that measure lost time and medically treated injuries, hours lost
due to injury and total injuries which represents a combination
of lost time and medically treated injuries.
LAG Indicators (Results as at June 2018)
Measure
LTI FYTD
LTIFR Rolling
MTI FYTD
MTIFR Rolling
TI FYTD
TIFR Rolling
Group
B&K
D&A
6.0
4.7
7.0
5.5
13.0
10.2
3.0
4.0
2.0
2.7
5.0
6.7
3.0
6.0
5.0
10.0
8.0
16.0
Substantial progress was made in FY18 to improve the Group’s
safety culture with a number of safety initiatives implemented,
and ownership and accountability for safety existing at all levels
in the business.
A safety plan for FY19 has been developed with further longer
term plans in place to deliver an improvement in safety culture
and behaviour. The Board and management remain focussed
on initiatives to improve GWA’s safety performance and culture,
always with the aim of an injury free workplace.
GWA Total Injury Frequency Rate (TIFR)
24
18
12
6
0
08/09 09/10 10/11
11/12
12/13
13/14
14/15
15/16
16/17
17/18
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 13
BOARD OF
DIRECTORS
DARRYL MCDONOUGH BBUS (ACTY), LLB (HONS),
SJD, FCPA, FAICD
INDEPENDENT CHAIRMAN AND NON-EXECUTIVE DIRECTOR
• Expertise: Experienced non-executive director
• Special Responsibilities: Chairman of Board and member
of Nomination and Remuneration and Audit and Risk
Committees
PETER BIRTLES BSC, ACA, MAICD
INDEPENDENT NON-EXECUTIVE DIRECTOR
• Expertise: Chartered Accountant, retail, financial
and operational
• Special Responsibilities: Member of Audit and
Risk Committee
Mr Birtles was appointed a Non-Executive Director of GWA
Mr McDonough was appointed Deputy Chairman and
Group Limited in November 2010. He is a Chartered Accountant
Non-Executive Director of GWA Group Limited in 2009 and
and is the current Managing Director and Chief Executive
Chairman effective 31 October 2013. He has over 30 years of
Officer of Super Retail Group Limited (“Super Retail”). He was
experience as a director and corporate lawyer. He has served
formerly the Chief Financial Officer of Super Retail. Prior to
as a director of a number of public companies in the past,
joining Super Retail, he held a variety of finance, operational
including Bank of Queensland Limited and Super Retail Group
Limited. He is a Past-President of The Australian Institute of
and information technology roles with The Boots Company
in the United Kingdom and Australia and worked for Coopers
Company Directors, Queensland Division.
& Lybrand.
JOHN MULCAHY PHD (CIVIL ENGINEERING), FIE AUST
INDEPENDENT DEPUTY CHAIRMAN AND NON-EXECUTIVE
DIRECTOR
• Expertise: Engineer, banker and experienced public
company director
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
• Special Responsibilities: Chairman of Nomination and
Remuneration Committee
TIM SALT BSC
Mr Mulcahy was appointed a Non-Executive Director of
GWA Group Limited in 2010 and Deputy Chairman effective
1 November 2013. He is a Fellow of the Institute of Engineers
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER
• Expertise: Extensive global experience in managing market
leading branded portfolios
and is Chairman of Mirvac Group Limited and a Non-Executive
Mr Salt was appointed Managing Director and Chief Executive
Director of ALS Limited. He is the former Managing Director and
Officer of GWA Group Limited on 1 July 2016. He was appointed
Chief Executive Officer of Suncorp Group Limited (“Suncorp”).
Executive General Manager of GWA Bathrooms & Kitchens in
Prior to joining Suncorp, he held a number of senior executive
September 2015 and Chief Executive Officer of GWA Group
roles at the Commonwealth Bank and Lend Lease Corporation.
Limited on 1 January 2016.
During the past three years, Mr Mulcahy has served as a director
Originally from the UK, Mr Salt was appointed Managing
of the following other listed companies, and the period in which
Director at Diageo Australasia in July 2008. As Managing
the directorships have been held:
• Mirvac Group Limited since 2009*
• ALS Limited since 2012*
• Coffey International Limited 2009 to 2016
*denotes current directorship
Director for Diageo Australasia, he was responsible for all
aspects of Diageo’s business in Australia, New Zealand and the
South Pacific Islands, including product supply, marketing, sales,
innovation and company reputation.
After starting at Unilever, Mr Salt spent much of his career in
beverage companies including Tetley Tea in the UK, Pepsi in
Australia and USA, and brewer Lion Nathan in Australia. In
March 2004 he joined Campbell Arnott’s and was General
Manager Arnott’s Australasia prior to his move to Diageo in 2008.
14 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
RICHARD THORNTON CA, B COM (ACC), LLB (HONS), LLM
STEPHEN GODDARD BSC (HONS), MSC
EXECUTIVE DIRECTOR AND COMPANY SECRETARY
• Expertise: Chartered Accountant, taxation and finance
INDEPENDENT NON-EXECUTIVE DIRECTOR
• Special Responsibilities: Chairman of Audit and
Mr Thornton was appointed an Executive Director of GWA
Risk Committee
Group Limited in May 2009. He joined GWA Group Limited
Mr Goddard was appointed a Non-Executive Director of GWA
in 2002 as Group Taxation Manager and Treasurer and was
Group Limited on 28 October 2016. He has more than 30 years’
appointed Company Secretary in 2003. He is a Chartered
retail experience having held senior executive positions with
Accountant and is experienced in accounting, taxation and
some of Australia’s major retailers. His executive experience
finance through positions at Coopers & Lybrand, Citibank and
includes Finance Director and Operations Director for David
Ernst & Young in Australia and overseas. Mr Thornton continued
Jones, founding Managing Director of Officeworks, and various
in his role as Company Secretary following his appointment as
senior management roles with Myer. He is a Non-Executive
an Executive Director in 2009. He is a Director of Great Western
Director of JB Hi-Fi Limited, Accent Group Limited and Nick
Corporation Pty Ltd.
JANE McKELLAR BA, MA (HONS), GAICD
INDEPENDENT NON-EXECUTIVE DIRECTOR
• Special Responsibilities: Member of Nomination and
Remuneration Committee
Ms McKellar was appointed a Non-Executive Director of GWA
Group Limited on 28 October 2016. She is an experienced
Non-Executive Director in both public and private companies
in Australia and the USA, with key contributions in customer-
focused business transformation, harnessing digital technology,
Scali Limited. Stephen is a former Non-Executive Director and
Chairman of the Audit and Risk Committees of Pacific Brands
Limited and Surfstitch Group Limited.
During the past three years, Mr Goddard has served as a
director of the following other listed companies, and the period
in which the directorships have been held:
• JB Hi-Fi Limited since 2016*
• Pacific Brands Limited 2013 to 2016
• Surfstitch Group Limited 2014 to 2016
• Accent Group Limited since Nov 2017*
• Nick Scali Limited since March 2018*
and brand and marketing strategies to enhance business
*denotes current directorship
performance. Her executive experience includes senior roles
with Unilever, NineMSN, Microsoft, Elizabeth Arden and Stila
Corp. She is presently a Non-Executive Director at ASX listed
McPhersons Limited and Automotive Holdings Group Limited,
and is also on the Board of Terry White Chemmart.
During the past three years, Ms McKellar has served as a
director of the following other listed companies, and the period
in which the directorships have been held:
•
•
Automotive Holdings Group Limited since 2015*
McPherson’s Limited since 2015*
*denotes current directorship
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 15
DIRECTORS’
REPORT
AS AT 30 JUNE 2018
Your directors present their report on the
consolidated entity of GWA Group Limited
(the Group) and the entities it controlled
during FY18.
DIRECTORS
The following persons were directors of the Group during
the financial year and up to the date of this report unless
otherwise stated.
D D McDonough, Chairman and Non-Executive Director
J F Mulcahy, Deputy Chairman and Non-Executive Director
T R Salt, Managing Director and Chief Executive Officer
P A Birtles, Non-Executive Director
J M McKellar, Non-Executive Director
S T Goddard, Non-Executive Director
R J Thornton, Executive Director
W J Bartlett, Non-Executive Director (retired 27 October 2017)
Details of the directors’ qualifications, experience and special
responsibilities are outlined in the director profiles 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 FY18, and the
period for which each directorship has been held, are outlined in
the director profiles 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 outlined in the director profiles in the
Annual Report.
16 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
DIRECTORS’ INTERESTS
The relevant interest of each director in the share capital of
PRINCIPAL ACTIVITIES
The principal activities during the year of the consolidated
the Group as notified by the directors to the Australian
entity were the research, design, manufacture, import and
Securities Exchange in accordance with Section 205G(1) of
marketing of building fixtures and fittings to residential and
the Corporations Act 2001 as at the date of this report is:
commercial premises and the distribution of these various
Director
D D McDonough
J F Mulcahy
T R Salt*
P A Birtles
R J Thornton*
J M McKellar
S T Goddard
Total**
Notes:
Ordinary Shares
products through a range of distribution channels in Australia,
New Zealand and selected international markets. There have
150,000
40,950
36,070
38,650
120,577
1,000
been no significant changes in the nature of the activities of the
consolidated entity during the year.1
OPERATING AND FINANCIAL REVIEW
The Operating and Financial Review for the consolidated entity
during the financial year ended 30 June 2018 is provided in the
Managing Director’s Review of Operations, and forms part of
10,000
this Directors’ Report.
397,247
*
**
The executive directors, Mr T R Salt 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 section
6.2.1 of the Remuneration Report.
Section 6.3.3 of the Remuneration Report sets out the number of shares
held directly, indirectly or beneficially by key management personnel
or their related entities at balance date as prescribed in Accounting
Standard AASB 124, this being 407,247 shares (2017: 359,669 shares).
DIRECTORS’ MEETINGS
The number of meetings of directors (including meetings
of Committees of directors) held during FY18 and the number
of meetings attended by each director is outlined in the
following table:
Director
Board
Audit
and Risk
Committee
Nomination and
Remuneration
Committee
A
9
9
9
9
9
9
9
4
B
9
9
9
9
9
9
9
4
A
4
–
–
4
–
3
–
1
B
4
–
–
4
–
3
–
1
A
4
4
–
–
3
–
–
1
B
4
4
–
–
3
–
–
1
D D McDonough
J F Mulcahy
T R Salt
P A Birtles
J M McKellar(1)
S T Goddard(2)
R J Thornton(3)
W J Bartlett(4)
Notes:
A
Number of meetings held during the time the director held office during
the year.
B Number of meetings attended.
(1) J M McKellar was appointed a member of the Nomination and
Remuneration Committee on 27 October 2017.
(2) S T Goddard was appointed Chairman of the Audit and Risk Committee
on 27 October 2017.
(3) R J Thornton attends Committee meetings as Company Secretary.
(4) W J Bartlett retired as Non-Executive Director on 27 October 2017.
DIVIDENDS
Dividends paid or declared by the Group to shareholders since
the end of the previous financial year were:
DECLARED AND PAID DURING FY18
Dividends
Final
2016/17
Ordinary
Interim
2017/18
Ordinary
Cents
per
share
Total
Amount
$’000
Franked
Date of
Payment
9.0
23,755
Fully
Franked
5 September
2017
8.5
22,436
Fully
Franked
6 March
2018
Franked dividends declared and paid during the year were
franked at the corporate tax rate of 30%.
DECLARED AFTER END OF FY18
After the balance date the following dividend was approved by
the directors. The dividend has not been provided and there are
no income tax consequences at 30 June 2018.
Dividend
Final
2017/18
Ordinary
Cents
per
share
Total
Amount
$’000
Franked
Date of
Payment
9.5
25,075
Franked
2018
Fully
6 September
The financial effect of the final dividend has not been brought to
account in the financial statements for the year ended 30 June
2018 and will be recognised in subsequent financial reports.
The record date for the final dividend is 28 August 2018 and
the dividend payment date is 6 September 2018. The Dividend
Reinvestment Plan will not be offered to shareholders for the
final dividend.
1
GWA announced the sale of the Door & Access Systems business to
Allegion (Australia) Pty Ltd on 14 May 2018 with the sale completing on
3 July 2018.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 17
EVENTS SUBSEQUENT TO REPORTING DATE
On 3 July 2018, the sale of the Door & Access Systems business
INSURANCE PREMIUMS
The Group has paid premiums in respect of insurance contracts
completed. The sale price of $107 million comprises an initial
payment of $102 million received on 3 July 2018 and a $5 million
contingent payment received in August 2018, and is subject
to a post completion working capital adjustment. The gain
on sale (after disposal costs) is expected to be approximately
which provide cover against certain liabilities of every current
(and former) director and officer of the Group 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.
$45-$47 million.
Other than the matter discussed above, there has not arisen
in the interval between the end of the financial year and the
date of this report any item, transaction or event of a material
and unusual nature likely, in the opinion of the directors of the
Group, to affect significantly the operations of the consolidated
entity, the results of those operations, or the state of affairs of
the consolidated entity, in future financial years.
LIKELY DEVELOPMENTS
Likely developments and expected results of the operations of
the consolidated entity are provided in the Managing Director’s
Review of Operations.
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.
Premiums were paid in respect of every current (and former)
director and officer of the Group and controlled entities,
including the directors named in the Directors’ Report, the Chief
Financial Officer and all persons concerned or taking part in the
management of the Group and its controlled entities.
NON-AUDIT SERVICES
During the year KPMG, the consolidated entity’s auditor, has
performed certain other services in addition to the audit and
review of the financial statements.
The Board has considered the non-audit services provided
during the year by the auditor and in accordance with written
advice provided by resolution of the Audit and Risk Committee,
is satisfied that the provision of those non-audit services
during the year by the auditor is compatible with, and did not
compromise, the auditor independence requirements of the
Corporations Act 2001 for the following reasons:
• all non-audit services were subject to the corporate
ENVIRONMENTAL REGULATION
ENVIRONMENTAL LICENCES
The consolidated entity holds licences 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 licences 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 licence
conditions is made by external advisers.
governance procedures adopted by the consolidated entity
and have been reviewed by the Audit and Risk Committee
to ensure they do not impact the integrity and objectivity
of the auditor; and
the non-audit services provided do not undermine the
general principles relating to auditor independence as set
out in APES 110 Code of Ethics for Professional Accountants,
as they did not involve reviewing or auditing the auditor’s
own work, acting in a management or decision-making
capacity for the Group, acting as an advocate for the Group
or jointly sharing risks and rewards.
Details of the amounts paid to the auditor of the consolidated
The consolidated entity, in conjunction with external advisers,
entity, KPMG, and its network firms for audit and non-audit
monitors storage and treatment of hazardous materials within
services provided during the year are outlined in Note 21 of the
particular operations. Prior to any discharge to sewers, effluent
financial statements.
is treated and monitored to ensure strict observance with
licence conditions. The directors are not aware of any breaches
of the consolidated entity’s licence conditions during FY18.
INDEMNIFICATION AND INSURANCE OF
DIRECTORS AND OFFICERS
INDEMNIFICATION
The Group’s constitution provides that, to the extent permitted
by the law, every current (and former) director or secretary of the
Group shall be indemnified out of the assets of the Group against
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 FY18.
ROUNDING
The Group is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191
relating to the rounding of amounts in the Directors’ Report.
all costs, expenses and liabilities which result directly or indirectly
Amounts in the Directors’ Report have been rounded in
from facts or circumstances relating to the person serving (or
accordance with that Instrument to the nearest thousand
having served) in their capacity as director or secretary of the
dollars, unless otherwise stated.
Group, 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 Group or related body corporate.
18 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
REMUNERATION REPORT – AUDITED
INTRODUCTION
The Directors of GWA Group Limited present this Remuneration
2. BOARD ROLE IN SETTING
REMUNERATION STRATEGY
AND PRINCIPLES
Report for the period ended 30 June 2018. The Remuneration
Report outlines the Group’s remuneration philosophy and
practices, explains how the Group’s FY18 performance has
driven executive remuneration outcomes, and provides the
details of specific remuneration arrangements that apply to
The Board reviews, approves and monitors GWA’s remuneration
strategy. The strategy is designed to provide remuneration
that is fair and which is designed to attract and retain directors
and management with the experience, knowledge, skills and
judgement required for success.
Key Management Personnel (KMP) in accordance with section
The Board also engages with all stakeholders to continuously
300A of the Corporations Act 2001 (Cth) (Corporations Act)
refine and improve director and executive remuneration policies
and applicable accounting standards.
and practices.
The structure of the Remuneration Report is outlined below:
The Board delegates some aspects of the review and
1. Key Management Personnel;
2. Board role in setting remuneration strategy and principles;
3.
Relationship between remuneration policy and Group
performance;
monitoring process to the Nomination and Remuneration
Committee. The Committee’s role and responsibilities include:
• Review of Board size and composition;
• Assessment of the necessary and desirable skills and
competencies of Board members;
4. Description of non-executive director remuneration;
• Review of Board, Managing Director and other executive
5. Description of executive remuneration;
succession plans;
• Evaluation of the performance and contributions of Board
6. Details of director and executive remuneration; and
members;
7. Key terms of employment contracts.
• Recommendations for the appointment and removal of
directors;
1. KEY MANAGEMENT PERSONNEL
The names and titles of the Group’s KMP for FY18, being those
• Review of the remuneration framework for non-executive
directors;
persons having authority and responsibility for planning, directing
• Review of the Group’s executive remuneration and incentive
and controlling the activities of the entity, are set out below.
policies and schemes;
1.1 NON-EXECUTIVE DIRECTORS
D D McDonough, Chairman and Non-Executive Director
• Review of Managing Director and other executives
remuneration packages;
• Review of Managing Director and other executives
J F Mulcahy, Deputy Chairman and Non-Executive Director
performance objectives;
P A Birtles, Non-Executive Director
J M McKellar, Non-Executive Director
S T Goddard, Non-Executive Director
W J Bartlett, Non-Executive Director (retired 27 October 2017)
1.2 EXECUTIVE DIRECTORS
T R Salt, Managing Director and Chief Executive Officer
R J Thornton, Executive Director
1.3 OTHER EXECUTIVE KMP
P A Gibson, Group Chief Financial Officer
C D Norwell, General Manager Sales – GWA Bathrooms
& Kitchens
C M Reil, Group General Manager People & Performance
• Evaluation of Managing Director performance against
objectives;
• Review of Managing Director and other executive
development plans;
• Review of the Group’s recruitment, retention and
termination policies and procedures;
• Review of the Group’s superannuation arrangements;
• Review of the Group’s overall remuneration budget;
• Review of the annual Remuneration Report for inclusion
in the Directors’ Report;
• Approval of engagement of external remuneration
consultants;
• Review of Diversity Policy and assessing progress against
measurable objectives; and
• Reporting to the Board on the Committee’s role and
responsibilities covering all the functions in its charter.
The charter for the Nomination and Remuneration Committee is
available on the Company’s website at www.gwagroup.com.au
under Corporate Governance Policies.
During July 2018, the Nomination and Remuneration Committee
obtained market benchmarking data from Ernst & Young for
the FY19 executive remuneration review. No remuneration
recommendations as defined under Division 1, Part 1.2.98 (1)
of the Corporations Act 2001, were made by Ernst & Young.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 19
2.1 MANAGING DIRECTOR REMUNERATION
The remuneration arrangements for Mr Tim Salt as Chief
Executive Officer were determined by the Nomination and
Remuneration Committee in FY16 following the provision
of market data from Guerdon Associates. Based on the
benchmark data, Mr Salt’s total remuneration was aligned with
the then market median in relation to a group of 16 companies
of comparable operational scope and size to GWA. The
remuneration arrangements for Mr Salt were advised to the
market on 27 November 2015 and have not changed since then.
The following is a summary of Mr Salt’s remuneration package:
• Total Fixed Remuneration (TFR) comprising salary,
superannuation and all other benefits other than incentive
plans of $1,000,000;
• Participation in GWA’s Short Term Incentive (STI) Plan:
» STI opportunity of 40% of TFR based on Mr Salt meeting
Board approved Key Performance Indicator (KPI)
objectives, with provision for a maximum 50% of TFR
for outperformance against these KPIs.
• Participation in GWA’s Long Term Incentive (LTI) Plan:
»
LTI opportunity of 60% of TFR over a three year
performance period and subject to achievement of
performance hurdles in respect of growth in Return
on Funds Employed (ROFE) and Total Shareholder
Return (TSR).
The Board changed the ROFE performance requirements for
FY18 after taking into consideration the following:
• shareholder feedback in relation to the ROFE hurdle;
•
•
•
the Company’s strong ROFE performance in FY16 and
FY17 of 19.3% and 20.2% respectively;
the need to sustain an appropriate level of performance
through the market cycle which is forecast to decline
over the next 3 years; and
the increasing investment required to support the
Group’s strategic growth initiatives in marketing, research
and development, customer delivery and information
technology.
The changes are reflected in the ROFE table in section 5.4.2.2.
There are no changes to the Total Shareholder Return (TSR)
hurdle under the LTI Plan.
For the FY18 LTI grant the disposal restriction period for
ordinary shares issued under the LTI Plan upon the achievement
of performance hurdles was reduced to seven years from the
grant date as the previous disposal restriction period of fifteen
years was considered excessive. The reduction in the disposal
restriction period still ensures that executives retain the ordinary
shares for a reasonable period.
2.4 FY19 EXECUTIVE REMUNERATION STRUCTURE REVIEW
During FY19, the Board will engage an independent
For the FY19 executive remuneration review, the market
remuneration consultant to review the executive remuneration
benchmark data and analysis provided by Ernst & Young
structure comprising all elements of executive remuneration
confirmed that the Managing Director’s remuneration remains
including the fixed and variable components. The purpose
aligned with peer company CEO remuneration levels and
of the review is to ensure that the executive remuneration
market practice.
2.2 FY18 DIRECTOR AND EXECUTIVE REMUNERATION
As outlined in the FY17 Remuneration Report, the Board
determined that the fixed remuneration for the Managing
Director and other executives was to be frozen for FY18 with the
exception of one executive (C Norwell, General Manager Sales
– GWA Bathrooms & Kitchens) who received a 4% increase in
fixed remuneration. This was the third consecutive year that fixed
remuneration for the Managing Director and other executives has
been frozen. See section 5.2 for further details. This position is
reflected in the Remuneration Tables in section 6.1.
Following the Board’s approval of a 16% reduction in non-
executive director remuneration in FY16, non-executive director
remuneration has remained frozen in FY17 and FY18. See
structure remains aligned with the Board’s remuneration
strategy and market practice. The recommendations from the
review will be considered for implementation during FY20 and
the changes will be outlined in the FY19 Remuneration Report.
3. RELATIONSHIP BETWEEN REMUNERATION
POLICY AND GROUP 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
section 4.1 for further details. This position is reflected in the
measures:
Remuneration Tables in section 6.1.
2.3 FY18 LONG TERM INCENTIVE PLAN
As outlined in the FY17 Remuneration Report, the Board
• Earnings before interest and tax (EBIT);
• Return on funds employed (ROFE); and
• Total shareholder return (TSR).
approved important changes to the LTI Plan for FY18 which
The Board has the discretion to normalise the EBIT and ROFE
applied to the grant of Performance Rights to the Managing
measures where they are unduly distorted by significant or
Director and other executives. The changes relate to the Return
abnormal events, and in order to ensure that the measures
on Funds Employed (ROFE) hurdle, which is the second
reflect underlying trading performance. Examples include the
performance measure under the LTI Plan. The performance
requirements under the ROFE hurdle have been increased
impact of restructuring costs or other non-recurring expenses
to ensure management is not discouraged from undertaking
to require a higher level of performance over the three year
initiatives in the long term interests of shareholders.
performance period before vesting will occur and at all
vesting thresholds.
20 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
Any adjustments to normalise the EBIT and ROFE measures,
Remuneration for all executives varies with performance
and the reasons for any adjustments, will be disclosed. In FY18
on these key measures together with achievement of their
EBIT and ROFE measures were normalised for $1.9m (pre-tax)
personal KPI objectives, which underpin delivery of the
transaction costs incurred in the year to 30 June 2018 associated
financial outcomes, and are linked to the consolidated entity’s
with the disposal of the Door & Access Systems’ business. It
performance review process.
would be unfair not to adjust for these costs as they are non-
recurring costs associated with a strategic divestment and
the proceeds/profit on this sale will not be recorded until the
FY19 accounts. The profit on sale will also be adjusted for the
purposes of the EBIT and ROFE measures for determining
FY19 performance.
The below graph shows the Group’s relative TSR performance
over the 3 year period from 1 July 2015 to 30 June 2018 compared
to the ASX 200 Accumulation Index. The chart highlights the
outperformance of the GWA share price since approximately
June 2016 compared to the ASX 200 Accumulation Index which
comprises the top 200 stocks on the Australian Securities
Exchange based on liquidity and size, and is recognised as the
investable benchmark for the Australian equity market.
Total Shareholders Return (TSR) Chart for GWA vs ASX 200 Acc Index
From 1 July 2015 to 30 June 2018
80%
60%
40%
20%
0%
– 20%
30 Jun 2015
31 Dec 2015
30 Jun 2016
31 Dec 2016
30 Jun 2017
31 Dec 2017
30 Jun 2018
GWA
ASX 200 ACC Index
The following is a summary of key statistics for the Group over the last five years:
Financial Year
Normalised
EBIT(a)
($m)
Normalised
EPS(a)
(cents)
Total DPS
(cents)(e)
2013/14(c)
2014/15(b)
2015/16(b)
2016/17
2017/18
Notes:
64.5
72.8
78.3
80.6
84.4
12.4
14.8
19.0
20.3
21.2
5.5
6.0
16.0
16.5
18.0
(a) excludes significant items (FY18 Door & Access Systems disposal costs
of $1.9 million pre tax).
(b) excludes the discontinued operations of Gliderol, Dux and Brivis.
(c) FY14 performance has been re-presented to exclude the discontinued
operations in FY15 and FY16.
Capital Return(d)
(cents)
–
22.8
–
–
–
Share Price
(30 June)
($)
Market
Capitalisation
(30 June)
($m)
2.63
2.28
2.09
3. 1 5
3.40
806.2
636.0
551.7
831.4
897.4
(d) a capital return of 22.8 cents per share and a special dividend of
6 cents per share from the Brivis and Dux net sale proceeds was
paid to shareholders on 15 June 2015.
(e) includes ordinary and special dividends.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 21
The remuneration and incentive framework focus executives
The Board does not require its non-executive directors to
on sustaining short term operating performance coupled with
hold GWA shares, however the holding of shares is actively
moderate long term strategic growth in the mature Australian
encouraged and all non-executive directors currently hold
and New Zealand markets in which the business operates.
shares in the Company. For details of the non-executive
The Group delivered its fourth year of improved profit
performance in FY18 driven by sales growth in the Bathrooms &
Kitchens business exceeding market growth for the period and
significantly higher returns from the Door & Access Systems
business. This enabled the Board to increase dividend payments
to shareholders for FY18 with the dividend pay-out ratio at
the top end of the Group’s dividend policy. The improved
performance for FY18 was reflected in the higher GWA share
price and resulted in higher shareholder returns.
The Group has continued its progress against the strategic
objectives in FY18 to enhance the operating performance of
the business and to maximise returns to shareholders over
time. The progress against the strategic objectives is outlined in
the Managing Director’s Review of Operations. The successful
execution of the Group’s strategic objectives were included
as personal goals and reflected in the financial performance
targets for the executives under the STI Plan for FY18; refer
section 5.3 Short Term Incentive.
The remuneration and incentive framework has focused the
executives on responding appropriately to the high levels of
dwelling construction activity in FY18. STI payments related
to performance improvement and strategy execution have
encouraged management to respond quickly and make
long term decisions to sustain competitiveness and improve
profitability. This has enabled the Group to take advantage of
the upturn in market activity over recent years while ensuring
that the Group is well placed to maximise returns through the
market cycles.
4. DESCRIPTION OF NON-EXECUTIVE
DIRECTOR REMUNERATION
Fees for non-executive directors are fixed and are not linked to
director shareholdings, please refer to section 6.3.3.
4.1 NON-EXECUTIVE DIRECTOR REMUNERATION
Non-executive director remuneration remained frozen in FY18 as
reflected in the Remuneration Tables in section 6.1 and as follows:
• Board Chair $280,000 (including superannuation);
• Other non-executive directors $120,000 (including
superannuation); and
• Committee Chair $10,000 (including superannuation).
4.2 NON-EXECUTIVE DIRECTOR REMUNERATION – FY19
PROPOSED CHANGES
At the Group’s 2018 Annual General Meeting, the Board will
seek an increase in the upper limit of non-executive director
remuneration of $255,000 to an aggregate maximum amount
of $1,350,000 per annum including statutory superannuation.
The Board has not sought an increase in directors’ fees since
2004. The proposed increase will:
• allow for Board appointments as part of transitional
arrangements;
• accommodate the possible appointment of additional
non-executive directors in the future in accordance with the
Board succession plans; and
• provide flexibility to allow for payment of appropriate fees
over time.
For details of the non-executive directors’ fees paid for FY18,
please refer to the Remuneration Tables in section 6.1.
5. DESCRIPTION OF EXECUTIVE
REMUNERATION
5.1 EXECUTIVE REMUNERATION STRUCTURE
Executive remuneration has a fixed component and a component
the financial performance of the Group to ensure non-executive
that varies with performance. The variable component comprises
directors maintain their independence.
a short term incentive (STI) which provides rewards for
At the 2004 Annual General Meeting, shareholders approved
non-executive director fees up to an annual maximum
aggregate amount of $1.095 million including statutory
superannuation. The actual fees paid to the non-executive
directors are outlined in the Remuneration Tables in section 6.1.
Non-executive director remuneration comprises base fees and
statutory superannuation, plus an additional fee for chairing a
Board committee. The payment of committee fees recognises
the additional time commitment required by a chair of a Board
committee. Non-executive directors are not able to participate
in the executive incentive schemes.
The Nomination and Remuneration 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 Group matters.
Retirement benefits other than statutory superannuation are not
available for non-executive directors.
performance over a 1 year period, and a long term incentive (LTI)
which provides rewards for performance over a 3 year period.
The maximum total remuneration that can be provided to an
executive is capped, with incentive payments expressed as a
percentage of total fixed remuneration. Total fixed remuneration
for the purposes of incentives includes superannuation and non-
monetary benefits.
The remuneration structure implemented for executives, including
the Managing Director, recognises the short term challenges
posed by operating in the cyclical Australian building industry,
ability to sustain competitiveness, deliver value and growth in
mature markets and maintain operating cash flows for dividends.
As outlined in section 2.4, during FY19 the Board proposes to
engage an independent remuneration consultant to review the
executive remuneration structure to ensure it remains aligned
with the Board’s remuneration strategy and market practice.
The recommendations from the review will be considered for
implementation during FY20 and the changes outlined in the
FY19 Remuneration Report.
22 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
5.1.1 Managing Director remuneration structure
The FY18 incentives structure for the Managing Director is
5.1.2 Other Executives’ remuneration structure
The FY18 incentives structure for other executives is provided in
provided in the following table:
the following table:
Maximum LTI
as % of fixed
remuneration
(grant date fair
value)
Maximum
total
performance
pay as %
of fixed
remuneration
Maximum STI
as % of fixed
remuneration
Other
Executives
Maximum STI
as % of fixed
remuneration
Maximum LTI
as % of fixed
remuneration
(grant date
fair value)
Maximum
total
performance
pay as %
of fixed
remuneration
50
60
110
FY18
50
30
80
Managing
Director
FY18
The FY18 STI components for the Managing Director are
The FY18 STI components for other executives are provided in
provided in the following table:
the following table:
Financial
Targets as
maximum
% of fixed
remuneration
Personal
Goals as
maximum
% of fixed
remuneration
Maximum
STI as %
of fixed
remuneration
Other
Executives
Financial
Targets as
maximum
% of fixed
remuneration
Personal
Goals as
maximum
% of fixed
remuneration
Maximum
STI as %
of fixed
remuneration
30
20
50
FY18
30
20
50
Managing
Director
FY18
5.1.3 Actual remuneration received by executives for FY18
The following table sets out the actual value of remuneration received by executives for FY18, derived from the various components
of their remuneration during FY18. This table differs from the more detailed statutory remuneration disclosures in the Remuneration
Tables in section 6.1 due to the exclusion of LTI amounts not vested or reversal of accounting expenses associated with LTI grants
and is therefore unaudited.
Executives
FY18
T Salt, Managing Director(d)
R Thornton, Executive Director
P Gibson, Group Chief Financial Officer
C Norwell, General Manager Sales
– GWA Bathrooms & Kitchens
C Reil, Group General Manager
– People & Performance(e)
Total
Notes:
Fixed
Remuneration
$(a)
Short Term
Incentive
$(b)
Long Term
Incentive (Earned)
$(c)
1,001,584
417,400
752,301
500,000
204,770
375,000
414,368
208,000
250,845
2,836,498
122,500
1,410,270
–
44,611
–
–
–
44,611
Total
$
1,501,584
666,781
1,127,301
622,368
373,345
4,291,379
(a) Fixed remuneration represents amounts actually paid to executives during FY18 and includes base salary, non-monetary benefits and superannuation.
(b) Represents the STI payments awarded for FY18 inclusive of deferred amounts. These amounts, exclusive of the deferred amounts, will be paid in FY19.
(c) The performance hurdles for the 2015 LTI grant were tested in FY18 and partially achieved; refer section 6.2.1 Performance Rights. Excludes the value of any
unvested LTI grants expensed or reversed during FY18.
(d) For details of Mr Tim Salt’s remuneration arrangements as Managing Director refer to section 2.1.
(e) Ms Cara Reil was appointed Group General Manager – People & Performance effective 20 November 2017.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 23
5.2 FIXED REMUNERATION
Fixed remuneration is the sum of base salary, non-monetary
The STI payment is made in cash after finalisation of the annual
audited financial statements. As outlined in the Remuneration
benefits and superannuation.
The level of fixed remuneration is set:
•
•
•
to retain proven performers who possess difficult to
source experience;
to attract external recruits with depth and breadth of
expertise usually acquired while working with larger
companies; and
in recognition of the short term challenges posed by
cyclical factors and the focus on conserving market
leadership, cash flow and dividends where 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 and relative to companies
of comparable size and operational scope to GWA. The
comparator companies are primarily from the Consumer
Discretionary, Industrial and Material sectors.
Based on an independent survey by Ernst & Young for the
FY19 executive remuneration review, the fixed remuneration for
most executive positions at GWA are comparable to market
benchmark levels for companies of comparable operational
scope and size to GWA, having regard to market capitalisation
and revenue. The 18 listed peer 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
Tables in section 6.1, 50% of the financial target component
of the STI is deferred for executives that achieved their STI
financial targets for FY18. The deferred component is subject
to further testing by the Board to confirm the integrity of the
achievement of the STI financial targets following finalisation of
the FY19 audited financial statements. If the Board is satisfied
the deferred component will be paid to executives in September
2019 together with interest at market rates. However, if the
Board is not satisfied the deferred component will be subject
to forfeiture.
5.3.2 STI performance requirements
5.3.2.1 Financial Performance Targets
For FY18, STI financial performance targets are based on
Earnings Before Interest and Tax (EBIT) and Return On Funds
Employed (ROFE) targets as determined by the Nomination
and Remuneration Committee. The use of EBIT and ROFE as
the basis of STI financial targets is aimed at ensuring executives
are accountable for delivering both profit and return on funds
improvements.
The Board is of the view that a combination of EBIT and
ROFE targets are an effective basis for STI targets as they
are currently key metrics used in the business and ROFE is a
key target in driving returns on capital employed in excess of
the cost of capital. The EBIT and ROFE targets are weighted
equally and assessed on an aggregated basis for divisional
and corporate executives, and adjusted for normalisation if
applicable; refer section 3.
for precise remuneration positioning. The Nomination and
Under the STI framework, a divisional executive may receive
Remuneration Committee therefore exercised judgement in
an STI payment if divisional financial targets are achieved,
determining appropriate remuneration levels, having regard to
although the overall corporate financial targets may not have
the background and experience of the individuals.
been achieved, and vice versa. The ‘reasonably achievable’ and
While market levels of remuneration are monitored on a
regular basis, there is no contractual requirement that pay will
be adjusted each year. Where these levels are above the 75th
percentile, fixed remuneration will either be frozen or increases
‘stretch’ STI financial targets are determined by the Nomination
and Remuneration Committee at the beginning of the financial
year following approval of the divisional and corporate budgets
by the Board.
will be below market levels. For FY18, the Board froze the fixed
The budget performance levels are taken into consideration in
remuneration for the Managing Director and other executives
setting the financial targets but different targets may be set
with the exception of one executive (C Norwell, General
(either higher or lower than budget) that ensure management is
Manager Sales – GWA Bathrooms & Kitchens) who received
motivated while reflecting the degree of difficulty in achieving
a 4% increase in fixed remuneration. This is reflected in the
the budget. Performance between the ‘reasonably achievable’
Remuneration Tables in section 6.1.
and ‘stretch’ levels is rewarded on a pro rata basis.
5.3 SHORT-TERM INCENTIVE (STI)
5.3.1 STI overview
The STI plan provides for an annual payment that varies
with performance measured over the Group’s financial year
to 30 June 2018. The STI is aligned to shareholder interests
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 was no variation from
policy in setting the STI financial performance targets for FY18.
5.3.2.1.1 FY18 STI Financial Performance Outcomes
as executives will only become entitled to the majority of
For FY18, GWA Corporate and Bathrooms & Kitchens achieved
payments if profitability improves (allowing for the building
their EBIT and ROFE STI financial targets at the ‘stretch’ level
cycle), with maximum incentive payments above the reasonably
reflecting the strong financial performance of the business and
achievable level linked directly to shareholder value creation.
As noted in section 5.1, the maximum STI that can be earned is
gains in market share in core segments during the period. Door
& Access Systems did not achieve their STI financial targets for
capped to minimise excessive risk taking.
FY18. Accordingly, no STI payments were awarded to Door &
Access Systems’ executives for FY18.
24 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
The STI outcomes for FY18 were aligned with shareholders’
Personal goals include both measurable financial and business
interests as the Group’s profit performance for FY18 was strong
improvement goals. The measurable financial goals are financial
and above market expectations, generated higher returns to
outcomes which the individual aims to achieve through their
shareholders for the period both from the ability to pay higher
effort and that of their team. Examples may include achieving
dividends to shareholders and an improvement in GWA’s share
working capital reductions, sales/margin targets or cost
price at 30 June 2018.
In accordance with the STI Plan rules, 50% of the STI incentive
payment relating to financial targets has been deferred for
GWA Corporate and Bathrooms & Kitchens executives and will
be subject to further testing and potential clawback in August
2019 under the STI Plan rules. The full amount of the STI cash
bonuses (including the deferred component) is reflected in the
Remuneration Tables in section 6.1.
The deferred component of the STI incentive payments for
FY17 for executives was tested by the Board in August 2018
to confirm the integrity of the achievement of the STI financial
targets in FY17. Following satisfaction with the testing, the
Board approved the payment of the deferred component to
executives together with interest at market rates.
5.3.2.2 Personal Goals
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 FY18
has been determined following a formal performance review
process for each executive. The performance reviews for
executives are conducted semi-annually by the Managing
Director with the annual outcomes reviewed and approved
by the Nomination and Remuneration Committee. The
personal goals for executives for FY19 were established at
the performance reviews, and reviewed and approved by the
The personal goals set for each executive include achievement
Nomination and Remuneration Committee.
of key milestones to improve or consolidate the Group or
business unit’s strategic position. The personal goals vary with
the individual’s role, risks and opportunities and are aligned with
the Group’s strategic plan and corporate priorities. Achievement
of personal goals account for a maximum 20% of each
executive’s fixed remuneration.
The achievement of personal goals reinforces the Group’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
Nomination and 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 Group.
The Managing Director’s performance review is conducted
semi-annually by the Chairman following input from the
Board and with the outcomes reviewed and approved by the
Nomination and Remuneration Committee. An assessment of
the Managing Director’s key performance goals subject to STI
incentive payments for FY18 is provided in section 5.3.2.2.1. The
other executives were awarded STI payments for FY18 based
on achievement of personal goals following their performance
reviews. This is reflected in the Remuneration Tables in section 6.1.
The inclusion of personal goals in the remuneration structure
ensures that executives can be recognised for good business
performance, including periods where troughs in the building
industry cycle mean financial performance is consequently
weaker. The Group 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 Group’s performance management process.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 25
5.3.2.2.1 Managing Director’s key performance goals and outcomes
An assessment of the Managing Director’s key performance goals and financial targets subject to STI incentive payments for FY18 is
provided in the following table.
FY18 Goals
Personal Objectives
Results
Assessment
Achieve leading safety
Performance for FY18 is primarily assessed on ‘leading’ safety indicators that
performance with the aim
include proactive measures to improve safety, rather than ‘lagging’ indicators.
of an injury free workplace.
Substantial progress was made to improve the Group’s safety culture with a
number of safety initiatives implemented such as Safety Homecoming training
which was rolled out to all employees and the implementation of Myosh, an
online safety reporting system. A three year safety plan has been developed
with specific initiatives for FY19. Ownership and accountability for safety exists
at all levels in the business with “Caring For Each Other” central to the Group’s
cultural pillars.
Executing and delivering
Substantial progress has been made with each of the strategic growth
FY18 business plan – ensure
objectives in FY18 as outlined in the Managing Director’s Review of Operations.
planned, communicated,
Performance is assessed on the basis of the improvement in the Group’s sales
resourced and tracked.
and profitability, principally driven by the strong performance of Bathrooms
& Kitchens in FY18, which achieved ‘stretch’ financial targets, and through
successful execution of growth initiatives in target market segments leading to
gains in market share. A process was commenced to divest the Door & Access
Systems business during FY18 and the sale was successfully completed on
3 July 2018 enabling the focus on the Group’s superior water solutions strategy.
Build employee engagement and
The Group continues to implement programs to drive a high performance
culture to deliver the strategy
culture. There is an active Culture Council which is led by the Managing Director
who champions programs aligned to GWA’s Cultural Pillars. Increasing the
diversity of the Group’s talent continues to be a focus and the percentage of
female employees increased by two percentage points to 37% in FY18 and
there were two females appointed to the Executive Leadership Team. Employee
engagement continues to improve and has assisted the Group’s strong financial
performance for FY18.
Deliver the first year of the
Long term growth plans have been developed for the Group in order to
five year growth strategy with
accelerate growth and improve shareholder returns and these plans were
key growth initiatives planned,
presented as part of the Investor Market Briefing in April 2018. The plans
underway, funded and tracked.
outline growth initiatives to extend and defend the core businesses, build
emerging businesses and create growth options into the future as part of the
transformation of the business in line with the Group’s superior water solutions
strategy. A strategic planning cycle with management and the Board is in place
to expedite strategy development and execution, with work plans in place for
each of the strategic growth initiatives.
Financial targets
STI financial performance targets
For FY18, GWA Corporate and Bathrooms & Kitchens achieved their
EBIT and ROFE financial performance targets at the ‘stretch’ level
reflecting the strong trading performance and gains in market share in
core segments during the period. Door & Access Systems did not achieve their
STI financial performance targets for FY18, although the impact on the Group’s
financial results was negligible. This is reflected in the Remuneration Tables in
section 6.1.
Fully achieved
Partially achieved
Not achieved
26 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
5.4 LONG-TERM INCENTIVE (LTI)
5.4.1 LTI overview
Executives participate in a LTI Plan. This is an equity based plan
that provides for a reward that varies with Group 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, and reflects
what the Board considers is a reasonable period to require and
test the sustainability of earnings accretion from investments and
of employment with the Group 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 Group, relevant policies and
regulations, the extent of the executives Group shareholdings
as a multiple of fixed remuneration, and such other factors as
it considers relevant to the application. No applications from
participants to dispose of the shares were received by the
Board in FY18.
working capital improvement given the nature of the business.
In accordance with the rules of the LTI Plan, the executives
The LTI is provided as Performance Rights, with each right
entitling the holder to an ordinary share in the Group, subject to
meeting financial performance hurdles and the holder remaining
are prohibited from entering into hedging transactions or
arrangements which reduce or limit the economic risk of
holding unvested Performance Rights.
in employment with the Group until the nominated vesting date.
In the event of a change of control, the Board will determine
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 Plan 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
Nomination and Remuneration Committee. The basis of the
grants of Performance Rights to executives is as follows:
• 50% of the Performance Rights are subject to a Total
Shareholder Return (TSR) hurdle (which is a relative
performance requirement); and
50% of the Performance Rights are subject to a Return
On Funds Employed (ROFE) hurdle (which is an absolute
performance requirement).
•
Both TSR and ROFE are key measures on which the Group’s
strategic plan is focused. Therefore ensuring LTI rewards are
contingent on these measures is consistent with the Board
approved strategy.
in its discretion the extent to which outstanding Performance
Rights granted to executives will vest and be exercised into
ordinary shares. In exercising its discretion the Board will
consider whether the vesting conditions are unlikely to be
satisfied and the outstanding Performance Rights cancelled.
If the Board makes the decision that not all outstanding
Performance Rights will vest on a change of control, then all
remaining Performance Rights will be cancelled.
For the FY18 LTI grant, the proportion of Performance Rights
that can vest will be calculated and the shares will vest in
August 2020 subject to achieving the performance hurdles.
If the performance hurdles are not met the Performance
Rights will be cancelled.
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 Group. The total number
of outstanding Performance Rights granted to executives
at 30 June 2018 was 1,769,722 which represents 0.7% of the
The ROFE performance hurdle is calculated by reference to the
Group’s total issued shares.
Group’s audited accounts. Threshold performance is required
to be above the Group’s Weighted Average Cost of Capital
(WACC), which takes into account the minimum return required
by investors given the perceived risk of the investment.
The Board considers that ROFE is an appropriate target, both
5.4.2 LTI performance requirements
For the FY18 LTI grant, the performance hurdles continue to
provide for vesting scales graduated with performance and
demanding performance hurdles.
over the one year horizon, for STI purposes, and over the
5.4.2.1 TSR hurdle
three year horizon, for LTI purposes. The Board is cognisant
The performance hurdles and vesting proportions for the TSR
that in any one year ROFE can be impacted by the timing of
performance measure that applied to the FY18 LTI grant is
investments in growth, e.g. capital spend, where benefits (EBIT)
outlined in the following table:
may accrue in subsequent periods, thereby depressing ROFE
in the current year. By setting a longer term ROFE target the
Board is also able to incentivise executives for achievement of
the ROFE target above the cost of capital over time.
For the FY18 LTI grant, a participant may not dispose of
TSR of GWA Group
Limited relative to TSRs of
Comparator Companies
Proportion of Performance
Rights to Vest if TSR hurdle
is met
Less than the 50th
percentile
0%
12.5%
the ordinary shares issued under the LTI until the seventh
50th percentile
anniversary of the grant date and the shares are subject to a
holding lock upon issue. This was to ensure that executives
retain a suitable shareholding in the Group. There are limited
circumstances where a participant may dispose of the shares
before the end of the seven year period, including cessation
Between the 50th percentile
Straight line vesting between
and 75th percentile
12.5% and 50%
75th percentile or higher
50% (i.e. 50% of total grant)
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 27
The group of comparator companies for the TSR hurdle
The performance hurdles and vesting proportions for the ROFE
includes 19 domestic ASX listed companies exposed to similar
performance measure that applied to the FY18 LTI grant is
economic, market, and/or financial factors, and are as follows:
outlined in the following table:
James Hardie Industries PLC, Fletcher Building Ltd, Boral Ltd,
Adelaide Brighton Ltd, DuluxGroup Ltd, Brickworks Ltd, Super
Retail Group Ltd, CSR Ltd, ARB Corp Ltd, Bapcor Ltd, Breville
Group Ltd, Asaleo Care Ltd, GUD Holdings Ltd, Cedar Woods
Properties Ltd, Villa World Ltd, Decmil Group Ltd, Simonds
Group Ltd, Hills Ltd, Fleetwood Corp Ltd
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.
5.4.2.2 ROFE hurdle
As outlined in section 2.3, the Board has approved important
changes to the LTI Plan for FY18 which applied to the grant
of Performance Rights to the Managing Director and other
executives. The changes relate to the ROFE hurdle which is
the second performance measure under the LTI Plan. The
performance requirements under the ROFE hurdle have been
increased to require a higher level of performance over the
three year performance period before vesting will occur and
at all vesting thresholds.
GWA Group Limited
ROFE over three year
performance period
Proportion of Performance
Rights to Vest if ROFE hurdle
is met
ROFE less than
16% per annum
ROFE equal to
16% per annum
0%
12.5%
ROFE between
Straight line vesting
16% and 19% per annum
between 12.5% and 50%
ROFE equal to 19%
50% (i.e. 50% of total grant)
or higher per annum
The ROFE hurdle is calculated as earnings before interest
and tax (EBIT) divided by funds employed and adjusted for
normalisation if applicable; refer section 3. Funds employed is
calculated as net assets minus cash plus borrowings.
6. DETAILS OF DIRECTOR AND EXECUTIVE
REMUNERATION
6.1 REMUNERATION TABLES
Details of the nature and amount of each element of
remuneration for each director of the Group and other key
management personnel (KMP) for the year ended 30 June 2018
are provided in the following Remuneration Tables.
28 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
Short-term
Long-term
Post-
employment
s
e
e
F
&
y
r
a
l
a
S
s
u
n
o
B
h
s
a
C
I
T
S
y
r
a
t
e
n
o
M
-
n
o
N
$(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)
e
c
i
v
r
e
S
g
n
o
L
e
v
a
e
L
n
o
i
t
a
u
n
n
a
r
e
p
u
S
s
t
fi
e
n
e
B
$
$
n
o
i
t
a
n
m
r
e
T
i
s
t
fi
e
n
e
B
$
Non-Executive Directors(g)
D McDonough, Chairman
J Mulcahy, Deputy Chairman
P Birtles, Non-Executive
Director
J McKellar, Non-Executive
Director
(Appointed 28 October 2016)
S Goddard, Non-Executive
Director
(Appointed 28 October 2016)
W Bartlett, Non-Executive
Director (Retired 27 October 2017)
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
259,951
260,423
117,649
117,649
108,600
108,600
108,600
81,450
114,633
70,950
39,216
118,149
Total – Non-Executive
Directors Remuneration
Executive Directors(h)
2018
748,649
2017
757,221
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
T Salt, Managing Director(e)
2018
1,009,615 500,000
1,585 399,523
2017
976,330 500,000
1,248 257,070
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,048
19,615
12,350
12,350
11,400
11,400
11,400
8,550
12,033
19,050
4,116
12,350
71,347
83,315
24,999
35,000
R Thornton, Executive Director
2018
393,870 204,770
7,861
47,996
6,327
20,048
2017
376,785
204,770
5,521
93,094
6,320
19,615
Total – Directors
Remuneration
2018
2,152,134 704,770
9,446 447,519
6,327
116,394
2017
2,110,336 704,770
6,769 350,164
6,320
137,930
Executives(h)
P Gibson,
Group Chief Financial Officer
C Norwell, General Manager
Sales – GWA Bathrooms &
Kitchens
C Reil, Group General Manager
– People & Performance
(Appointed 20 November 2017)(f)
Total – Executives
Remuneration
Total – Directors
and Executives
Remuneration
2018
2017
2018
2017
2018
2017
743,750 375,000
2,302 160,608
729,423 375,000
2,454
107,189
385,355 208,000
1,036
87,418
368,461 200,000
–
57,529
241,881
122,500
1,000
29,890
–
–
–
–
2018
1,370,986 705,500
4,338 277,916
2017
1,097,884 575,000
2,454 164,718
–
–
–
–
–
–
–
–
24,999
34,999
24,999
30,000
13,076
–
63,074
64,999
2018
3,523,120 1,410,270 13,784 725,435
6,327
179,468
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
s
u
n
o
B
h
s
a
C
I
T
S
r
a
e
y
n
i
d
e
t
s
e
v
s
u
n
o
B
h
s
a
C
I
T
S
r
a
e
y
n
i
d
e
t
i
e
f
r
o
f
%
%
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46
43
37
42
100
100
100
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
39
42
39
37
–
100
100
100
100
100
–
–
–
–
–
–
–
l
a
t
o
T
$
279,999
280,038
129,999
129,999
120,000
120,000
120,000
90,000
126,666
90,000
43,332
130,499
819,996
840,536
1,935,722
1,769,648
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
680,872
706,105
– 3,436,590
–
3,316,289
–
–
–
–
–
–
1,306,659
1,249,065
706,808
655,990
408,347
–
– 2,421,814
–
1,905,055
– 5,858,404
2017 3,208,220 1,279,770
9,223 514,882
6,320 202,929
–
5,221,344
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 29
Notes to the Remuneration Tables
(a) Salary and fees represents base salary and includes the movement in
annual leave provision. The fixed remuneration for the Managing Director
and other executives was frozen by the Board for FY16, FY17 and FY18
with the exception of one executive who received a 4% increase in fixed
remuneration; refer section 5.2.
(b) The Short Term Incentive (STI) Plan cash bonuses relate to performance
during FY18 based on the achievement of personal goals and financial
performance targets, and includes the deferred component. GWA
Corporate and Bathrooms & Kitchens achieved their STI financial
performance targets in FY18 at the ‘stretch’ level and in accordance with
the STI Plan rules, 50% of the amount has been deferred and will be
subject to further testing in August 2019. Door & Access Systems did not
achieve their STI financial performance targets for FY18. The FY18 STI cash
bonuses for GWA Corporate and Bathrooms & Kitchens executives will
be paid in FY19 excluding the deferred component. The amounts have
been determined following individual performance reviews and have been
approved by the Nomination and Remuneration Committee.
(c) The short term non-monetary benefits include insurance and other minor
benefits including any applicable fringe benefits tax.
(d) The Long Term Incentive (LTI) Plan was approved by shareholders at the
2008 Annual General Meeting. The outstanding Performance Rights at
30 June 2018 were granted to executives in each of the years 30 June
2016, 2017 and 2018 (as applicable) and are subject to vesting conditions
and the achievement of specified performance hurdles over the three
year performance periods. During FY18, 50% of the Performance Rights
in respect of the 2015 LTI grant lapsed as the EPS hurdle was not
achieved and 50% of the Performance Rights vested as the ROFE hurdle
was fully achieved. The fair value of the Performance Rights granted
in 30 June 2016, 2017 and 2018 were calculated using Black Scholes
Model (ROFE and EPS hurdles) and Monte Carlo Simulation (TSR hurdle)
valuation methodologies and allocated to each financial year evenly over
the three year performance period. If the specified performance hurdles
are not achieved, then no benefits will be received by the executives
under the LTI Plan and the Performance Rights are cancelled.
(e) For details of Mr Tim Salt’s remuneration arrangements as Managing
Director, please refer to section 2.1.
(f)
Ms Cara Reil was appointed Group General Manager – People &
Performance effective 20 November 2017.
(g) Non-executive director remuneration remained frozen by the Board for
FY18. The total non-executive director remuneration is within the annual
aggregate maximum amount approved by shareholders. For details of
non-executive director remuneration, please refer to section 4.1.
(h) The fixed remuneration for the Managing Director and other executives
was frozen by the Board for FY16, FY17 and FY18 with the exception of
one executive who received a 4% increase in fixed remuneration; refer
section 5.2. For the actual remuneration received by the executives for
FY18, please refer to the table in section 5.1.3.
6.2 SHARE BASED PAYMENTS
6.2.1 Performance Rights
The following table shows details of the Performance Rights granted to key management personnel during the year ended
30 June 2018 and in prior years that affects compensation in this or future reporting periods.
Year
of
grant
Number
of rights
granted
Grant date*
%
vested
in year
%
forfeit
in year
Fair value
of rights at
grant date
$*
Issue price
used
to determine
number of
rights granted
Executive Directors
T Salt, Managing Director
2018
224,000
19 February 2018
2017
214,500
24 February 2017
2016
262,000
23 March 2016
R Thornton, Executive Director
Executives
P Gibson, Group Chief Financial
Officer
C Norwell, General Manager Sales
– GWA Bathrooms & Kitchens
C Reil, Group General Manager
– People & Performance
(Appointed 30 November 2017)
Note:
2015
2018
2017
2016
2015
2018
2017
2016
2015
2018
2017
2016
2015
2018
2017
2016
2015
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46,000
19 February 2018
44,000
24 February 2017
65,000
23 March 2016
45,000
25 February 2015
50
50
84,000
19 February 2018
80,500
24 February 2017
119,000
23 March 2016
–
–
47,000
19 February 2018
44,000
24 February 2017
63,000
23 March 2016
–
–
47,000
19 February 2018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
427,358
363,931
407,279
–
87,761
74,653
115,408
89,222
160,259
136,580
184,986
–
89,669
74,653
97,934
–
89,669
–
–
–
2.68
2.80
2.29
–
2.68
2.80
1.89
2.72
2.68
2.80
1.89
–
2.68
2.80
1.89
–
2.68
–
–
–
* The issue price used to determine the number of Performance Rights offered to key management personnel during FY18 was $2.68 being the volume
weighted average price of the Group’s shares calculated over the 20 trading days after the Group’s Annual General Meeting on 27 October 2017. The grant
dates and corresponding fair values per right in the table have been determined in accordance with Australian Accounting Standards. Fair values have been
calculated using the Black Scholes Model valuation methodology for the ROFE hurdle and Monte Carlo simulation for the TSR hurdle. The fair value of rights
issued during the year under the ROFE hurdle was $2.38 per right and TSR hurdle was $1.43 per right.
30 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
All of the rights carry an exercise price of nil. The rights granted
on 23 March 2016, 24 February 2017 and 19 February 2018
will vest on the date of the release to the Australian Securities
Exchange of the Group’s annual audited financial statements for
the years 30 June 2018, 2019 and 2020 respectively, subject to
the achievement of the performance hurdles. The rights granted
to Mr Thornton were approved by shareholders at the 2015, 2016
and 2017 Annual General Meetings in accordance with ASX Listing
Rule 10.14. The rights granted to Mr Salt in FY16 did not require
shareholder approval as he was not a director of the Company at
the time of the grant. The rights granted to Mr Salt in FY17 and
FY18 were approved by shareholders at the 2016 and 2017 Annual
General Meetings in accordance with ASX Listing Rule 10.14.
Rights were forfeited where an employee ceased employment
with the Group during the year in accordance with the rules
of the LTI Plan. For the rights granted to key management
personnel on 25 February 2015, the Group did not achieve
the EPS hurdle and fully achieved the ROFE hurdle for the
performance period of 1 July 2014 to 30 June 2017. The rights
subject to the EPS hurdle lapsed in FY18 resulting in the
forfeiture of 22,500 rights with a grant date fair value of $44,611
for current key management personnel. The rights subject to
the ROFE hurdle fully vested in FY18 resulting in the exercise of
20,475 shares (adjusted for the share consolidation effective on
9 June 2015) with a grant date fair value of $44,611 for current
key management personnel.
The number of rights outstanding at 30 June 2018 represents
the balance yet to be tested.
6.3 KEY MANAGEMENT PERSONNEL TRANSACTIONS
6.3.1 Loans to key management personnel and their related
parties
No loans were made to key management personnel or their
related parties during the year ended 30 June 2018 (2017: nil).
6.3.2 Other key management personnel transactions with the
Group or its controlled entities
There were no other key management personnel transactions
with the Group or its controlled entities during the year ended
30 June 2018 (2017: nil).
From time to time, key management personnel of the Group
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.
6.3.3 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, including their
related parties, is as follows:
Non–Executive Directors
D McDonough
J Mulcahy
P Birtles
J McKellar
S Goddard
W Bartlett (Retired 27 October 2017)
Executive Directors
T Salt
R Thornton
Executives
P Gibson
C Norwell
C Reil (Appointed 30 November 2017)
Non–Executive Directors
D McDonough
J Mulcahy
P Birtles
J McKellar (Appointed 28 October 2016)
S Goddard (Appointed 28 October 2016)
W Bartlett (Retired 27 October 2017)
Executive Directors
T Salt (Appointed 1 July 2016)
R Thornton
Executives
P Gibson
C Norwell
Held at
1 July 2017
Granted as
compensation
Purchases
Sales
30 June 2018
Held at
130,000
40,950
13,650
–
10,000
30,207
29,760
100,102
5,000
–
n/a
–
–
–
–
–
–
–
20,475
–
–
–
20,000
–
25,000
1,000
–
–
6,310
–
5,000
–
–
–
–
–
–
–
–
–
–
–
–
–
150,000
40,950
38,650
1,000
10,000
n/a
36,070
120,577
10,000
–
–
Held at
1 July 2016
Granted as
compensation
Purchases
Sales
30 June 2017
Held at
118,300
40,950
13,650
n/a
n/a
30,207
11,900
81,902
–
–
–
–
–
–
–
–
–
18,200
–
–
11,700
–
–
–
10,000
–
17,860
–
5,000
–
–
–
–
–
–
–
–
–
–
–
130,000
40,950
13,650
–
10,000
30,207
29,760
100,102
5,000
–
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 31
The relevant interest of each director in the share capital
of the Group 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 2018 is listed in the
Directors’ Report under Directors’ Interests.
During the FY18 reporting period, there were 20,475 shares
granted to key management personnel as compensation
(2017: 18,200). The aggregate number of shares held by key
management personnel or their related parties at 30 June 2018
was 407,247 (2017: 359,669).
7. KEY TERMS OF EMPLOYMENT
CONTRACTS
7.1 NOTICE AND TERMINATION PAYMENTS
The specified executives in the Directors’ Report including the
Managing Director, Mr Tim Salt, are on open-ended contracts.
The employment contract for Mr Salt provides that if either
the Group or Mr Salt wishes to terminate employment for any
reason, no less than one year’s written notice of termination is
required. The Group retains the right to immediately terminate
the employment contract of Mr Salt by making payment equal
to twelve months salary in lieu of providing notice.
For the other specified executives, the Group or the executives
are required to give no less than three months notice of
termination of employment for any reason. The Group retains
the right to immediately terminate the employment contracts of
the executives by making payment equal to three months salary
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 Nomination and
Remuneration Committee. Shareholder approval is required for
termination payments in excess of twelve months salary.
Unless the Board determines otherwise, executives will not
be eligible for an STI payment and Performance Rights held
by executives under the LTI Plan will lapse upon cessation of
employment with the Group.
The Directors’ Report is made out in accordance with a
resolution of the directors:
Darryl D McDonough
Chairman
Tim R Salt
Managing Director
Sydney, 16 August 2018
32 | GWA GROUP LIMITED | 2018 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
5
Income and expenses
Income tax expenses
6 Earnings per share
7 Cash and cash equivalents
8 Trade and other receivables
9
Inventories
38
41
43
44
46
47
48
49
49
10 Deferred tax assets and liabilities 50
11 Property, plant and equipment
12
Intangible assets
13 Trade and other payables
14 Employee benefits
51
53
55
55
15 Provisions
16
Loans and borrowings
17 Capital and reserves
18
Financial instruments and
financial risk management
19 Share-based payments
20 Related parties
21 Auditor’s remuneration
22 Operating lease commitments
23 Capital commitments
24 Consolidated entities
25 Deed of cross guarantee
26 Parent entity disclosures
27 Subsequent events
Directors’ Declaration
Independent Auditor’s Report to the members of GWA Group Limited
Lead Auditor’s Independence Declaration under Section 307C of the
Corporations Act 2001
34
35
36
37
56
57
58
59
65
67
68
68
69
69
70
72
72
73
74
76
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 33
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME
Note
2018
For the year ended 30 June
In thousands of AUD
Profit or loss
CONTINUING OPERATIONS
Sales revenue
Cost of sales
Gross profit
Other income
Selling expenses
Administrative expenses
Other expenses
Operating profit
Finance income
Finance expenses
Net financing costs
Profit before tax
Income tax expense
Profit from continuing operations
DISCONTINUED OPERATIONS
Profit from discontinued operations, net of income tax
Profit for the period
OTHER COMPREHENSIVE INCOME
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign subsidiaries,
net of tax
Cashflow hedges, net of tax
Other comprehensive income / (loss), net of tax
Total comprehensive income for the period
EARNINGS PER SHARE (CENTS)
Total
– Basic
– Diluted
Continuing operations
– Basic
– Diluted
2017
*Restated
350,437
(200,381)
150,056
361
(43,661)
(31,852)
(603)
74,301
575
(5,913)
(5,338)
68,963
(19,712)
49,251
359,281
(205,212)
154,069
383
(44,652)
(33,295)
(263)
76,242
374
(5,187)
(4,813)
71,429
(21,290)
50,139
4,113
54,252
4,420
53,671
(168)
5,020
4,852
59,104
20.6
20.4
19.0
18.9
79
2,146
2,225
55,896
20.3
20.2
18.7
18.6
4a
4c
4b
4d
4f
5
3
6
6
6
6
The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the
accompanying notes.
* The Door & Access Systems’ business was sold with an effective date of 3 July 2018 and is classified as a discontinued operation, including
for comparative purposes, in the above statement. Refer to Note 3 for further information regarding discontinued operations.
34 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June
In thousands of AUD
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Assets classified as held for sale*
Total current assets
NON-CURRENT ASSETS
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
Liabilities classified as held for sale*
Total current liabilities
NON-CURRENT LIABILITIES
Trade and other payables
Loans and borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Issued capital
Reserves
Retained earnings
Total equity
Note
2018
2017
7a
8
9
3
10
11
12
13
14
5
15
3
13
16
14
15
17
17
27,860
63,484
68,138
2,413
61,912
223,807
10,175
14,906
286,808
297
312,186
535,993
41,540
4,371
6,532
6,348
12,025
70,816
718
125,000
4,427
1,631
131,776
202,592
333,401
307,790
4,451
21,160
333,401
36,360
65,862
72,319
2,679
–
177,220
16,023
10,493
314,242
286
341,044
518,264
50,783
6,528
7,346
10,594
–
75,251
827
112,000
7,316
2,267
122,410
197,661
320,603
307,838
(334)
13,099
320,603
The consolidated statement of financial position should be read in conjunction with the accompanying notes.
* The Door & Access Systems’ business was sold with an effective date of 3 July 2018 and is classified as a discontinued operation.
The assets and liabilities associated with the Door & Access Systems business are classified as held for sale as at 30 June 2018.
The comparative period is not restated. Refer to Note 3 for further information regarding discontinued operations.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 35
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June
In thousands of AUD
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers
Payments to suppliers and employees
Cash generated from operations
Interest and facility fees paid
Interest received
Income taxes paid
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment
Acquisition of property, plant and equipment
Acquisition of intangible assets
Business disposal costs
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayment of borrowings
Dividends paid
Capital return to holders of LTI grants
Net cash used in financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate changes
Cash within assets held for sale
Cash and cash equivalents at 30 June
2018
2017
496,179
(428,712)
67,467
(5,019)
374
(23,664)
39,158
7
(11,270)
(1,205)
(750)
(13,218)
26,000
(13,000)
(46,191)
(48)
(33,239)
(7,299)
36,360
9
(1,210)
27,860
483,652
(406,387)
77,265
(5,881)
575
(14,788)
57,171
370
(3,681)
(1,600)
–
(4,911)
27,000
(35,000)
(43,551)
(39)
(51,590)
670
35,696
(6)
–
36,360
The consolidated statement of cash flows is to be read in conjunction with the accompanying notes.
The Door & Access Systems’ business was sold with an effective date of 3 July 2018 and is classified as a discontinued operation.
The above cash flows are inclusive of discontinued operations. Refer to Note 3 for further information regarding discontinued
operations including summarised cash flow information.
36 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2018
In thousands of AUD
Share capital
Translation
reserve
Hedging
reserve
Equity
compensation
reserve
Retained
earnings
Total
Balance as at 1 July 2017
307,838
(993)
(1,785)
2,444
13,099
320,603
Total comprehensive income
for the period
Profit for the period
Other comprehensive income
Exchange differences on translation of
foreign subsidiaries, net of tax
Cash flow hedges, net of tax
Total other comprehensive income
Total comprehensive income
Transaction with owners, recorded
directly in equity
Share-based payments, net of tax
Dividends paid
Total transactions with owners
–
–
–
–
–
(48)
–
(48)
–
(168)
–
(168)
(168)
–
–
–
–
–
5,020
5,020
5,020
–
–
–
–
–
–
–
–
54,252
54,252
–
–
–
(168)
5,020
4,852
54,252
59,104
(67)
–
(67)
–
(115)
(46,191)
(46,191)
(46,191)
(46,306)
Balance at 30 June 2018
307,790
(1,161)
3,235
2,377
21,160
333,401
For the year ended 30 June 2017
In thousands of AUD
Balance at 1 July 2016
Total comprehensive income
for the period
Profit for the period
Other comprehensive income
Exchange differences on translation of
foreign subsidiaries, net of tax
Cash flow hedges, net of tax
Total other comprehensive income
Total comprehensive income
Transaction with owners,
recorded directly in equity
Share-based payments, net of tax
Dividends paid
Total transactions with owners
Share capital
Translation
reserve
Hedging
reserve
Equity
compensation
reserve
Retained
earnings
Total
307,877
(1,072)
(3,931)
1,647
3,177
307,698
–
–
–
–
–
(39)
–
(39)
–
79
–
79
79
–
–
–
–
–
2,146
2,146
2,146
–
–
–
–
–
–
–
–
53,671
53,671
–
–
–
79
2,146
2,225
53,671
55,896
797
–
797
(198)
(43,551)
(43,749)
560
(43,551)
(42,991)
Balance at 30 June 2017
307,838
(993)
(1,785)
2,444
13,099
320,603
The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 37
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION I: OVERVIEW
1. 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 2018 comprises
the Company and its subsidiaries (together referred to as the
‘consolidated entity’).
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. Information about significant areas of estimation
uncertainty and critical judgements in applying accounting
policies that have the most significant effect on the amount
The principal activities during the year of the consolidated
recognised in the financial statements are described in the
entity were the research, design, manufacture, import, and
following notes:
marketing of building fixtures and fittings to residential 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 16 August 2018.
(a) Statement of compliance
The financial report is a general purpose financial report which
• Note 12 – measurement of the recoverable amounts of
intangible assets
• Note 18 – valuation of financial instruments
The accounting policies set out in this consolidated financial
report have been applied consistently to all periods presented.
The accounting policies have been applied consistently by all
entities in the consolidated entity. The entity has elected not to
early adopt any accounting standards or amendments.
has been prepared in accordance with Australian Accounting
During the year, the consolidated entity has modified the
Standards (‘AASB’) adopted by the Australian Accounting
classification of certain supply chain expenses to reflect more
Standards Board (‘AASB’) and the Corporations Act 2001. The
appropriately the nature of the expenditure. Comparative
consolidated entity’s financial report complies with International
amounts in the consolidated statement of profit or loss have
Financial Reporting Standards (‘IFRS’) adopted by the
been reclassified for consistency ($4,453,000) from selling
International Accounting Standards Board (‘IASB’).
expenses to cost of sales). Further, certain comparative
(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 financial report is prepared on the historical cost basis
except for derivative financial instruments that are measured
at fair value.
The Company is of a kind referred to in ASIC Corporations
(Rounding in Financial/Directors’ Report) Instrument 2016/191
dated 24 March 2016 and in accordance with that Instrument,
amounts in the financial report and Directors’ Report have been
rounded 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
information included in note disclosures have been amended
in these financial statements to conform to the current year
presentation.
(c) Changes in accounting policies, disclosures,
standards and interpretations
(i)
Standards and Interpretations affecting amounts
reported in the current period
The following new and revised Standards and Interpretations
have been adopted by the consolidated entity for the first time
for the year ended 30 June 2018:
• AASB 2016-1 Amendments to Australian Accounting
Standards – Recognition of Deferred Tax Assets for
Unrealised Losses
• AASB 2016-2 Amendments to Australian Accounting
Standards – Disclosure Initiative: Amendments to AASB 107
Statement of Cash Flows
associated assumptions are based on historical experience and
The initial adoption of the above revisions has not had a
various other factors that are believed to be reasonable under
material impact on the amounts reported or disclosed in the
the circumstances, the results of which form the basis of making
consolidated annual financial statements.
the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates.
38 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION I: OVERVIEW CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(c) Changes in accounting policies, disclosures, standards and interpretations continued
(ii) Standards and Interpretations issued but not yet effective
At the date of authorisation of the consolidated financial statements, the following Standards and Interpretations were issued but
not yet effective.
Standard / Interpretation
AASB 9 Financial Instruments(1)
AASB 15 Revenue from Contracts with Customers(3)
Effective for the
annual reporting
period beginning on
Expected to be
initially applied in
the period ending
1 January 2018
30 June 2019
1 January 2018
30 June 2019
AASB 2016-5 Amendments to Australian Accounting Standards – Classification
1 January 2018
30 June 2019
and Measurement of Share-based Payment Transactions
AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 January 2018
30 June 2019
AASB 16 Leases(2)
IFRIC 23 Uncertainty over Income Tax Treatments
1 January 2019
30 June 2020
1 January 2019
30 June 2020
AASB 2017-6 Amendments to Australian Accounting Standards – Prepayment
1 January 2019
30 June 2020
Features with Negative Compensation
Annual Improvements to IFRS Standards 2015-2017 Cycle
1 January 2019
30 June 2020
(1)
AASB 9 will be first applicable for the year commencing 1 July 2018. Based on an assessment of financial instruments currently held, the impact of this
standard is not expected to be material to the results and balances of the consolidated entity.
(2) AASB 16 will be first applicable for the year commencing 1 July 2019. Based on a preliminary assessment of current lease arrangements, the impact of
this standard is expected to be material to the results and balances of the consolidated entity with the recognition of Right of Use Assets and Lease
Liabilities, and corresponding depreciation and interest expense for the majority of operating leases. However, until a detailed review is undertaken, it is
not practicable to provide a reasonable estimate of the effect of this standard. This assessment will be updated by the consolidated entity closer to the
adoption date.
(3) AASB 15 will be first applicable for the year commencing 1 July 2018 and the full retrospective transition method will be applied. Based on an assessment of
revenue streams and customer contracts as at 1 July 2018, the measurement and recognition impact of this standard is limited to accounting for estimated
future stock returns.
This will lead to a decrease to sales revenue and cost of sales (no impact to gross profit), and an increase in inventories, increase in trade and other
receivables, and an increase in trade and other payables reported in the prior period. This is due to the period end stock return provision under AASB 15
being accounted for on a gross basis in the Income Statement (previously accounted for on a net basis within sales revenue) and recorded within trade and
other payables (previously within trade and other receivables).
The impact has been quantified to be $0.7m (sales revenue, cost of sales) for the 30 June 2018 Income Statement, and $2.0m inventories, $2.7m trade and
other receivables, and $4.7m trade and other payables for the 30 June 2018 Balance Sheet.
For all other Standards and Interpretations issued but not yet effective listed above, the consolidated entity is assessing the
potential impact on its consolidated financial statements.
(d) Basis of consolidation
(i) Business combinations
The consolidated entity accounts for business combinations using the acquisition method when control is transferred to the
consolidated entity. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net
assets acquired. Any goodwill that arises is tested annually for impairment. Transaction costs are expensed as incurred.
(ii) Subsidiaries
Subsidiaries are entities controlled by the consolidated entity. The consolidated entity controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over
the entity. The financial results and balances of subsidiaries are included in the consolidated financial statements from the date on
which control commences until the date on which control ceases.
(iii) Transactions eliminated on consolidation
Intra-group balances and transactions, and unrealised income and expense arising from intra-group transactions, are eliminated.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION I: OVERVIEW CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(e) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
(f) Current vs non-current classification
The consolidated entity presents assets and liabilities in the
consolidated statement of financial position based on current/
exchange rate ruling at the date of the transaction. Monetary
non-current classification.
assets and liabilities denominated in foreign currencies at the
An asset is current when it is:
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
• Expected to be realised or intended to be sold or consumed
in the normal operating cycle;
• Expected to be realised within twelve months after the
reporting period;
• Held primarily for trading; or
• Cash and cash equivalent unless restricted from being
exchanged or used to settle a liability for at least twelve
Australian dollars at foreign exchange rates ruling at the dates
months after the reporting period.
the fair value was determined.
(ii) Financial statements of foreign operations
The revenues and expenses of foreign operations are translated
to Australian dollars at rates approximating the foreign
exchange rates ruling at the dates of the transactions.
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. Foreign exchange differences arising on retranslation at
All other assets are classified as non-current.
A liability is current when:
•
•
It is expected to be settled in the normal operating cycle;
It is due to be settled within twelve months after the
reporting period;
• Held primarily for trading; or
• There is no unconditional right to defer the settlement of the
liability for at least twelve months after the reporting period.
balance date are recognised in other comprehensive income,
All other liabilities are classified as non-current.
and presented in the foreign currency translation reserve (FCTR)
in equity. Hedge instrument movements of a hedge of a net
investment in a foreign operation is also recognised in the FCTR
to the extent the hedge is effective.
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.
Deferred tax assets and liabilities are classified as non-current
assets and liabilities.
40 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION II: RESULTS FOR THE YEAR
2. OPERATING SEGMENTS
The consolidated entity has one continuing reportable segment, Bathrooms & Kitchens. This segment includes the sale of vitreous
china toilet suites, basins, plastic cisterns, tapware, baths, kitchen sinks, laundry tubs and bathroom accessories. The CEO reviews
internal management reports on a monthly basis.
Information regarding the results of the reportable segment is included below. Performance is measured based on segment profit
before interest and income tax (‘EBIT’) 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 segment
relative to other entities that operate in these industries.
Segment results 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.
Discontinued operations include the Door & Access Systems’ business that was sold with an effective date of 3 July 2018. Refer to
Note 3 for further information regarding discontinued operations.
In thousands of AUD
For the year ended 30 June
Bathrooms
& Kitchens
Discontinued
Total
2018
2017
2018
2017
2018
2017
Sales revenue
359,281
350,437
93,890
95,895
453,171
446,332
Segment EBIT before disposal costs
89,802
87,603
Disposal costs1
Segment EBIT
Depreciation
Amortisation
Capital expenditure
–
–
89,802
87,603
2,033
–
9,577
1,842
–
3,017
Reportable segment assets
Reportable segment liabilities
426,105
42,098
400,532
49,214
8,176
(1,860)
6,316
825
304
1,143
57,612
12,025
6,293
–
6,293
1,034
406
662
97,978
(1,860)
96,118
2,858
304
10,720
93,896
–
93,896
2,876
406
3,679
60,153
9,711
483,717
460,685
54,123
58,925
1
Disposal costs incurred during the year ended 30 June 2018. Further disposal costs and net proceeds of sale will be recognised
in the year ending 30 June 2019.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION II: RESULTS FOR THE YEAR CONTINUED
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
Elimination of discontinued operations
Consolidated revenue
Profit
Total EBIT for reportable segments
Elimination of discontinued operations
Unallocated amounts: corporate expenses
EBIT from operating activities
Net financing costs
Consolidated profit before tax
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
Reconciliations of other material items
Depreciation
Total depreciation for reportable segments
Elimination of discontinued operations
Unallocated amounts: depreciation on corporate assets
Consolidated depreciation – continuing operations
Amortisation
Total amortisation for reportable segments
Elimination of discontinued operations
Unallocated amounts: amortisation on corporate assets
Consolidated amortisation – continuing operations
Capital expenditure
Total capital expenditure for reportable segments
Elimination of discontinued operations
Unallocated amounts: corporate capital expenditure
Consolidated capital expenditure – continuing operations
* Corporate assets include cash and cash equivalents, tax assets and treasury financial instruments at fair value.
** Corporate liabilities include loans and borrowings, tax liabilities and treasury financial instruments at fair value.
42 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
2018
2017
453,171
(93,890)
359,281
96,118
(6,316)
(13,560)
76,242
(4,813)
71,429
483,717
52,276
535,993
54,123
148,469
202,592
2,858
(825)
379
2,412
304
(304)
1,517
1,517
10,720
(1,143)
1,693
11,270
446,332
(95,895)
350,437
93,896
(6,293)
(13,302)
74,301
(5,338)
68,963
460,685
57,579
518,264
58,925
138,736
197,661
2,876
(1,034)
487
2,329
406
(406)
1,793
1,793
3,679
(662)
1,602
4,619
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
2. OPERATING SEGMENTS CONTINUED
Geographical Segments
The business segments are managed on a worldwide basis, but operate mainly in one geographical area being Australia. A
sales office is also operated in New Zealand. Sales revenue from geographical areas outside Australia comprised only 5% of the
consolidated entity’s total sales revenue for the current year (2017: 6%). 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
Non-current assets*
Australia
New Zealand
Consolidated
2018
2017
429,230
301,159
421,443
319,784
2018
23,941
852
2017
24,889
5,237
2018
453,171
302,011
2017
446,332
325,021
* Non-current assets exclude financial instruments and deferred tax assets.
Major customers
The consolidated entity conducts business with three customers where the net revenue generated from each customer exceeds
10% of the consolidated entity’s net revenue. Net revenue from these customers represent $75,874,000 (2017: $72,682,000),
$65,654,000 (2017: $65,065,000) and $65,194,000 (2017: $60,440,000) respectively of the consolidated entity’s total net revenues
for the current year of $453,171,000 (2017: $446,332,000). The revenues from these three customers are reported in both the
Bathrooms & Kitchens and discontinued (Door & Access Systems) segments.
3. 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.
The Door & Access Systems’ business (comprising of Gainsborough Hardware Industries Limited and API Services and Solutions Pty
Ltd) has been sold with an effective date of 3 July 2018, and is classified as held for sale at 30 June 2018. The operating activities
of Door and Access Systems were not discontinued or classified as held for sale at 30 June 2017. The comparative statement of
comprehensive income has therefore been re-presented to show the discontinued operations separately from continuing operations.
(a) Results of discontinued operations
In thousands of AUD
Revenue
Expenses
Profit before tax from operating activities
Tax expense on operating activities
Profit from operating activities
Disposal costs
Tax benefit on disposal costs
Profit
Basic profit per share (cents per share)
Diluted profit per share (cents per share)
2018
2017
93,890
95,895
(85,714)
(89,602)
8,176
(2,391)
5,785
(1,860)
188
4,113
1.6
1.5
6,293
(1,873)
4,420
–
–
4,420
1.7
1.7
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
3. DISCONTINUED OPERATIONS CONTINUED
(b) Cash flows from discontinued operations
In thousands of AUD
Net cash from operating activities
Net cash used in investing activities
Net cash from discontinued operations
2018
12,343
(1,889)
2017
5,323
(654)
10,454
4,669
(c) Effect on the financial position of the consolidated entity
The financial position of the discontinued operation is stated at fair value less costs to sell, and comprised the following assets and
liabilities at 30 June 2018. No impairment losses were required to be recognised.
In thousands of AUD
Cash
Trade and other receivables
Inventories
Other assets
Property, plant and equipment
Intangible assets
Net deferred tax assets
Assets classified as held for sale
Trade and other payables
Employee benefits
Provisions
Liabilities classified as held for sale
4. INCOME AND EXPENSES
(a) Sales revenue
In thousands of AUD
Sales revenue
2018
1,210
10,027
17,106
136
3,530
26,803
3,100
61,912
(6,380)
(4,625)
(1,020)
(12,025)
2018
2017
359,281
350,437
359,281
350,437
Sales revenue 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 which is typically
when goods are delivered to the customer, 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.
(b) Other income
In thousands of AUD
Foreign currency gains
Other – scrap income, royalties
44 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
2018
185
198
383
2017
130
231
361
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
4. INCOME AND EXPENSES CONTINUED
(c) Cost of sales
In thousands of AUD
Cost of sales
2018
2017
205,212
200,381
205,212
200,381
Cost of sales comprises the cost of manufacturing and purchase of goods including supply chain costs such as freight and
warehousing.
(d) Other expenses
In thousands of AUD
Foreign currency losses
Other
(e) Personnel expenses
In thousands of AUD
Wages and salaries – including superannuation contributions, annual leave and long service leave
Equity-settled share-based payment transactions
2018
253
10
263
2018
61,714
474
2017
433
170
603
2017
58,018
1,028
62,188
59,046
Defined contribution superannuation funds
The consolidated entity makes contributions to 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.
The amount recognised as an expense was $3,725,000 for the financial year ended 30 June 2018 (2017: $3,801,000) for continuing
operations.
(f) Net financing costs
In thousands of AUD
Finance income
Interest income on call deposits
Other
Finance expense
Interest expense on financial liabilities
Interest expense on swaps
Fees on financial liabilities including amortisation
2018
2017
202
172
374
4,523
348
316
5,187
470
105
575
4,623
976
314
5,913
Net financing costs
4,813
5,338
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.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
5. INCOME TAX EXPENSES
Recognised in profit or loss
In thousands of AUD
Current tax expense / (benefit) from continuing operations
Current year
Adjustments for prior years
Deferred tax expense / (benefit) from continuing operations
Origination and reversal of temporary differences
Tax expense from continuing operations
Tax expense / (benefit) from discontinued operations
Total tax expense for the consolidated entity
Numerical reconciliation between tax expense and pre-tax profit
In thousands of AUD
Profit from continuing operations before tax
Profit from discontinued operations before tax
Profit before tax for the consolidated entity
Tax expense using the domestic rate of 30% (2017: 30%)
Tax expense / (benefit) due to:
Non-deductible expenses
Non-deductible disposal costs
Rebateable research and development
Other items
(Over) / under provided in prior years
Income tax expense on pre-tax profit for the consolidated entity
Deferred tax recognised directly in equity
In thousands of AUD
Cash flow hedges
Share buy-back and capital return costs
Income tax payable
In thousands of AUD
Current tax liability
2018
2017
20,743
(74)
20,669
621
21,290
2,203
23,493
71,429
6,316
77,745
23,324
147
370
(200)
(52)
23,589
(96)
23,493
2,151
25
2,176
19,130
(1,035)
18,095
1,617
19,712
1,873
21,585
68,963
6,293
75,256
22,577
135
–
(217)
158
22,653
(1,068)
21,585
919
25
944
6,532
7,346
Income tax
Tax expense comprises current and deferred tax. Current and deferred taxes 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.
46 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
5. INCOME TAX EXPENSES CONTINUED
Deferred 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.
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.
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.
The Company and its wholly-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.
The current tax liability for the consolidated entity represents the amount of income taxes payable. In accordance with 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.
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.
6. EARNINGS PER SHARE
In cents
Total
– Basic
– Diluted
Continuing operations
– Basic
– Diluted
Discontinued operations
– Basic
– Diluted
2018
20.6
20.4
19.0
18.9
1.6
1.5
2017
20.3
20.2
18.7
18.6
1.7
1.7
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
6. EARNINGS PER SHARE CONTINUED
Basic earnings per share (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.
The calculation of basic and diluted EPS has been based on the following profit attributable to ordinary shareholders.
Profit attributable to ordinary shareholders – basic / diluted
In thousands of AUD
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
2018
50,139
4,113
54,252
2017
49,251
4,420
53,671
The calculation of basic earnings per share has been based on the following weighted average number of shares outstanding.
Weighted average number of ordinary shares (basic)
In thousands of AUD
Issued ordinary shares at 1 July
Weighted average number of ordinary shares at 30 June
2018
263,948
263,948
2017
263,948
263,948
The calculation of diluted earnings per share has been based on the following weighted average number of ordinary shares
outstanding adjusted for the effects of all dilutive potential ordinary shares.
Weighted average number of ordinary shares (basic)
In thousands of AUD
Weighted average number of ordinary shares (basic)
Effect of performance rights on issue
Weighted average number of ordinary shares (diluted)
SECTION III: ASSETS AND LIABILITIES
7. CASH AND CASH EQUIVALENTS
(a) Balances
In thousands of AUD
Bank balances
Call deposits
Cash and cash equivalents
2018
263,948
1,515
265,463
2017
263,948
1,512
265,460
2018
27,860
–
27,860
2017
12,872
23,488
36,360
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.
The consolidated entity’s exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in
Note 18.
48 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION III: ASSETS AND LIABILITIES CONTINUED
7. CASH AND CASH EQUIVALENT CONTINUED
(b) Reconciliation of cash flows from operating activities to net profit
In thousands of AUD
Profit for the year
Adjustments for:
Depreciation
Amortisation
Share-based payments
Unrealised foreign exchange loss / (gain)
Loss / (gain) on sale of PP&E and intangible assets
Cash flow hedge movements
Other non-cash movements
Changes in assets and liabilities*:
(Increase) in trade and other receivables
(Increase) / decrease in inventories
Decrease / (increase) in prepayments
(Decrease) / increase in trade payables and accrued expenses
Decrease in deferred taxes and (increase) in taxes payable
(Decrease) in provisions and employee benefits
Net cash flows from operating activities
* Including associated assets and liabilities classified as held for sale as at 30 June 2018.
8. TRADE AND OTHER RECEIVABLES
In thousands of AUD
Net trade receivables
Forward exchange contracts used for hedging (net)
Other
2018
54,252
3,237
1,821
(167)
135
15
7,172
(1,532)
(7,649)
(12,925)
120
(2,972)
1,934
(4,283)
39,158
2018
58,518
4,777
189
63,484
2017
53,671
3,363
2,199
587
65
(142)
3,098
11
(13,879)
4,042
(510)
10,668
7,661
(13,663)
57,171
2017
65,124
–
738
65,862
Trade and other receivables are initially measured at fair value and subsequently at their amortised cost less impairment losses. For
financial assets carried at amortised cost, the consolidated entity first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant.
If the consolidated entity determines that no objective evidence of impairment exists for an individually assessed financial asset,
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively
assesses them for impairment.
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.
The consolidated entity’s exposure to credit and currency risk and impairment loss related to trade and other receivables are
disclosed in Note 18.
9. INVENTORIES
In thousands of AUD
Raw materials and consumables
Work in progress
Finished goods
2018
–
259
67,879
68,138
2017
3,655
357
68,307
72,319
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION III: ASSETS AND LIABILITIES CONTINUED
9. INVENTORIES CONTINUED
Inventories are measured at the lower of cost and net realisable value.
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.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and
selling expenses. The future estimated recoverability of inventory was determined with consideration of excess inventory volumes,
discontinued product lines and risk weightings applied by management with reference to their assessment of recovery rates.
10. 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
2018
–
752
2,763
2,638
3,229
2,483
11,865
(1,690)
10,175
2017
–
1,582
3,893
4,152
4,452
2,645
16,724
(701)
16,023
2018
(311)
–
–
–
–
(1,379)
(1,690)
1,690
–
2017
(15)
(479)
–
–
–
(207)
(701)
701
–
2018
(311)
752
2,763
2,638
3,229
1,104
10,175
2017
(15)
1,103
3,893
4,152
4,452
2,438
16,023
–
–
10,175
16,023
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
50 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
Balance
1 July 17
(15)
1,103
3,893
4,152
4,452
2,438
16,023
Recognised
in income
Recognised
in equity
Reclassified
to assets
classified
Held for Sale
Balance
30 June 18
(348)
(107)
31
(126)
(917)
895
(572)
–
–
–
–
–
(2,176)
(2,176)
52
(244)
(1,161)
(1,388)
(306)
(53)
(3,100)
(311)
752
2,763
2,638
3,229
1,104
10,175
Balance
1 July 16
Recognised
in income
Recognised
in equity
Balance
30 June 17
(741)
1,193
2,578
4,599
7,486
3,074
18,189
726
(90)
1,315
(447)
(3,034)
308
(1,222)
–
–
–
–
–
(944)
(944)
(15)
1,103
3,893
4,152
4,452
2,438
16,023
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
10. DEFERRED TAX ASSETS AND LIABILITIES CONTINUED
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 from foreign jurisdictions
2018
71,337
275
2017
71,352
104
The deductible capital losses accumulated at balance date do not expire under current tax legislation.
Refer to Note 5 for the consolidated entity’s accounting policy on deferred tax.
11. PROPERTY, PLANT AND EQUIPMENT
In thousands of AUD
Cost
Balance at 1 July 2017
Additions
Transferred to assets classified as held for sale
Disposals
Transfers
Exchange rate movements
Balance at 30 June 2018
Balance at 1 July 2016
Additions
Disposals – Norwood site restructuring
Disposals
Transfers
Exchange rate movements
Balance at 30 June 2017
Depreciation and impairment losses
Balance at 1 July 2017
Depreciation
Transferred to assets classified as held for sale
Disposals
Exchange rate movements
Balance at 30 June 2018
Balance at 1 July 2016
Depreciation
Depreciation – restructuring
Disposals – Norwood site restructuring
Other disposals
Exchange rate movements
Balance at 30 June 2017
Carrying amounts
As at 30 June 2018
As at 30 June 2017
Plant and
equipment
Work in
progress
43,080
9,849
(11,148)
(3,756)
1,717
(30)
39,712
71,817
3,804
(27,168)
(5,557)
187
(3)
43,080
(34,868)
(3,237)
8,642
3,685
11
(25,767)
(62,944)
(3,363)
(102)
26,155
5,383
3
(34,868)
2,281
1,421
(1,024)
–
(1,717)
–
961
2,408
62
–
–
(187)
(2)
2,281
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
45,361
11,270
(12,172)
(3,756)
–
(30)
40,673
74,225
3,866
(27,168)
(5,557)
–
(5)
45,361
(34,868)
(3,237)
8,642
3,685
11
(25,767)
(62,944)
(3,363)
(102)
26,155
5,383
3
(34,868)
13,945
8,212
961
2,281
14,906
10,493
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
11. PROPERTY, PLANT AND EQUIPMENT CONTINUED
Recognition and Measurement
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 where 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.
When 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.
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.
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.
Depreciation
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. The estimated useful lives in the current and comparative periods are as follows:
• plant and equipment 3-15 years
The residual value, the useful life and the depreciation method applied to an asset are reassessed annually.
Impairment
The carrying values of property, plant and equipment are reviewed for impairment at each reporting date, with the recoverable
amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The
recoverable amount of property, plant and equipment is the higher of fair value less costs to sell and value in use. 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 an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating
unit to which the asset belongs, unless the asset’s value in use can be estimated to be close to its fair value.
An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The
asset or cash-generating unit is then written down to its recoverable amount. Impairment losses are recognised in profit or loss.
52 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
12. INTANGIBLE ASSETS
In thousands of AUD
Cost
Balance at 1 July 2017
Additions
Transferred to assets classified as held
for sale
Disposals
Exchange rate movements
Balance at 30 June 2018
Balance at 1 July 2016
Additions
Disposals
Balance at 30 June 2017
Amortisation and impairment losses
Balance at 1 July 2017
Amortisation
Transferred to assets classified
as held for sale
Disposals
Balance at 30 June 2018
Balance at 1 July 2016
Amortisation
Disposals
Balance at 30 June 2017
Carrying amounts
As at 30 June 2018
As at 30 June 2017
29,642
1,205
–
(645)
–
28,337
1,600
(295)
29,642
(26,706)
(1,516)
–
647
(27,575)
(25,155)
(1,793)
242
(26,706)
Software
Brand names
Trade names,
designs,
patents and
customer
relationships
Goodwill
Total
302,800
–
5,580
–
6,006
–
344,028
1,205
(18,602)
(5,580)
(6,006)
(30,188)
–
(17)
30,202
284,181
–
–
–
–
–
–
(645)
(17)
314,383
302,800
5,580
6,006
342,723
–
–
–
–
–
–
1,600
(295)
302,800
5,580
6,006
344,028
–
–
–
–
–
–
–
–
–
(3,080)
(305)
3,385
–
–
(2,674)
(406)
–
(3,080)
–
–
–
–
–
–
–
–
–
–
6,006
(29,786)
(1,821)
3,385
647
(27,575)
(27,829)
(2,199)
242
(29,786)
286,808
314,242
2,627
2,936
284,181
302,800
–
2,500
Recognition and measurement
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are
carried at cost less any accumulated amortisation and any accumulated impairment losses.
The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Goodwill acquired in
business combinations is initially measured at cost being the excess of the cost of the business combination over the consolidated
entity’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits
embodied in the specific assets to which it relates. All other expenditure is expensed 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.
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and
understanding, is recognised in the profit or loss as incurred. Expenditure incurred in developing, maintaining or enhancing brand
names is recognised in the Income Statement in the year in which it is incurred.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
12. INTANGIBLE ASSETS CONTINUED
Amortisation
Amortisation is recognised in the Income Statement on a straight-line basis over the estimated useful lives of intangible assets
unless such lives are indefinite. 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:
• goodwill
• brand names
• software
•
trade names
• designs
• patents
indefinite
indefinite
4 years
10-20 years
15 years
3-19 years (based on patent term)
• customer relationships
8 years
Brand names are not amortised as the directors believe that they have an indefinite useful life.
Impairment
Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be
impaired.
Intangible assets with an indefinite useful life are tested for impairment annually, or more frequently if events or changes in
circumstances indicate that the carrying value is impaired.
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 is the greater of its own 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 of CGU’s.
Subject to an operating segment ceiling test, CGU’s to which goodwill have 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 CGU’s 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 CGU’s are allocated first to reduce the
carrying amount of any goodwill allocated to the CGU (or group of CGU’s), and then to reduce the carrying amounts of the other
assets in the CGU (or group of CGU’s) 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.
Carrying value of brand names and goodwill for each cash generating unit and segment
In thousands of AUD
Bathroom and Kitchens
Door & Access Systems
2018
284,181
–
284,181
2017
284,198
24,608
308,806
The assets of the Door & Access Systems business, including brand names and goodwill, are classified as held for sale at
30 June 2018. Refer to Note 3 for further information.
54 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
12. INTANGIBLE ASSETS CONTINUED
Impairment testing for brand names
The recoverable amounts of Bathrooms & Kitchens’ brand names were assessed as at 30 June 2018 based on internal value in use
calculations and no impairment was identified (2017: nil).
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 is attached and was based on the following assumptions:
•
Cash flows were projected based on actual operating results and business plans of the units, 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% (2017: 2.8%) in calculating the terminal value, which does not exceed the
long-term average growth rate for the industry.
• A pre-tax discount rate of 12.8% was used (2017: 12.5% - 14.1%).
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 industry 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 2018 and there are no reasonably
possible changes in any of the key assumptions that would cause the cash generating units’ carrying amounts to exceed their
recoverable amount.
13. TRADE AND OTHER PAYABLES
In thousands of AUD
Current
Trade payables and accrued expenses
Forward exchange contracts used for hedging (net)
Interest rate swaps used for hedging (net)
Non-current
Trade payables and accrued expenses
2018
2017
41,384
–
156
41,540
48,232
2,188
363
50,783
718
827
Trade and other payables are initially measured at fair value and subsequently at their amortised cost.
The consolidated entity’s exposure to currency risk and liquidity risk related to trade and other payables are disclosed in Note 18.
Refer to Note 18 for details on forward exchange contracts and interest rate swaps.
14. EMPLOYEE BENEFITS
In thousands of AUD
Current
Liability for annual leave
Liability for long service leave
Non-current
Liability for long service leave
2018
2017
3,265
1,106
4,371
4,756
1,772
6,528
4,427
7,316
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION III: ASSETS AND LIABILITIES CONTINUED
14. EMPLOYEE BENEFITS CONTINUED
Short-term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected
to be paid if the consolidated entity has a present legal or constructive obligation to pay this amount as a result of past service
provided by the employee and the obligation can be estimated reliably.
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 benefit 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 using market
yields at the reporting date on corporate bonds with terms to maturity that match, as closely as possible, the estimated future
cash outflows.
15. PROVISIONS
In thousands of AUD
Balance at 1 July 2017
Additional provisions made
Provisions used
Transferred to liabilities classified as held for sale
Balance at 30 June 2018
Current
Non-current
Warranties
Restructuring
Site
restoration
2,598
80
(510)
(150)
2,018
2,018
–
2,018
6,993
–
(3,009)
–
3,984
3,984
–
3,984
1,984
227
–
(870)
1,341
223
1,118
1,341
Other
1,286
–
(650)
–
636
123
513
636
Total
12,861
307
(4,169)
(1,020)
7,979
6,348
1,631
7,979
Recognition and Measurement
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.
Warranties
The provision for warranties relates to future warranty expense on products sold during the current and previous financial years. A
provision for warranties is recognised when the underlying products or services are sold. The provision is based on estimates made
from historical warranty data and a weighting of all possible outcomes against their associated probabilities.
Restructuring
The restructuring provision relates to the estimated costs of redundancies, site closures and product rationalisation related to
business 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.
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.
56 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT
16. 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 18.
Non-current liabilties
In thousands of AUD
Unsecured cash advance facilities
Financing facilities
Facilities available
Standby letters of credit
Bank guarantees
Unsecured cash advance facilities
Facilities utilised at reporting date
Standby letters of credit
Bank guarantees
Unsecured cash advance facilities
Facilities not utilised at reporting date
Standby letters of credit
Bank guarantees
Unsecured cash advance facilities
2018
125,000
2017
112,000
2,000
7,000
225,000
234,000
–
1,799
125,000
126,799
2,000
5,201
100,000
107,201
2,000
7,000
225,000
234,000
–
4,116
112,000
116,116
2,000
2,884
113,000
117,884
Recognition and Measurement
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.
Unsecured cash advance facility
On 23 October 2017, GWA successfully completed the extension of its syndicated banking facility. The facility comprises a single
revolving facility of $225,000,000 which matures in October 2020.
Prior to 23 October 2017 and for the year ended 30 June 2017, the facility matured in October 2019.
The loan bears interest at market rates and interest is typically payable every 30 to 90 days. The consolidated entity partially 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 agreement.
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.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
17. CAPITAL AND RESERVES
Share capital
In thousands of AUD
On issue at 1 July – fully paid
Capital return to holders of FY15 LTI grant
Ordinary shares
Number of shares
AUD
2018
263,948
–
2017
263,948
–
2018
307,838
(48)
2017
307,877
(39)
On issue at 30 June – fully paid
263,948
263,948
307,790
307,838
Ordinary Shares
Ordinary shares are classified as equity. Incremental costs (transaction costs) directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects.
Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit.
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 performance rights granted (refer Note 19).
Dividends
Dividends recognised in the current year are:
2018
Interim 2018 ordinary
Final 2017 ordinary
Total amount
2017
Interim 2017 ordinary
Final 2016 ordinary
Special 2016
Total amount
Costs per share
(In cents)
Total amount
(In thousands of
AUD)
8.5
9.0
17.5
7.5
8.0
1.0
16.5
22,436
23,755
46,191
19,796
21,116
2,639
43,551
Franked
Date of Payment
100%
100%
6th March 2018
5th September 2017
100%
100%
100%
7th March 2017
16th September 2016
16th September 2016
Dividends are recognised as a liability in the period in which they are declared. Franked dividends declared or paid during the year
were franked at the tax rate of 30%.
After the balance date the following dividends were approved by the directors. These will be paid out of the parent entity’s current
year profit at the time in accordance with the Corporations Act 2001. The dividends have not been provided for. The declaration and
subsequent payment of the dividend has no income tax consequences.
58 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
17. CAPITAL AND RESERVES CONTINUED
Costs per share
(In cents)
Total amount
(In thousands
of AUD)
Franked
Date of Payment
6th September
Final 2018 ordinary
9.5
25,075
100%
2018
The financial effect of these dividends has not been brought to account in the financial statements for the financial year ended
30 June 2018 and will be recognised in subsequent financial reports.Dividend franking account
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
2018
16,936
2017
14,770
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 above franking account balance will decrease following the payment of the final dividend declared subsequent to balance date.
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(a) Policies
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 Finance Risk Committee, which is responsible for developing and monitoring risk management policies. The Finance
Risk Committee is required to report regularly to the Board on its activities.
Risk management policies are established to identify and analyse the risk 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 Audit and Risk 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 Audit
and Risk Committee is assisted in its oversight role by the Internal Audit function. The Internal Audit function conducts both
regular and ad hoc reviews of risk management controls and procedures. The results of the reviews are reported to the Audit
and Risk 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 operating profit (earnings before interest and tax)
divided by net assets after adding back net debt.
There were no changes to the Board’s approach to capital management during the year.
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.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
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 re-measurement 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.
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.
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 hedge risk, and whether the actual results of each hedge are within a range of
80-125 percent. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should
present an exposure to variation 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.
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
as 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.
Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss.
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.
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.
(b) 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. 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 sound credit
ratings, management does not expect any counterparty to fail to meet its obligations.
The consolidated entity has three major customers which comprise 58% of the trade receivables carrying amount at 30 June 2018
(2017: 57%).
60 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(b) Credit risk continued
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
Net trade receivables
Other receivables
2018
27,860
58,518
189
86,567
2017
36,360
65,124
738
102,222
The ageing of trade receivables for the consolidated entity at balance date was 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
2018 Receivables
2018 Impairment
2017 Receivables
2017 Impairment
49,403
29,224
325
99
11
(20,543)
58,519
–
–
–
–
(1)
–
(1)
57,174
26,065
611
40
73
(18,819)
65,144
–
–
(7)
(4)
(9)
–
(20)
There were no trade receivables with re-negotiated terms.
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 losses (recognised)/written back
Provisions used during the year
Reclassification to assets held for sale
Balance at 30 June
(c) Liquidity risk
2018
(20)
3
5
11
(1)
2017
(85)
(14)
79
–
(20)
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 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.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(c) Liquidity risk continued
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
2018
Non-derivative financial liabilities
Carrying
amount
Contractual
cash flows
0-6
months
6-12
months
1-2 years
2-5 years
5+ years
Unsecured cash advance facilities
(125,000)
(135,803)
(2,357)
(2,357)
(4,714)
(126,375)
–
Trade and other payables
(42,102)
(42,606)
(41,670)
–
(117)
(351)
(468)
Derivative financial instruments
Interest rate swaps used for hedging (net)
(156)
(156)
(39)
(40)
(54)
(23)
Forward exchange contracts used for
hedging (net)
Total at 30 June 2018
4,777
4,777
3,105
(162,481)
(173,788)
(40,961)
1,672
(725)
–
–
(4,885)
(126,749)
(468)
2017
Non-derivatives financial liabilities
Unsecured cash advance facilities
(112,000)
(121,942)
(2,169)
(2,169)
(4,338)
(113,266)
–
Trade and other payables
(49,059)
(49,563)
(48,510)
–
(117)
(351)
(585)
Derivative financial instruments
Interest rate swaps used for hedging (net)
(363)
(363)
(189)
(64)
(82)
(28)
Forward exchange contracts used for
hedging (net)
Total at 30 June 2017
(d) Market risk
(2,188)
(2,188)
(1,053)
(1,135)
–
–
(163,610)
(174,056)
(51,921)
(3,368)
(4,537)
(113,645)
(585)
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 Finance Risk Committee.
(i) 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.
As at 30 June 2018, the consolidated entity had interest rate swaps in operation with a notional contract amount of $50,000,000
(2017: $75,000,000). These swaps have fixed rates ranging from 2.20% to 2.30% (2017: 2.14% to 3.42%) and mature over two to
three years. The consolidated entity classifies interest rate swaps as cash flow hedges and states them at fair value. The net fair
value of swaps as at 30 June 2018 of $156,000 was recognised as a fair value derivative liability (2017: $363,000).
62 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
–
–
–
–
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(d) Market risk continued
Profile
At balance date the consolidated entity’s interest bearing financial instruments were:
In thousands of AUD
Variable rate financial instruments
Unsecured cash advance facilities
Bank balances
Call deposits
Fixed rate financial instruments
Interest rate swap derivatives
2018
Notional
value
2018
Carrying
amount
2017
Notional
value
2017
Carrying
amount
(125,000)
(125,000)
(112,000)
(112,000)
27,860
–
27,860
–
(97,140)
(97,140)
12,872
23,488
(75,640)
12,872
23,488
(75,640)
50,000
(156)
125,000
(363)
Total
(47,140)
(97,296)
49,360
(76,003)
Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and
borrowings affected, after the impact of hedge accounting, with all other variables held constant.
The impact on the consolidated entity’s profit is affected through the impact on floating rate borrowings and derivatives. The
impact on the consolidated entity’s other comprehensive income (‘OCI’) is due to changes in the fair value of interest rate swap
contracts designated as cash flow hedges.
The assumed movement in basis points for the interest rate sensitivity analysis is considered reasonably possible given the market
forecasts available at the reporting date and the current economic environment in which the consolidated entity operates.
In thousands of AUD – Higher / (Lower)
Increase of 100 basis points (2017: 100 basis points)
Post Tax Profit
OCI (cash flow hedges, net of tax)
Decrease of 50 basis points (2017: 50 basis points)
Post Tax Profit
OCI (cash flow hedges, net of tax)
(ii) Foreign currency risk
2018
2017
(339)
579
169
(289)
(340)
1,035
170
(517)
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, RMB and NZD.
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 up to 12 months after the balance date.
As at 30 June 2018, the consolidated entity had forward exchange contracts covering 79% of its expected USD net transaction
exposure (2017: 82%), 78% of its expected RMB net transaction exposure (2017: 80%), and 77% of its expected NZD net transaction
exposure (2017: 80%) for the 12 month period after the balance date.
The consolidated entity classifies forward exchange contracts as cash flow hedges and states them at fair value. The net fair value of
contracts as at 30 June 2018 of $4,777,000 was recognised as a fair value derivative asset (2017: $2,188,000 liability).
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(d) Market risk continued
Sensitivity analysis
The following table demonstrates the impact of reasonably possible exchange rate movements with all other variables held
constant. However, 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 on the consolidated entity’s other comprehensive income (‘OCI’) is due to changes in the fair value of forward exchange
contracts designated as cash flow hedges.
The assumed movement in exchange rates for the sensitivity analysis is considered reasonably possible given the market forecasts
available at the reporting date and the current economic environment in which the consolidated entity operates.
The impact on foreign currency translation and monetary assets and liabilities not designated as cash flow hedges are not material.
In thousands of AUD – Higher / (Lower)
USD
10% increase in USD:AUD – OCI (cash flow hedges, net of tax)
10% decrease in USD:AUD – OCI (cash flow hedges, net of tax)
RMB
10% increase in RMB:AUD – OCI (cash flow hedges, net of tax)
10% decrease in RMB:AUD – OCI (cash flow hedges, net of tax)
NZD
10% increase in NZD:AUD – OCI (cash flow hedges, net of tax)
10% decrease in NZD:AUD – OCI (cash flow hedges, net of tax)
(e) Fair values
2018
2017
5,971
(4,885)
1,717
(1,405)
(889)
680
6,700
(5,482)
1,581
(1,293)
(1,015)
835
The fair value of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position
is as follows:
In thousands of AUD
Cash and cash equivalents
Trade and other receivables
Interest rate swaps used for hedging
Forward contracts used for hedging
Unsecured cash advance facilities
Trade and other payables
2018
Carrying
amount
27,860
58,707
(156)
4,777
2018
Fair value
27,860
58,707
(156)
4,777
(125,000)
(125,000)
(42,102)
(75,914)
(42,102)
(75,914)
2017
Carrying
amount
36,360
65,862
(363)
(2,188)
(112,000)
(49,059)
(61,388)
2017
Fair value
36,360
65,862
(363)
(2,188)
(112,000)
(49,059)
(61,388)
The fair value of financial instruments were estimated using the following methods and assumptions.
(i) Derivatives
Forward exchange contracts are marked to market by discounting the contractual forward price and deducting the current spot
rate. 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
Interest-bearing loans bear interest at market rates. Accordingly, the notional amount of the interest-bearing loans is deemed to
reflect the fair value.
64 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(e) Fair values continued
(iii) Trade and other receivables / payables
All current receivables / payables are either repayable within twelve months or repayable on demand. Non-current payables relate
to a supplier contractual obligation. Accordingly, the notional amount is deemed to reflect the fair value.
(iv) Interest rates used for determining fair value
The consolidated entity uses the government yield curve as at 30 June 2018 plus an adequate constant credit spread to discount
financial instruments. The interest rates used are as follows:
Derivatives
Loans and borrowings
(v) Fair value hierarchy
2018
2017
2.0% – 2.1%
3.3% – 3.8%
1.7% – 2.2%
3.2% – 3.7%
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 2018
Forward contracts used for hedging
Interest rate swaps used for hedging
30 June 2017
Forward contracts used for hedging
Interest rate swaps used for hedging
Level 1
Level 2
Level 3
Total
–
–
–
–
–
–
4,777
(156)
4,621
(2,188)
(363)
(2,551)
–
–
–
–
–
–
4,777
(156)
4,621
(2,188)
(363)
(2,551)
SECTION V. OTHER INFORMATION
19. 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), subject to meeting certain financial performance hurdles and the holder remaining in employment with the
Company until the nominated vesting date.
The performance hurdles in relation to performance rights granted to executives in the 2017/18 year and 2016/17 year are subject
to financial performance conditions which measure growth in Return on Funds Employed (ROFE) and Total Shareholder Return
(TSR) compared to a peer group of companies. The performance hurdles are challenging but achievable and focus 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.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION V. OTHER INFORMATION CONTINUED
19. SHARE-BASED PAYMENTS CONTINUED
For performance rights granted to executives in the 2017/18 year and 2016/17 year, the performance hurdles and vesting proportions
for the ROFE performance measure and TSR performance measure are outlined in the tables below.
GWA Group Limited ROFE over
three year performance period
ROFE less than 16% per annum (2016/17: 15%)
ROFE equal to 16% per annum (2016/17: 15%)
ROFE between 16% and 19% per annum
(2016/17: 15% and 18% per annum)
Proportion of Performance Rights to
Vest if ROFE hurdle is met
0%
12.5%
Straight line vesting between 12.5% and 50%
ROFE equal to 19% or higher per annum (2016/17: 18%)
50% (i.e. 50% of total grant)
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%
12.5%
Between the 50th percentile and 75th percentile
Straight line vesting between 12.5% and 50%
75th percentile or higher
50% (i.e. 50% of total grant)
Recognition and Measurement
The grant date fair value of performance rights granted to employees is recognised as a personnel expense, with a corresponding
increase in equity, evenly over the specified three year 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 meet the related service and non-market performance conditions at the vesting date. For share-based payment
awards with market based 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.
Fair Value
During the year 537,000 performance rights were granted to employees (2017: 581,500) at a weighted average fair value of $1.43
(TSR) and $2.38 (ROFE) (2017: $1.28 (TSR) and $2.11 (ROFE)).
The fair value of the performance rights granted subject to the ROFE hurdle was determined by using a Black Scholes Model.
The fair value of the performance rights granted subject to the TSR hurdle for vesting was determined by using a Monte Carlo
simulation. When determining the fair values it was assumed the Company would have a dividend yield of 5.50%, the risk free rate
was 2.19% and annualised share price volatility was 35% for the Company and its comparator companies listed for the TSR hurdle.
The amount recognised as personnel expenses (Note 4) in the current financial year was $473,879 (2017: $1,028,000).
66 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION V. OTHER INFORMATION CONTINUED
19. SHARE-BASED PAYMENTS CONTINUED
For further details of the Long Term Incentive (Equity) Plan, refer to the Remuneration Report section of the Directors’ Report.
In number of
performance rights
Grant date
Expiry date
Balance at
beginning of
the year
Granted
during
the year
Vested
during
the year
Forfeited
during
the year
Balance at
end of
the year
2018
2017
25/02/2015
30/06/2017
423,000
23/03/2016
30/06/2018
819,000
24/02/2017
30/06/2019
581,500
–
–
–
19/02/2018
30/06/2020
–
537,000
(211,500)
(211,500)
–
–
–
–
(51,250)
767,750
(116,528)
464,972
–
537,000
1,823,500
537,000
(211,500)
(379,278)
1,769,722
24/02/2014
30/06/2016
340,000
25/02/2015
30/06/2017
430,333
23/03/2016
30/06/2018
850,500
–
–
–
24/02/2017
30/06/2019
–
581,500
(170,000)
(170,000)
–
–
–
–
(7,333)
423,000
(31,500)
819,000
–
581,500
1,620,833
581,500
(170,000)
(208,833)
1,823,500
20. RELATED PARTIES
Key management personnel compensation
The key management personnel compensation included in personnel expenses (Note 4) are as follows:
In AUD
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Other long term employee benefits
2018
4,947,173
179,468
–
725,436
6,327
2017
5,694,405
288,899
100,000
718,960
6,320
5,858,404
6,808,584
Individual directors and executives compensation disclosures
Information regarding individual and executives compensation is provided in the Remuneration Report section of the Directors’ Report.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION V. OTHER INFORMATION CONTINUED
21. AUDITOR’S REMUNERATION
In AUD
Audit services
Auditor of the Company
KPMG Australia:
Audit and review of financial reports
Other assurance services
Overseas KPMG Firms:
Audit and review of financial reports
Other services
Auditors of the Company
KPMG Australia:
Other services
Overseas KPMG Firms:
Taxation services
22. OPERATING LEASE COMMITMENTS
Non-cancellable operating lease rentals are payable as follows:
In thousands of AUD
Less than one year
Between one and five years
More than 5 years
2018
2017
393,000
15,375
17,000
425,375
405,000
–
17,000
422,000
–
61,592
29,000
29,000
34,576
96,168
2018
12,897
27,498
20,064
60,459
2017
14,884
26,248
2 1 , 5 5 1
62,683
The consolidated entity leases various plant and equipment, property and motor vehicles under operating leases. These leases
typically run for a period of 2 to 10 years, with an option to renew the lease after that date. None of these leases include
contingent rentals.
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.
During the financial year ended 30 June 2018, $15,282,000 (2017: $15,276,000) was recognised as an expense in profit or loss in
respect of operating leases.
68 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION V. OTHER INFORMATION CONTINUED
23. CAPITAL COMMITMENTS
Capital expenditure commitments for plant and equipment purchases contracted but not provided for are payable as follows:
In thousands of AUD
Within one year
Between one and five years
24. CONSOLIDATED ENTITIES
Parent entity
GWA Group Limited
Subsidiaries
API Services and Solutions Pty Limited**
Austral Lock Pty Ltd
Canereb Pty Ltd
Caroma Holdings Limited
Caroma Industries Limited
Caroma Industries (NZ) Limited
Caroma International Pty Ltd
Corille Limited
Dorf Clark Industries
Dorf Industries (NZ) Ltd*
G Subs Pty Ltd
Gainsborough Hardware Industries 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
McIlwraith Davey Pty Ltd
Sebel Furniture Holdings Pty Ltd
Starion Tapware Pty Ltd
Stylus Pty Ltd
2018
1,888
–
1,888
2017
4,522
–
4,522
Parties
to cross
guarantee
Country
of incorporation
Ownership Interest
2018
2017
Y
Australia
Y
Y
N
Y
Y
N
Y
Y
Y
N
Y
Y
Y
Y
N
Y
N
Y
Y
Y
Y
Y
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
New Zealand
Australia
China
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%
* Entity liquidated and removed from NZ Companies Register on 30 April 2018.
**
Entities sold subsequent to 30 June 2018. Refer to Note 3 and Note 27. These entities have been released from their obligations under the Deed by
executing a Notice of Disposal.
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION V. OTHER INFORMATION CONTINUED
25. 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 24
are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and
Directors’ reports.
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 2018, is set out in the table 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
Tax expense
Profit from continuing operations
Profit from discontinued operations, net of tax
Net profit
Total comprehensive income, net of tax
Retained earnings / (accumulated losses) at beginning of the year
Dividends recognised during the year
Share-based payments, net of tax
Retained earnings at end of the year
2018
340,059
(192,172)
147,887
(73,556)
373
(5,187)
69,517
(20,710)
48,807
4,113
52,920
52,920
5,165
(46,191)
–
11,894
2017
329,887
(186,207)
143,680
(71,596)
571
(5,913)
66,742
(19,087)
47,655
4,420
52,075
52,075
(3,161)
(43,551)
(198)
5,165
70 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION V. OTHER INFORMATION CONTINUED
25. DEED OF CROSS GUARANTEE CONTINUED
Statement of financial position
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Other
Assets classified as held for sale
Total current assets
Investments
Deferred tax assets
Property, plant and equipment
Intangible assets
Other
Total non-current assets
Total assets
Liabilities
Trade and other payables
Employee benefits
Income tax payable
Provisions
Liabilities classified as held for sale
Total current liabilities
Trade and other payables
Intercompany payables
Loans and borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
2018
2017
25,051
61,108
63,923
2,398
61,912
214,392
11,113
9,922
14,527
282,751
296
318,609
533,001
39,919
4,308
6,388
6,347
12,025
68,987
605
7,057
125,000
4,426
1,630
138,718
207,705
325,296
307,790
5,612
11,894
325,296
33,437
62,900
69,238
2,626
–
168,201
11,113
15,846
9,993
310,167
286
347,405
515,606
48,997
6,458
7,222
10,594
–
73,271
667
6,431
112,000
7,308
2,267
128,673
201,944
313,662
307,838
659
5,165
313,662
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION V. OTHER INFORMATION CONTINUED
26. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ended 30 June 2018 the parent company of the consolidated entity was GWA Group Limited.
In thousands of AUD
Results of the parent entity
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Financial position of the parent entity
Current assets
Total assets
Current liabilities
Total liabilities
Equity of the parent entity
Share Capital
Equity compensation reserve
Retained earnings
Total equity
Parent entity contingencies
The Company
2018
2017
99,651
–
99,651
82,292
–
82,292
–
–
823,035
745,407
203
418,958
137
394,675
307,790
2,377
93,910
404,077
307,838
2,444
40,450
350,732
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 (2017: $nil).
Capital expenditure commitments
The parent entity has not entered into contractual commitments on behalf of wholly-owned subsidiaries for the acquisition of
property, plant or equipment as at reporting date (2017: $nil).
Parent entity guarantees
The parent entity in the ordinary course of business has guaranteed the performance of certain contractual commitments entered
into by 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. Further details of the Deed of Cross
Guarantee and the subsidiaries subject to the Deed are disclosed in Notes 24 and 25.
27. SUBSEQUENT EVENTS
On 3 July 2018, the sale of the Door & Access Systems business completed. The sale price of $107m comprises an initial payment
of $102m received on 3 July 2018, and a $5m contingent payment received in August 2018, and is subject to a post completion
working capital adjustment. The gain on sale (after disposal costs) is expected to be approximately $45m-$47m.
Refer to Note 3 for further information on discontinued operations.
To the Directors’ best knowledge, there are no other events that have arisen subsequent to 30 June 2018 that will, or may,
significantly affect the operation or results of the consolidated entity.
72 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
DIRECTORS’ DECLARATION
In the opinion of the directors of GWA Group Limited (the Company):
1.
The consolidated financial statements and notes, and the Remuneration Report in the Directors’ Report, are in accordance
with the Corporations Act 2001 including:
a) giving a true and fair view of the financial position of the consolidated entity as at 30 June 2018 and of its performance
for the year ended on that date; and
b) complying with Australian Accounting Standards and the Corporations Regulations 2001;
2.
There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable;
3.
There are reasonable grounds to believe that the Company and the group entities identified in Note 25 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;
4. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing
Director and the Chief Financial Officer for the financial year ended 30 June 2018; and
5.
The directors draw attention to Note 1(a) to the consolidated financial statements which includes a statement of compliance
with International Financial Reporting Standards (IFRS).
Dated at Sydney on 16 August 2018.
Signed in accordance with a resolution of the directors:
Darryl D McDonough
Director
Tim R Salt
Director
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 73
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF GWA GROUP LIMITED
REPORT ON THE AUDIT OF THE FINANCIAL REPORT
OPINION
We have audited the Financial Report of GWA Group
Limited (the Company).
In our opinion, the accompanying Financial Report of
the Company is in accordance with the Corporations Act
2001, including:
• giving a true and fair view of the Group’s financial
position as at 30 June 2018 and of its financial
performance for the year ended on that date; and
• complying with Australian Accounting Standards and
the Corporations Regulations 2001.
BASIS FOR OPINION
The Financial Report comprises:
• Consolidated Statement of Financial Position as at 30 June 2018;
• 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 then ended;
• Notes including a summary of significant accounting policies; and
• Directors’ Declaration.
The Group consists of the Company and the entities it controlled at the
year-end or from time to time during the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report
section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting
Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our
audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
KEY AUDIT MATTERS
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial
Report of the current period.
This matter was addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on this matter.
VALUATION OF INVENTORY $68.1M
Refer to Note 9 to the Financial Report
The key audit matter
How the matter was addressed in our audit
The valuation of inventory is a key audit matter as
inventory is a significant asset in the financial report
and the net realisable value is impacted by the building
industry cycles and changes in consumer preferences.
This necessitated an additional focus on excess and
discontinued inventory SKU’s (stock keeping unit) and
judgemental valuation assumptions.
We focused on the following elements of the Group’s
estimation of the valuation of inventory:
• Criteria for categorisation of inventory SKU’s by risk,
such as discontinued, excess or current range, as they
attribute different values;
• Evaluation of volume of inventory, as this may
influence categorisation and therefore attribute
different values. This included excess inventory
volumes, determined by the Group with reference
to inventory with volumes greater than the last
12 months’ sales;
• Expected forecast demand, and assumptions
associated to the forward-looking estimation;
•
Assessing the impact of inventory sold in the current
year below cost.
Our procedures included:
• We assessed the accuracy of previous Group forecasts by inventory
SKU by comparing forecast demand to actual sales in the prior period.
This informed our evaluation of forecasts incorporated in the inventory
provision calculation in the current year.
• We tested the completeness of inventory identified as excess or
discontinued as follows:
» We assessed the Group’s calculation for identifying excess inventory.
We did this by performing our own calculation based on sales data
for the last 12 months and comparing the results. We considered the
impact on our audit of any exceptions. Where relevant, we obtained
underlying documentation from the Group to evaluate exceptions; and
» We compared inventory SKU’s to be discontinued to the approved
discontinued inventory report used by the Group in assessing the
recoverable value of inventory.
• We independently developed an expected inventory valuation range by
considering the following:
Inventory turnover rate by inventory SKU;
»
» Recovery rates achieved historically when selling discontinued
inventory. We considered the historical quantum recovered
compared to the original cost; and
» Overall recoveries achieved for sales recorded below original cost.
• We compared our estimated inventory valuation range to the inventory
value recorded by the Group.
74 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF GWA GROUP LIMITED
CONTINUED
OTHER INFORMATION
Other Information is financial and non-financial information in GWA Group’s annual reporting which is provided in addition to the
Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information.
Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or
any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider
whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we
have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report
RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL REPORT
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the
Corporations Act 2001
•
implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free
from material misstatement, whether due to fraud or error
• assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of
accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic
alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL REPORT
Our objective is:
•
to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to
fraud or error; and
•
to issue an Auditor’s Report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian
Auditing Standards will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of this Financial Report.
A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards
Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report.
REPORT ON THE REMUNERATION REPORT
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of GWA Group
Limited for the year ended 30 June 2018, complies with
Section 300A of the Corporations Act 2001.
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 responsibilities
We have audited the Remuneration Report included in the Directors’ report
for the year ended 30 June 2018.
Our responsibility is to express an opinion on the Remuneration Report,
based on our audit conducted in accordance with Australian Auditing
Standards.
KPMG
Julie Cleary
Partner
Sydney, 16 August 2018
GWA GROUP LIMITED | 2018 ANNUAL REPORT | 75
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES 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 of GWA Group Limited for the financial year ended
30 June 2018 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
16 August 2018
Julie Cleary
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
76 | GWA GROUP LIMITED | 2018 ANNUAL REPORT
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
OTHER STATUTORY INFORMATION
AS AT 15 AUGUST 2018
STATEMENT OF SHAREHOLDING
In accordance with the Australian Securities Exchange Listing Rules, the directors state that, as at 15 August 2018, 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
1,594
3,277
1,382
952
70
7,275
703,433
8,990,965
10,088,746
20,082,493
224,081,993
263,947,630
%
0.27
3.41
3.82
7.61
84.90
100.00
The number of shareholders with less than a marketable parcel of 144 shares is 456.
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 15 August 2018:
Shareholder
Commonwealth Bank of Australia
Investors Mutual Limited
20 LARGEST SHAREHOLDERS AS AT 15 AUGUST 2018
Shareholder
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
Citicorp Nominees Pty Limited
HGT Investments Pty Ltd
KFA Investments Pty Ltd
Erand Pty Ltd
National Nominees Limited
JMB Investments Pty Ltd
Ashberg Pty Ltd
Theme (No 3) Pty Ltd
BNP Paribas Nominees Pty Ltd
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