2019
ANNUAL REPORT
FY19 PERFORMANCE HIGHLIGHTS
GWA delivers solid full year result
Continued market share growth with revenue and
margins maintained despite challenging market conditions
NORMALISED1 FROM
CONTINUING OPERATIONS2
REVENUE
$381.7 million 6.4%
EBITDA
$82.3 million 2.7%
EBIT
$77.4 million 1.5%
NPAT
$51.8 million 3.2%
OPERATING CASHFLOW
$94.2 million 64.4%
EPS
19.6 cents 3.2%
Reported Net Profit After Tax3 for the
period was $95.0 million compared to
$54.3 million for the prior year
$95.0 million
Full year dividend 18.5 cents per
share, fully franked, up 2.8%
2.8%
Acquisition of Methven increases
presence in renovation and replacement
segment, taps & showers and select
international markets
Caroma Smart Command® gaining
market traction and was awarded the
highest award (Best in Class) in product
design, hardware and building at the
Good Design Awards in July 2019
1
Normalised is before $8.7 million in significant items (pre-tax)
and $7.6 million in significant items (after tax) relating to transaction
and integration costs associated with the acquisition of Methven.
2 Continuing Operations include the revenue and earnings contribution
from Methven from the effective date of acquisition, 10 April 2019,
but exclude the Door & Access Systems’ business which was sold
on 3 July 2018.
3 Reported net profit includes the $50.8 million after tax profit from
the sale of the Door & Access Systems’ business which was sold on
3 July 2018, and $7.6 million in significant items (after tax) relating
to transaction and integration costs associated with the acquisition
of Methven.
IN THIS REPORT
Five Year Financial Summary
Company Profile
Strategic Summary
Chairman’s Review
Managing Director’s Review of Operations
1
2
3
4
7
Board of Directors
Directors’ Report
Financial Report
Other Statutory Information
Shareholder Information
12
14
33
80
81
FIVE YEAR
FINANCIAL SUMMARY
Continuing operations(1)
Revenue from continuing operations
Earnings before interest, tax, depreciation,
amortisation (EBITDA) and significant items(3)
EBITDA margin (%)
Depreciation and amortisation
2014/15
$’000
426,218
2015/16
$’000
439,666
2016/17
$’000
350,437
2017/18
$’000
358,622
2018/19
$’000
381,730
81,734
19.2
84,250
78,423
(8,970)
(5,985)
19.2
22.4
(4,122)
80,171
22.4
82,339
21.6
(3,929)
(4,958)
Earnings before interest, tax (EBIT) and significant items(3)
72,764
78,265
74,301
76,242
EBIT margin (%)
Interest (net)
Normalised profit before tax(3)
Normalised profit before tax margin (%)
17.1
17.8
(7,329)
(6,508)
65,435
15.4
71,757
16.3
21.2
(5,338)
68,963
19.7
21.3
(4,813)
71,429
19.9
77,381
20.3
(3,761)
73,620
19.3
Tax expense on normalised profit
(20,278)
(19,837)
(19,712)
(21,290)
(21,863)
Effective tax rate (%)
Normalised profit after tax(3)
Significant items after tax
Net profit after tax from continuing operations
31.0
45,157
(34,796)
10,361
Profit/(loss) from discontinued operations (net of income tax)
(26,544)
Net profit/(loss) after tax for the period
Net cash from operating activities
Capital expenditure
Net debt(4)
Shareholders' equity
Other Ratios and Statistics
Interest cover (times)(7)
Gearing: net debt/(net debt + equity) (%)(4)
Return on shareholders' equity (%)
Dividend payout ratio (%)(6)
Dividend per share (cents)(8)
Franking (%)
Capital return (cents)(5)
Share price (30 June) ($)
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)
(1)
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 FY15 and FY16 and presented separately from the results of
continuing operations. FY15 and FY16 includes the operating activities of
Door and Access Systems as part of continuing operations.
(2) Excludes significant items.
(3) 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.
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
(16,183)
43,505
5,062
94,763
305,894
307,698
320,603
333,401
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
29.7
51,757
(7,597)
44,160
50,802
94,962
56,178
4,326
141,930
373,793
23.5
27.5
25.4
51.4
18.5
100
–
3.42
5.4
665
36.0
16.7
19.6
(4) Net debt reflects the Group’s borrowings and bank guarantees less cash
(including cash classified within assets held for sale).
(5) 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.
(6) 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 was 84.7%. FY19’s normalised dividend
payout ratio was 94.3%.
(7) Interest cover (times) is calculated using EBITDA excluding non-recurring
other significant items divided by net interest expense.
(8) Dividend per share includes ordinary and special dividends.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 1
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 1
COMPANY PROFILE
We make life better with
superior solutions for water.
GWA Group Limited (GWA) listed on the Australian Securities
Exchange in May 1993 and is a leading supplier of building fixtures
and fittings to households and commercial premises. The Group has
sales and distribution facilities located across its primary markets
in Australia, New Zealand, United Kingdom and China and has
manufacturing facilities in New Zealand and China.
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, Methven, Dorf and Clark.
GWA has grown since listing through the strong performance of its
Bathrooms & Kitchens business and strategic acquisitions. The Group
remains committed to growing shareholder value through its 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 | 2019 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 | 2019 ANNUAL REPORT | 3
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 3
CHAIRMAN’S
REVIEW
During the year the Group successfully
completed the divestment of its Door
& Access Systems’ business, acquired
Methven Ltd and delivered a solid
financial result for shareholders.
GWA is singularly focused on driving growth opportunities
and sustainable value creation for shareholders over the
medium term.
The Group continued to grow market share and maintain
margins in what was a challenging market. The growth of
market share and maintenance of margins reinforces our
competitive position.
FINANCIAL RESULTS
Normalised1 Group Net Profit After Tax from Continuing
Operations2 was $51.8 million compared to $50.1 million
for the prior year.
Total Revenue increased by 6.4 per cent to $381.7 million
compared to $358.6 million last year with normalised1 Group
EBITDA increasing by 2.7 per cent to $82.3 million with
normalised1 Group EBIT improving 1.5 per cent to $77.4 million.
GWA’s reported Net Profit After Tax3 for the period was
$95.0 million which includes the $50.8 million after tax profit
from the sale of the Door & Access Systems’ business which
was finalised on 3 July 2018, and $7.6 million in significant
items (after tax) relating to transaction and integration costs
associated with the acquisition of Methven.
Reported earnings per share were 36.0 cents compared
to 20.6 cents in the prior year. An outstanding result by
any measure.
DIVIDENDS AND CAPITAL MANAGEMENT
The Board resolved to pay a final dividend of 9.5 cents per
share, fully franked, bringing the full-year dividend to 18.5 cents
per share, compared with 18.0 cents per share for the prior year.
The full year dividend represents a normalised dividend payout
ratio of 94.3 per cent which is higher than the company’s
dividend policy. However, the Board believes the level of
dividend is appropriate and strikes the right balance between
immediate returns to shareholders and investment for future
growth, coupled with the expectation that Methven will
positively contribute to future earnings growth.
During the year, net debt increased to $141.9 million compared
to $97.7 million in the prior year which reflects the acquisition of
Methven which was funded from GWA’s existing debt facilities4.
4 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
The Group remains in a strong financial position.
Net Debt ($m)
GWA’s financial metrics, including leverage, gearing and interest
cover ratios remain consistent with investment grade.
STRATEGY
Over the past two years, GWA has articulated that its
strategy is to focus on developing and delivering superior
solutions for water.
In that context we have identified growth opportunities to
leverage our market- leading brands in the Bathrooms & Kitchens
fixtures sector to maximise value creation for shareholders.
The two major transactions completed during the year were
key components in delivering this strategy.
We successfully divested the Door & Access Systems’ business
which was considered non-core to this strategy for a multiple
of 11.1 times earning5, realising a profit on sale of $50.8 million.
We subsequently acquired Methven Ltd, a leading taps,
showers and valves business, which is strongly aligned to
our strategic focus on water solutions, for a lower multiple
(10.1 times earnings)6.
Your Board believes the transactions represent an effective
use of shareholder funds in the creation of value over the
medium term.
Importantly, the acquisition of Methven has strengthened
our core business in Australia and New Zealand while also
providing us with the opportunity to leverage Methven’s
presence in international markets to accelerate growth
opportunities over the medium term.
The Managing Director’s Review of Operations provides
more detail on the significant progress made on GWA’s
strategy during the year and I encourage you to read that.
SUSTAINABILITY
GWA remains committed to sustainable practices throughout
its operations and we continue to work with our key
stakeholders and communities.
Sustainability is at the core of our business.
18/19
17/18
16/17
15/16
14/15
0
50
100
150
200
GWA remains in a strong financial position with net debt at 30 June 2019
of $141.9 million. The increase in net debt in FY19 reflects the acquisition
of Methven partially offset by the proceeds from the sale of Door &
Access Systems.
Dividend per share (cents)
18/19
17/18
16/17
15/16
14/15
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 FY19 dividend to 18.5 cents per
share fully-franked.
1
Normalised is before $8.7 million in significant items (pre-tax) or $7.6 million
(post tax) relating to transaction and integration costs associated with the
acquisition of Methven.
2 Continuing Operations include the revenue and earnings contribution from
Methven from the effective date of acquisition, 10 April 2019, but exclude
the Door & Access Systems’ business which was sold on 3 July 2018.
3 Reported net profit includes the $50.8 million after tax profit from the sale
of the Door & Access Systems’ business which was sold on 3 July 2018,
and $7.6 million in significant items (after tax) relating to transaction and
integration costs associated with the acquisition of Methven.
4 The net debt position was assisted by the receipt of the net proceeds from
the sale of the Door & Access Systems’ business.
5 EV/EBITDA.
6 EV/FY18 EBITDA excluding synergies. Purchase price of NZ$1.60 per share
and Methven net debt, as reported at 30 June 2018, of NZ$22.6m.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 5
As foreshadowed in last year’s Annual Report, GWA has this
year introduced a separate Sustainability Report to provide
shareholders and other stakeholders with detailed information
on our approach to sustainability.
The report will include information and data on important
sustainability metrics such as workplace health and safety,
environment, governance and risk management, community
and our people (including diversity, education and training).
Across GWA, our approach to sustainability is based around
two central objectives:
• We operate in a sustainable manner across our business
by managing our resources as efficiently as possible and
act in a socially responsible manner; and
• We provide a range of products and systems that set the
standard for water sustainability in the built environment.
Your company continues to make significant progress in
addressing these objectives.
Workplace Health and Safety – GWA’s safety performance
improved in FY19 and the company has robust plans in place
for continued improvement this year.
The Board and management have a singular focus on initiatives
to improve GWA’s safety performance and culture, with the aim
of achieving and maintaining an injury free workplace.
Diversity – GWA is committed to promoting diversity and
inclusion through the implementation of employment policies
and initiatives to achieve a diverse workforce. GWA’s overall
workforce has 39 per cent female representation. This increased
by two percentage points in this last year. Female representation
across all levels of management increased this year with
65 per cent of all promotions being female.
The recent appointment of Alison Barrass as a Non-executive
Director (see below) increased female representation on GWA’s
board to 25 per cent.
Environment – The launch of our latest innovation, Caroma
Smart Command®, an intelligent bathroom system to monitor
and manage water in the built environment, further enhances
Caroma’s reputation and commitment to reducing water usage
in the built environment.
The system was awarded Best in Class in product design,
hardware and building at the Good Design Awards in July 2019
while Caroma’s design team was awarded the Design Team of
the Year award. Both are outstanding achievements by your
company and its employees.
The Caroma National Innovation and Distribution Centre in
Prestons, NSW was awarded a 5 Star Green Star rating which
represents Australian excellence in sustainable design and
construction. Yet another outstanding achievement.
Shareholders are able to see more details on the initiatives in
the Sustainability Report which will be available on the Group’s
website in September 2019.
EXECUTIVE REMUNERATION
During the year, the Board undertook a review of its executive
remuneration structure with the invaluable assistance of an
independent remuneration consultant. The review was designed
to ensure our structure remains aligned with the Board’s
remuneration strategy and market practice.
The review concluded that the Group’s remuneration framework
is fit for purpose and aligned with its growth strategy and
market practice. There are some changes as a consequence
of the review which are outlined in the Remuneration Report
and these will be implemented this year.
The Board seeks to remunerate executives on a fair basis that is
sufficient to attract and retain a high-quality management team
with the requisite experience, knowledge, skills and judgement
required for the business.
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.
In FY16 the remuneration package for the Managing Director,
Tim Salt, was determined by the Board 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.
The short-term incentive payments for the Managing Director
and other executives for FY19 reflect the improving safety
record, earnings growth and continuing gains in market share
in core segments. The result was achieved at a time of
challenging market conditions and enabled the Board to
maintain the high dividend payout to shareholders for FY19.
BOARD APPOINTMENT
The Board was pleased to welcome Alison Barrass as a
Non-executive Director to the Board in May 2019. Alison
was the Chair of Methven and brings wide-ranging experience
across several industries which will be a strong complement
to our Board.
Her direct industry experience and knowledge as the recent
Chair of Methven is an invaluable addition to the Board as we
move to finalise the integration of the Methven business in order
to leverage growth opportunities of the combined group as part
of our water solutions strategy.
CONCLUSION
GWA continues to execute on its strategy for the benefit
of its shareholders.
We have focused and strengthened the business and enhanced
our competitive position so that we might continue to maximise
returns to shareholders.
On your behalf and 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
significant positive contribution over the year.
Finally, I welcome the Methven team and I look forward to
their contribution to the company.
6 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
MANAGING DIRECTOR’S
REVIEW OF OPERATIONS
FY19 was a significant year of transformation
for GWA. The successful divestment of the
Door & Access Systems’ business enabled
GWA to focus on executing our superior
solutions for water strategy.
SUMMARY
We further progressed this strategy with the acquisition of
Methven Ltd (Methven), a leading taps, showers and valves
business on 10 April 2019.
As a result, GWA has built greater scale in its core Australia
and New Zealand business and enhanced the regional diversity
of our revenue and earnings. We are now focused on further
strengthening our Australia and New Zealand business and
leveraging Methven’s presence in international markets to
accelerate growth opportunities across both the Methven and
Caroma brands aligned to our core focus on water solutions.
GWA has continued to work more collaboratively with primary
and secondary customers and improve our engagement with
end consumers.
This has resulted in the fourth consecutive year of continuing
market share growth in FY19. This share growth and ongoing
focus on cost efficiency throughout our business has enabled
GWA to deliver a solid financial result in a market that declined
in the second half of FY19.
Pleasingly, we have also maintained our EBIT margin in our
Bathroom & Kitchens (ex Methven) business despite the
decline in market conditions.
Additionally, GWA continues to generate strong operating
cashflow from continued improvements in working capital
management.
The broad opportunities arising from the acquisition of Methven
Ltd and the launch of Caroma Smart Command®, our intelligent
bathroom system that enables GWA to monitor and manage
water in the built environment, represent significant milestones
to create a stronger platform for medium term growth across
our business.
MARKET CONDITIONS IN FY19
In total, GWA estimates that the Bathroom and Kitchen fixtures
market declined by approximately 1.4 per cent for the year
ended 30 June 2019.
The market slowdown was driven primarily by the reduction
in activity in the residential new build segment and a small
reduction in residential renovation activity. Weak consumer
sentiment impacted retail spending and, coupled with house
price declines and lower housing sales volumes, contributed
to the market decline.
However, commercial activity remained robust, particularly
in Victoria and NSW.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 7
The system has been successfully installed in eighteen sites
with a solid bank of additional projects in the pipeline. To date
four customers have been migrated to the cloud dashboard3
with a majority of future clients expected to migrate to the
cloud solution.
We are now exploring international expansion options for Caroma
Smart Command® through GWA-generated leads and from
leveraging Methven’s footprint across South East Asia and China.
Caroma Smart Command® was awarded the highest award
(Best in Class) in product design, hardware and building at the
Good Design Awards in July 2019 while Caroma’s design team
was awarded the Design Team of the Year award.
These initiatives have enabled GWA to maintain revenue and
improve share in a market which declined on the prior year.
Business Efficiency/Best Cost – continuous improvement to
support profitability and fund selective reinvestment
GWA is continuing to target cost efficiencies and is on track to
deliver its $9-12 million cost out programme by FY21 with cost
savings of approximately $3 million achieved in FY19, primarily
from procurement, network optimisation and warehousing.
These cost savings are being used to selectively re-invest in
the business and maintain margins.
UPDATE ON METHVEN INTEGRATION
GWA acquired Methven Ltd (Methven) on 10 April 2019.
The acquisition was funded from GWA’s existing debt facilities.
Methven is a leading New Zealand-based designer and
manufacturer of showers, taps and valves which also has a strong
presence in the Australia market and an international footprint.
For the year ended 30 June 2019, Methven’s pro-forma revenue
was $95.1 million compared to $94.7 million for the prior year.
Pro-forma EBIT was $6.6 million compared to $9.8 million in FY18.
The decline in housing activity, particularly in the second half
of the year, and delayed new product development, impacted
Methven’s FY19 performance.
However, the strategic rationale for the acquisition remains
compelling.
The acquisition strengthens GWA’s core Australia/New Zealand
business while enabling GWA to leverage Methven’s presence in
international markets to accelerate growth opportunities across
both the Methven and Caroma brands.
It also increases GWA’s exposure to the more resilient Renovations
and Replacements segment from 52 per cent to 55 per cent in
Australia and to approximately 59 per cent globally.
GWA and Methven are an excellent fit of two like-minded
companies. We can combine GWA’s and Methven’s talent,
know-how and intellectual property to develop new products
and solutions aligned to our strategy to deliver further value
for our customers and shareholders.
For FY191:
• Home Renovations and Replacements market segment
declined by approximately 1 per cent. (This segment
accounted for approximately 52% of GWA revenue).
• Detached House completions decreased by approximately
3 per cent. (This segment accounted for approximately
20% of GWA revenue).
• Medium and high-density dwelling completions decreased
by approximately 4 per cent. (This segment accounted for
approximately 12% of GWA revenue).
• On a value of work done basis, Commercial building activity
increased by approximately 1 per cent. (This segment
accounted for approximately 16% of GWA revenue).
PROGRESS ON STRATEGY
I am pleased with the ongoing progress GWA made in executing
our strategy over the course of the year.
Customer Focused – add value to customers through
superior execution, insights, analytics and processes
We continued to build joint business plans with our key primary
merchant customers and increased our penetration with
secondary customers such as plumbers, developers, aged
care providers and builders.
The successful execution of these plans is resulting in enhanced
ranging of GWA products in showrooms and trade counters.
We have also made progress in engaging more collaboratively
with customers in targeting specific growth segments such as
aged care/health care and commercial renovation with strong
year on year sales growth in these segments.
We are also working with customers on the continued transition
of sanitaryware products to Caroma Cleanflush. As a result,
Caroma Cleanflush sales increased by 24 per cent this year and
now represent approximately 31 per cent of sanitaryware sales
which also contributes positively to sales mix.
Consumer Driven – deliver experiences to excite
consumers and drive revenue and market share growth
We continue to invest in marketing activities to ensure
our brands resonate more effectively with end consumers,
particularly in our core market of Residential Renovation
and Replacements.
An independent brand study2 concluded that Caroma is the
most recognised brand among target consumers with the
highest brand favourability rating and strong consumer
engagement score.
Key metrics of foot traffic and sales conversion at our two
flagship stores in Adelaide and Sydney have improved during
the year, providing a compelling physical brand and product
experience for customers and consumers alike.
The launch of our intelligent bathroom system, Caroma Smart
Command®, continues Caroma’s pioneering approach to delivering
superior sustainable water solutions in the built environment.
Caroma Smart Command® includes a set of Bluetooth-enabled,
touchless bathroom products that enable monitoring and
management of water usage in commercial buildings.
1 Segment Revenue exposure in FY19 excludes Methven.
2 2019 Incanta quantitative brand tracking report.
3 The Caroma Smart Command Cloud platform provides an efficient means
of deploying changes to bathroom fixtures across the enterprise from
a central/remote location. Using the Caroma Smart Command Cloud
platform, the facilities managers can make informed decisions about
water usage in one place.
8 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
The two businesses were operated in parallel from acquisition to
30 June 2019 to allow time for integration plans to be developed
to capture at least NZ$5 million in cost synergies by FY21 and to
identify revenue opportunities to leverage the scale and segment
and geographic reach of both businesses.
Total Revenue for FY19 was $381.7 million compared to
$358.6 million for the prior year.
Group EBITDA increased by 2.7 per cent to $82.3 million
while Group EBIT improved by 1.5 per cent to $77.4 million.
We have now implemented an integrated sales structure
focused on key segments, supported by group functions,
which is fundamental to delivering these synergy and
revenue opportunities.
GWA is leveraging its leading market position to rebuild Methven
momentum in the Australia and New Zealand markets and to
further build on Methven’s international growth.
Group Financial Results – Continuing Operations
(Normalised – Before Significant Items)
A$ million
(Before Significant Items)
FY18
FY19
% change
Revenue
EBITDA
EBIT
NPAT
Earnings Per Share (cents)
358.6
381.7
80.2
76.2
50.1
19.0
82.3
77.4
51.8
19.6
6.4%
2.7%
1.5%
3.2%
3.2%
Group Financial Results from Continuing Operations include
the revenue and earnings contribution from Methven from the
effective date of acquisition – 10 April 2019 – but exclude the
Door & Access Systems’ business which was sold on 3 July 2018.
Normalised Results exclude $8.7 million of significant items
(pre-tax) ($7.6 million post tax) relating to costs associated
with the acquisition and integration of Methven.
Net Profit After Tax was $51.8 million compared to $50.1 million
for the prior year.
GWA’s earnings per share were 19.6 cents compared to
19.0 cents for the prior year.
Continuing Operations excluding Methven
Excluding Methven, GWA’s normalised EBIT from Continuing
Operations was $76.4 million which is consistent with the
guidance provided at the half year result in February 2019.
Group EBIT Margin from Continuing Operations was steady
at 21.3 per cent while ROFE was 20.2 per cent compared to
21.3 per cent for the prior year due to the increase in funds
employed from prior investment in growth initiatives.
Reported Results – Continuing (including Methven)
and Discontinued Operations
A$ million
(unless specified)
Revenue
EBITDA
EBIT
NPAT
Earnings Per Share (cents)
FY18
452.5
87.6
82.6
54.3
20.6
FY19
% change
381.7
123.7
118.7
95.0
36.0
(15.6)%
41.2%
43.7%
75.0%
75.1%
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 9
GWA’s reported net profit after tax for the period was $95.0 million.
Reported net profit includes the $50.8 million after tax profit
from the sale of the Door & Access Systems’ business which was
sold on 3 July 2018, and $7.6 million in significant items (after tax)
relating to transaction and integration costs associated with the
acquisition of Methven.
Reported earnings per share were 36.0 cents compared to
20.6 cents in the prior year.
CONTINUED STRONG IMPROVEMENT IN
CASH FLOW FROM OPERATIONS
GWA continues to generate strong operating cashflow, maintaining
the significant improvement in cashflow from operations from
the first half.
Cashflow from operations in FY19 was $94.2 million compared
to $57.3 million in the prior year.
Cash conversion was particularly strong with the cash conversion
ratio from Continuing Operations 115%.
The 30,000 square metre Caroma Innovation and Distribution
Centre at Prestons, NSW which has been operational since May
2018 is continuing to assist in driving more efficient inventory
and working capital management. Debtor management also
contributed to improved working capital.
Capital expenditure was $4.3 million in FY19 compared to
$11.3 million for the prior year reflecting management’s decision
to delay some specific projects in light of the Methven acquisition.
FINANCIAL POSITION AND CAPITAL
MANAGEMENT
GWA remains in a strong financial position.
Net debt as at 30 June 2019 was $141.9 million compared
to $97.7 million for the prior year.
4 Includes pro-forma 12 months Methven EBITDA.
10 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
The increase in net debt in FY19 reflects the acquisition of
Methven which was funded from GWA’s existing debt facilities,
partially offset by the net proceeds from the sale of Door &
Access Systems which were applied to net debt.
In April 2019, GWA increased its three-year revolving $225 million
debt facility maturing in October 2020 by a further $25 million
to provide additional financial flexibility for the group.
GWA’s credit metrics remain consistent with investment grade
with the company’s gearing ratio (net debt/net debt plus equity)
of 27.5 per cent compared to 22.7 per cent at 30 June 2018 and
leverage ratio (net debt/EBITDA4) of 1.6x times compared to
1.1 times for the prior year.
GWA’s interest cover ratio (EBITDA/net interest) was 23.5 times
at 30 June 2019 compared to 19.6 times last year.
DIVIDEND
The Board resolved to pay a final dividend of 9.5 cents per share,
fully-franked, bringing the full-year dividend to 18.5 cents per
share, fully-franked compared with 18 cents per share for the
prior year – an increase of 2.8 per cent.
This represents a normalised dividend payout ratio of 94.3 per cent.
While this is higher than the company’s dividend policy to pay
out as ordinary dividends 65-85 per cent of net profit after
tax, the Board believes the level of dividends is appropriate
and strikes the right balance between immediate returns to
shareholders and investment for future growth while expecting
that Methven will contribute positively to future earnings growth.
The record date for entitlement to receive the final dividend will
be 27 August 2019 with the dividend being paid on 4 September
2019. The Dividend Reinvestment Plan will not be offered to
shareholders for the final dividend.
GWA Bathrooms & Kitchens (ex Methven and ex Corporate)
In a declining market, GWA Bathrooms & Kitchens (ex Methven)
delivered continued market share gains in core categories.
Strong focus on cost containment enabled Bathrooms & Kitchens
to maintain EBIT margins despite weaker market conditions for
the year.
A$ million
(unless specified)
Revenue
EBIT
FY18
358.6
89.8
FY19
358.7
90.2
% change
–
0.5%
EBIT Margin
25.0%
25.2%
0.2 ppts
Return on Funds
Employed (ROFE)
24.6%
24.0%
(0.6) ppts
GWA’s Bathrooms & Kitchens’ business performed solidly in a
market which declined over the year.
Revenue was steady on the prior year at $358.7 million despite
a 1.4 per cent decline in GWA’s addressable market for the year.
Weaker consumer sentiment, credit tightening and falling
house prices are expected to lead to a small decline in
GWA’s addressable market in FY20, driven predominantly
by the residential new build segment in multi-residential
and detached housing.
However, more recent changes to personal income taxes and
interest rate reductions, coupled with relaxation of lending
requirements, are expected to make this decline both shallower
and shorter than previously anticipated.
The residential renovation and replacement segment is expected
to moderate slightly. GWA will continue to execute focused
customer and consumer initiatives to generate share growth
in this segment in particular.
Commercial activity across both new build and renovation
and replacement is expected to remain strong, primarily
on the eastern seaboard, driven by both government and
non-government spending over the next 24 months in areas
including health & aged care, hotels and offices. The Group
is well placed to take full advantage in this segment.
Net sales performed ahead of the market from continued
profitable market share growth in GWA’s core segments and
new product development.
GWA’s commercial forward order book remains strong with
several major Commercial projects secured, primarily across
the eastern states.
Geographically, revenue was stronger in the eastern states with
net sales in VIC up 10 per cent, NSW up by 2 per cent, as well as
SA up 3 per cent and NZ up 7 per cent; partially offset by weaker
market conditions in QLD and WA where sales declined by (12)
and (11) per cent respectively.
Sanitaryware sales benefitted from the continued strong market
response to the Caroma Cleanflush range of rimless toilets,
with Cleanflush sales increasing by 24 per cent compared to
the prior period. Tapware sales declined, lapping new product
development launched into a major customer in the prior year.
Ongoing cost discipline from SG&A efficiencies and continued
optimisation of the Group’s supply chain to deliver the
$9 – 12 million in cost savings by FY21 has enabled GWA to
increase its investment in marketing, flagship stores and
Caroma Smart Command® while maintaining EBIT margin.
EBIT margin of 25.2 per cent was slightly ahead of the prior
year of 25.0 per cent.
Bathrooms & Kitchens’ normalised EBIT for FY19 was
$90.2 million compared to $89.8 million for the prior year.
FY20 MARKET OUTLOOK
GWA is now a stronger more focused business following the
divestment of the Door & Access Systems’ business and the
subsequent acquisition of Methven.
Importantly, GWA has a demonstrated track record of
outperforming the sector even in challenging environments.
GWA has strategies to focus on areas of opportunity
and is building capabilities and solutions to capitalise
on those opportunities.
GWA’s priorities in FY20 are focused on driving revenue
opportunities to continue to deliver above market sales growth
while maintaining cost discipline for margin maintenance and
continued investment in medium term growth initiatives.
In terms of revenue opportunities, GWA is focused on
increasing market share through its focus on: renovation
across both commercial and residential segments; customer
value add and consumer engagement initiatives; growing
Methven in Australia and New Zealand by leveraging GWA’s
scale and customer relationships.
GWA will also drive Methven and Caroma revenue opportunities
in Asia and the United Kingdom. In addition, we will continue to
expand and invest in Caroma Smart Command® across
all markets.
Price increases are planned in FY20 to offset cost inflation
in conjunction with other cost saving initiatives.
On cost discipline, GWA will deliver the second year of its
$9 – 12 million cost out programme and is on track to realise
at least NZ$5 million Methven integration savings by FY21.
GWA monitors foreign exchange rates closely and adopts
appropriate mitigation strategies. Approximately 77 per cent
of US dollar exposure is hedged to 30 June 2020 at US$72 cents.
GWA expects to provide an update on trading at the Company’s
Annual General meeting on 25 October 2019.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 11
BOARD OF
DIRECTORS
DARRYL MCDONOUGH
BBUS (ACTY), LLB (HONS), SJD, FCPA, FAICD
PETER BIRTLES
BSC, ACA, MAICD
INDEPENDENT CHAIRMAN AND NON-EXECUTIVE DIRECTOR
INDEPENDENT NON-EXECUTIVE DIRECTOR
Expertise: Experienced Non-Executive Director
Special Responsibilities: Chairman of Board and
member of Nomination and Remuneration and Audit
and Risk Committees
Expertise: Chartered Accountant, retail, financial
and operational
Special Responsibilities: Member of Audit and
Risk Committee
Mr McDonough was appointed Deputy Chairman and
Non-Executive Director of GWA Group Limited in 2009 and
Chairman effective 31 October 2013. He has over 30 years of
experience as a director and corporate lawyer. He has served
as a director of a number of public companies in the past,
including Bank of Queensland Limited and Super Retail Group
Limited. He is a Past-President of The Australian Institute of
Company Directors, Queensland Division.
JOHN MULCAHY
PHD (CIVIL ENGINEERING), FIE AUST
INDEPENDENT DEPUTY CHAIRMAN AND
NON-EXECUTIVE DIRECTOR
Expertise: Engineer, banker and experienced public
company director
Special Responsibilities: Deputy Chairman of Board and
Chairman of Nomination and Remuneration Committee
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
and is Chairman of Mirvac Group Limited and a Non-Executive
Director of ALS Limited. He is the former Managing Director and
Chief Executive Officer of Suncorp Group Limited (“Suncorp”).
Prior to joining Suncorp, he held a number of senior executive
roles at the Commonwealth Bank and Lend Lease Corporation.
During the past three years Mr Mulcahy has served as a director
of the following listed companies for the time periods noted:
• Mirvac Group Limited since 2009*
• ALS Limited since 2012*
• Coffey International Limited 2009 to 2016
Mr Birtles was appointed a Non-Executive Director of GWA
Group Limited in 2010. He is a Chartered Accountant and is
the former Managing Director and Chief Executive Officer of
Super Retail Group Limited (“Super Retail”). He was formerly
the Chief Financial Officer of Super Retail. Prior to joining Super
Retail, he held a variety of finance, operational and information
technology roles with The Boots Company in the United
Kingdom and Australia and worked for Coopers & Lybrand.
He is also a director of Metcash Limited, Apparel Group
(Hong Kong) Limited and APG & Co Pty Ltd.
During the past three years Mr Birtles has served as a director
of the following listed companies for the time periods noted:
• Metcash Limited since August 2019*
• Super Retail Group Limited since 2006 to 2019
TIM SALT
BSC
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER
Expertise: Extensive global experience in managing market
leading branded portfolios
Mr Salt was appointed Managing Director and Chief Executive
Officer of GWA Group Limited on 1 July 2016. He was appointed
Executive General Manager of GWA Bathrooms & Kitchens in
September 2015 and Chief Executive Officer of GWA Group
Limited on 1 January 2016.
Originally from the UK, Mr Salt was appointed Managing
Director at Diageo Australasia in July 2008. As Managing
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.
*denotes current directorship
12 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
JANE McKELLAR
BA, MA (HONS), GAICD
STEPHEN GODDARD
BSC (HONS), MSC
INDEPENDENT NON-EXECUTIVE DIRECTOR
INDEPENDENT NON-EXECUTIVE DIRECTOR
Special Responsibilities: Member of Nomination
and Remuneration Committee
Special Responsibilities: Chairman of Audit and
Risk 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,
and brand and marketing strategies to enhance business
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 the NRMA.
Mr Goddard was appointed a Non-Executive Director of GWA
Group Limited on 28 October 2016. He has more than 30 years’
retail experience having held senior executive positions with
some of Australia’s major retailers. His executive experience
includes Finance Director and Operations Director for David
Jones, founding Managing Director of Officeworks, and various
senior management roles with Myer. He is a Non-Executive
Director of JB Hi-Fi Limited, Accent Group Limited and Nick
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 Ms McKellar has served as a director
of the following listed companies for the time periods noted:
During the past three years Mr Goddard has served as a director
of the following listed companies for the time periods noted:
•
•
Automotive Holdings Group Limited since 2015*
McPherson’s Limited since 2015*
ALISON BARRASS
BSC, DIPMA
INDEPENDENT NON-EXECUTIVE DIRECTOR
Expertise: Extensive experience in FMCG Sector, governance
leadership and innovation
Ms Barrass was appointed a Non-Executive Director of GWA
Group Limited on 24 May 2019. She is a highly experienced
executive across private and publicly-listed organisations and
was most recently the Chair of Methven Ltd, a leading New
Zealand-based business which was acquired by GWA in April
2019. Her career has included significant marketing and business
transformation roles with major FMCG companies, including
CEO roles with both Goodman Fielder New Zealand and Griffin
Foods. She is currently a Non-Executive Director of Spark NZ,
Heilala Vanilla, Rockit International, Lewis Road Creamery, and
Chair of Tom and Luke Limited.
During the past three years Ms Barrass has served as a director
of the following listed companies for the time periods noted:
• Spark NZ Limited since 2016*
• Methven Limited 2012 – 2019
• JB Hi-Fi Limited since 2016*
• Accent Group Limited since 2017*
• Nick Scali Limited since 2018*
• Pacific Brands Limited 2013 to 2016
• Surfstitch Group Limited 2014 to 2016
RICHARD THORNTON
CA, B COM (ACC), LLB (HONS), LLM
EXECUTIVE DIRECTOR AND COMPANY SECRETARY
Expertise: Chartered Accountant, taxation and finance
Mr Thornton was appointed an Executive Director of GWA
Group Limited in May 2009. He joined GWA Group Limited
in 2002 as Group Taxation Manager and Treasurer and was
appointed Company Secretary in 2003. He is a Chartered
Accountant and is experienced in accounting, taxation and
finance through positions at Coopers & Lybrand, Citibank and
Ernst & Young in Australia and overseas. Mr Thornton continued
in his role as Company Secretary following his appointment as
an Executive Director in 2009. He is a Director of Great Western
Corporation Pty Ltd.
*denotes current directorship
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 13
DIRECTORS’ REPORT
AS AT 30 JUNE 2019
Your directors present their report on the
consolidated entity of GWA Group Limited
(the Group) and the entities it controlled
during FY19.
DIRECTORS’ INTERESTS
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 the date of this report is:
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
A J Barrass, Non-Executive Director (appointed 24 May 2019)
R J Thornton, Executive Director and Company Secretary
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 FY19,
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.
Director
D D McDonough
J F Mulcahy
T R Salt*
P A Birtles
J M McKellar
S T Goddard
A J Barrass
R J Thornton*
Total**
Notes:
Ordinary Shares
150,000
40,950
298,070
38,650
3,054
10,000
–
185,577
726,301
* 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
7.2.1 of the Remuneration Report.
** Section 7.3.3 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 918,301 shares (2018: 407,247 shares).
DIRECTORS’ MEETINGS
The number of meetings of directors (including meetings of
Committees of directors) held during FY19 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
12
12
12
12
12
12
2
12
B
12
12
12
12
12
12
2
12
A
4
–
–
4
–
4
–
–
B
4
–
–
4
–
4
–
–
A
5
5
–
–
5
–
–
–
B
5
5
–
–
5
–
–
–
D D McDonough
J F Mulcahy
T R Salt
P A Birtles
J M McKellar
S T Goddard
A J Barrass1
R J Thornton2
Notes:
A Number of meetings held during the time the director held office during
the year.
B Number of meetings attended.
1. A J Barrass was appointed a Non-Executive Director on 24 May 2019.
2. R J Thornton attends Committee meetings as Company Secretary.
14 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
PRINCIPAL ACTIVITIES
The principal activities during the year of the consolidated
entity were the research, design, manufacture, import and
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.
EVENTS SUBSEQUENT TO REPORTING DATE
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.
In April 2019, the Group acquired Methven Ltd which is a
leading New Zealand designer and manufacturer of showers,
taps and valves.1 Methven has operations in New Zealand,
Australia, United Kingdom and China. There have been no
other significant changes in the nature of the activities of the
consolidated entity during the year.
OPERATING AND FINANCIAL REVIEW
The Operating and Financial Review for the consolidated entity
during FY19 is provided in the Managing Director’s Review of
Operations, and forms part of this Directors’ Report.
DIVIDENDS
Dividends paid or declared by the Group to shareholders since
the end of the previous financial year were:
DECLARED AND PAID DURING FY19
Dividends
Final
2017/18
Ordinary
Interim
2018/19
Ordinary
Cents
per
share
Total
Amount
$’000
Franked
Date of
Payment
9.5
25,075
Franked
2018
Fully
6 September
9.0
23,755
Franked
2019
Fully
5 March
Franked dividends declared and paid during the year were
franked at the corporate tax rate of 30%.
DECLARED AFTER END OF FY19
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 2019.
Dividend
Final
2018/19
Ordinary
Cents
per
share
Total
Amount
$’000
Franked
Date of
Payment
9.5
25,075
Franked
2019
Fully
4 September
The financial effect of the final dividend has not been brought
to account in the financial statements for FY19 and will be
recognised in subsequent financial reports.
The record date for the final dividend is 27 August 2019 and
the dividend payment date is 4 September 2019. The Dividend
Reinvestment Plan will not be offered to shareholders for the
final dividend.
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.
ENVIRONMENTAL ISSUES
The Group’s operations are not regulated by any significant
environmental regulation under a law of the Commonwealth
or of a State or Territory.
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
all costs, expenses and liabilities which result directly or indirectly
from facts or circumstances relating to the person serving (or
having served) in their capacity as director or secretary of the
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.
INSURANCE PREMIUMS
The Group has paid premiums in respect of insurance contracts
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.
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.
1 GWA announced the acquisition of Methven Ltd on 14 December 2018 with
the acquisition completing on 10 April 2019.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 15
1. MESSAGE FROM THE REMUNERATION
AND NOMINATION COMMITTEE (RNC)
The RNC is pleased to present shareholders with the FY19
Remuneration Report. This report outlines GWA’s approach
to remuneration for its executives and in particular, the link
between GWA’s strategy and its remuneration framework
and the link between performance and executive reward.
GWA delivered a solid financial performance in FY19 against
key financial measures in challenging market conditions. GWA
also made significant progress against its strategic objectives
following the divestment of the non-core Door and Access
Systems’ business and acquisition of NZ-based taps, showers
and valves business, Methven Ltd which is strongly aligned
to our strategic focus on superior water solutions.
The solid financial performance and strategic outcomes
lead to increased shareholder returns for FY19 through
higher dividends. It has also laid a solid platform for future
sustainable growth.
This report outlines how GWA’s performance has driven the
remuneration outcomes for executives. The RNC had oversight
of the performance and remuneration arrangements of the
Managing Director and the other Executive Leadership Team
members during FY19, together with the Group’s remuneration
framework and incentive plans. The RNC ensures that the
financial reward for executives is aligned with performance
and shareholders’ interests.
GWA’s remuneration framework reflects our approach on
providing remuneration which is fair and equitable to attract
and retain talented individuals necessary to deliver our strategy,
while aligning the interests of executives and shareholders.
At the centre of our remuneration framework are:
• challenging financial and non-financial measures to assess
performance and focus executives on key operational and
strategic objectives critical to GWA’s long term success;
incentive plans that align reward for executives to shareholder
wealth creation over the short and medium term;
•
• ability for the Board to exercise its discretion to adjust or
‘clawback’ executive reward where business and operational
risks have not been adequately managed; and
• best practice governance in determining remuneration
arrangements and outcomes that are fair and reasonable
taking into consideration community and shareholder
expectations.
During FY19, the RNC completed a review of the executive
remuneration structure which confirmed that the remuneration
framework is fit for purpose and aligned with our strategy
and market practice, with some changes to our approach for
FY20. Most of the changes relate to our Long Term Incentive
plan to reflect current market practice and alignment of the
Managing Director’s incentive opportunity with peer company
CEOs based on market benchmarking data provided by an
independent adviser.
Further details on the changes for FY20 are outlined in
section 3.2.
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 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
entity, KPMG, and its network firms for audit and non-audit
services provided during the year are outlined in Note 22 of
the financial statements.
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 FY19.
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.
Amounts in the Directors’ Report have been rounded in
accordance with that Instrument to the nearest thousand
dollars, unless otherwise stated.
REMUNERATION REPORT
INTRODUCTION
The Directors of GWA Group Limited present this Remuneration
Report for the period ended 30 June 2019. The Remuneration
Report outlines the Group’s remuneration strategy and
principles, explains how the Group’s FY19 performance has
driven executive remuneration outcomes, and provides the
details of specific remuneration arrangements that apply to
Key Management Personnel (KMP) in accordance with section
300A of the Corporations Act 2001 (Cth) (Corporations Act)
and applicable accounting standards.
The structure of the Remuneration Report is outlined below:
1. Message from the Remuneration and Nomination Committee;
2. Key Management Personnel;
3. Board role in setting remuneration strategy and principles;
4. Relationship between remuneration policy and
Group performance;
5. Description of non-executive director remuneration;
6. Description of executive remuneration;
7. Details of director and executive remuneration; and
8. Key terms of employment contracts.
16 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
2. KEY MANAGEMENT PERSONNEL
The names and titles of the Group’s KMPs for FY19, being those
persons having authority and responsibility for planning, directing
and controlling the activities of the entity, are set out below.
Name
Position
Term as KMP
Non-Executive Directors
D McDonough
J Mulcahy
Chairman and
Non-Executive Director
Deputy Chairman and
Non-Executive Director
P Birtles
Non-Executive Director
J McKellar
Non-Executive Director
Full year
Full year
Full year
Full year
3.1 GWA’S REMUNERATION GOVERNANCE FRAMEWORK
GWA BOARD
• Overall responsibility for the remuneration
strategy and outcomes for the Group; and
• Reviews and, as appropriate, approves recommendations
from the Remuneration and Nomination Committee.
WITH ADVICE FROM:
REMUNERATION AND NOMINATION COMMITTEE
Review of the:
S Goddard
Non-Executive Director
Full year
• Group’s executive remuneration and incentive policies
A Barrass1
Non-Executive Director
From
24 May 2019
Executive Directors
T Salt
R Thornton
Managing Director and
Chief Executive Officer
Executive Director and
Company Secretary
Full year
Full year
Other Executive KMP
P Gibson
C Norwell
C Reil
Note:
Group Chief Financial Officer Full year
General Manager Sales –
GWA Bathrooms & Kitchens
Full year
Group General Manager –
People & Performance
Full year
1. A Barrass was appointed a non-executive director effective 24 May 2019.
3. BOARD ROLE IN SETTING
REMUNERATION STRATEGY
AND PRINCIPLES
The Board has overall responsibility for reviewing, approving
and monitoring GWA’s remuneration strategy and outcomes
including for the directors and executives. The strategy is
designed to provide remuneration that is fair and equitable,
and which is designed to attract and retain directors and
management with the experience, knowledge, skills and
judgement required for success.
The Board also engages with all stakeholders to continuously
refine and improve director and executive remuneration policies
and practices.
The Board delegates some aspects of the review and
monitoring process to the Nomination and Remuneration
Committee. The charter for the Nomination and Remuneration
Committee is available on the Company’s website at
www.gwagroup.com.au under Corporate Governance Policies.
and schemes;
• Remuneration framework for non-executive directors;
• MD and other executives’ remuneration packages
and performance objectives;
• Evaluation of MD performance;
• MD and other executives’ development plans;
• Group’s recruitment, retention and termination policies
and procedures;
• Group’s superannuation arrangements; and
• Diversity policy and assessing progress against objectives.
EXTERNAL ADVISERS
• Provide independent advice, information and
recommendations relevant to remuneration decisions;
• The Remuneration and Nomination Committee receives
information from independent external adviser related to
remuneration market benchmark data and analysis for the
annual executive fixed remuneration review; and
• There were no remuneration recommendations received
from the external adviser during the year.
BASED ON:
REMUNERATION PRINCIPLES
• Align and contribute to GWA’s key strategic business
objectives and desired business outcomes;
• Align executives’ remuneration with the interests
of securityholders;
• Assist GWA in attracting executives and retaining the
best talent required to execute the business strategy;
• Support GWA’s performance based culture against
business plans and shareholder returns; and
• Be fair, equitable and easy to understand.
3.2 EXECUTIVE REMUNERATION STRUCTURE REVIEW
As outlined in the FY18 Remuneration Report, during FY19
the Remuneration and Nomination Committee engaged an
independent remuneration consultant to review the executive
remuneration structure to ensure that it remains aligned with its
remuneration strategy and market practice. The review concluded
that the Group’s remuneration framework is fit for purpose and
aligned with its growth strategy and market practice.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 17
The following is an overview of the changes for implementation
in FY20:
4. RELATIONSHIP BETWEEN REMUNERATION
POLICY AND GROUP PERFORMANCE
• The clawback provisions under the Long Term Incentive
Remuneration is linked to performance by:
(LTI) plan have been strengthened so that the Board may
reduce or ‘clawback’ benefits under the LTI plan (including
Performance Rights, shares, proceeds of shares or cash
amounts) if the Board considers that is justified by the
performance of the Group, any member of the Group,
any business, area or team, or the conduct, capability
or performance of the executive;
• The LTI plan has been revised to provide flexibility for
executives in the timing of exercise of vested Performance
Rights, by providing that a Performance Right is not
deemed to be exercised automatically upon vesting, but
rather may be exercised by the executive at any time from
vesting until expiry of the Performance Right 7 years after
the date of grant;
• The LTI plan has been revised to provide the Group with
the flexibility, at the discretion of the Board, to settle vested
and exercised Performance Rights in cash to executives as
an alternative to shares;
• The LTI plan has been revised to provide the Board with
broader discretion to determine whether some or all of the
Performance Rights lapse, vest, are exercised or settled in
shares or cash in the event that the Group is the subject
of a successful takeover bid or acquisition by scheme
of arrangement. The treatment for unvested rights will
be determined by the Board in its absolute discretion.
Vested rights will be automatically exercised unless the
Board determines otherwise;
• Under the Short Term Incentive (STI) plan for FY20 there
has been an increased focus on the measurability of
personal KPIs and the inclusion of role specific non-financial
KPIs for executives that reflect how the financial goals have
been achieved during the period with an increased focus on
customer outcomes;
• The remuneration mix for the Managing Director between
fixed and variable components for FY20 has been adjusted
to reflect a higher variable component. The Managing
Director’s STI opportunity for FY20 has been increased to
50% at target performance and 75% at stretch performance
(previously 40% at target and 50% at stretch) and the LTI
opportunity has been increased to 100% (previously 60%).
This is in line with the market benchmarking data provided
by an independent adviser during FY19 which indicated
that peer company CEO’s typically have a higher variable
opportunity for STI and LTI plans. The Managing Director’s
fixed remuneration remains unchanged for FY20 and has
not changed since his appointment during FY16. There
are no changes to the variable components for the other
executives for FY20; and
• A number of general disclosure enhancements have been
made to the FY19 Remuneration Report to provide more
clarity and transparency of the Group’s remuneration
framework and outcomes to ensure meeting best practice.
• 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 while balancing short-term and medium/
longer term shareholder value creation.
GWA measures performance on the following key corporate
measures:
• Earnings before interest and tax (EBIT);
• Return on funds employed (ROFE); and
• Total shareholder return (TSR).
The Board has the discretion to normalise the EBIT and ROFE
measures where they are unduly distorted by significant or
abnormal events, and in order to ensure that the measures
reflect underlying trading performance. Examples include the
impact of restructuring costs or other non-recurring expenses
or income to ensure management is not discouraged from
undertaking initiatives in the long term interests of shareholders.
Any adjustments to normalise the EBIT and ROFE measures,
and the reasons for any adjustments, will be disclosed.
In FY19 EBIT and ROFE measures were normalised for
(i.e. exclude):
• $50.8 million (after tax) profit on the successful sale of
the Door & Access Systems’ business which completed on
3 July 2018. This was considered appropriate as the profit
on sale represents a non-recurring gain relating to
a discontinued business;
• $0.2 million (after tax, pre-integration costs) profit from
Methven which was acquired on 10 April 2019. This was
considered appropriate in order to reward management
for performance against the current period goals of the
business which were established at the beginning of FY19
and excluded any impact from acquisitions. The acquisition
of Methven was a strategic acquisition to accelerate growth
opportunities aligned to the Group’s core focus on superior
water solutions; and
• $7.6 million (after tax) transaction and integration costs
incurred in the year to 30 June 2019 associated with the
acquisition of Methven.
The net effect of the above exclusions from the FY19 EBIT
and ROFE measures resulted in lower EBIT and ROFE
performance and therefore lower incentive payments than if
it was included. The Methven acquisition will be included in
financial targets for the FY20 STI as well as in the achievement
of future LTI grants which will align management reward with
shareholder value creation.
Remuneration for all executives varies with performance on the
key EBIT, ROFE and TSR measures together with achievement
of their measurable personal KPI objectives, which underpin
delivery of the financial outcomes, and are linked to the Group’s
performance review process.
18 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
Total Shareholders Return (TSR) Chart for GWA vs ASX 200 Acc Index
From 1 July 2016 to 30 June 2019
GWA
ASX 200 Acc Index
120%
100%
80%
60%
40%
20%
0%
-20%
1 Jul 2016
1 Jan 2017
1 Jul 2017
1 Jan 2018
1 Jul 2018
1 Jan 2019
The graph above shows the Group’s relative TSR performance over the three year period from 1 July 2016 to 30 June 2019
compared to the ASX 200 Accumulation Index. The chart highlights the outperformance of the GWA share price since 1 July 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.
Over the three year period, the Group’s market capitalisation (i.e. market value of GWA’s shares) has increased 64% to $902.7m
at 30 June 2019.
The following is a summary of key statistics for the Group over the last five years:
Financial Year
2014/15(b)
2015/16(b)
2016/17(e)
2017/18(e)
2018/19(e)
EBIT(a)
($m)
EPS(a)
(cents)
Total DPS
(cents)(d)
72.8
78.3
74.3
76.2
77.4
14.8
19.0
18.7
19.0
19.6
6.0
16.0
16.5
18.0
18.5
Capital
Return(c)
(cents)
22.8
–
–
–
–
Share Price
(30 June)
($)
Market
Capitalisation
(30 June)
($m)
2.28
2.09
3.15
3.40
3.42
636.0
551.7
831.4
897.4
902.7
Notes:
(a) excludes significant items.
Total Dividend Per Share Growth (cents)
(b) excludes the discontinued operations of Gliderol, Dux and Brivis.
(c) 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.
(d) includes ordinary and special dividends.
(e) FY17 to FY19 represent continuing operations and exclude the
discontinued operations of the Door & Access Systems’ business
(including the gain on sale) which was sold on 3 July 2018. FY15
and FY16 include the results of the Door & Access Systems’ business.
FY19
FY18
FY17
FY16
FY15
0
5
10
15
20
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 19
The remuneration and incentive framework seeks to focus
executives on sustaining short term operating performance
coupled with investment in long term strategic growth in
the markets in which the business operates.
The Group delivered an improved Normalised2 profit
performance for Continuing Operations3 in FY19 driven by
market share gains in the Bathrooms & Kitchens business.
This was a solid financial result in challenging market conditions.
The earnings growth enabled the Board to increase dividend
payments to shareholders for FY19 with the dividend pay-out
ratio at 94%. The improved performance for FY19 resulted in
higher shareholder returns through higher dividends and an
improvement in GWA’s share price at 30 June 2019.
The Group has continued its progress in FY19 against its
strategic objectives to enhance the operating performance of
the business, to continue to grow market share and to maximise
returns to shareholders over time. The progress against the
strategy is outlined in the Managing Director’s Review of
Operations. In particular, there were two major transactions in
FY19 which were key components in delivering on the Group’s
strategy and the creation of value over the medium term,
including the following:
• Successful divestment of the non-core Door and Access
Systems’ business realising a profit of $50.8 million; and
• The acquisition of NZ-based taps, showers and valves
business, Methven Ltd which is strongly aligned to the
Group’s strategic focus on superior water solutions.
The successful execution of the Group’s strategy was included
in executives’ measurable personal goals and reflected in the
financial performance targets under the STI and LTI plans for
FY19; refer sections 6.3 Short Term Incentive and 6.4 Long
Term Incentive.
The remuneration and incentive framework has focused
executives on responding appropriately to the challenging
market conditions in FY19. 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 ensuring
that the Group is well placed to maximise returns through the
housing market cycle.
5. DESCRIPTION OF NON-EXECUTIVE
DIRECTOR REMUNERATION
Fees for non-executive directors are fixed and are not linked
to the financial performance of the Group to ensure that
non-executive directors maintain their independence.
At the 2018 Annual General Meeting, shareholders approved
an increase in non-executive director fees to an annual
maximum aggregate amount of $1,350,000 including statutory
superannuation. This increase was to allow for new director
appointments over time in accordance with the Board
succession plans.
The actual fees paid to the non-executive directors are outlined
in the Remuneration Tables in section 7.1 and are based on
the following:
• Board Chair $280,000 (including superannuation);
• Other non-executive directors $120,000 (including
superannuation); and
• Committee Chair $10,000 (including superannuation).
There have been no changes to these amounts since FY16.
Non-executive director remuneration comprises base fees
and statutory superannuation, plus an additional fee for
chairing a Board Committee (where applicable). 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.
The Board does not require its non-executive directors to
hold GWA shares, however the holding of shares is actively
encouraged. For details of the non-executive director
shareholdings, please refer to section 7.3.3.
6. DESCRIPTION OF EXECUTIVE
REMUNERATION
6.1 EXECUTIVE REMUNERATION STRUCTURE
Executive remuneration has a fixed component and a component
that varies with performance. The variable component comprises
a short term incentive (STI) plan which provides rewards for
performance over a 1 year period, and a long term incentive
(LTI) plan 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 housing industry,
ability to sustain competitiveness, deliver value and growth in
mature markets and maintain operating cash flows for dividends.
As outlined in section 3.2, during FY19 the Board engaged 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 changes
following the review will be implemented in FY20.
2 Normalised is before $8.7 million in significant items (pre-tax) and
$7.6 million in significant items (after tax) relating to transaction and
integration costs associated with the acquisition of Methven.
3 Continuing Operations include the revenue and earnings contribution from
Methven from the effective date of acquisition, 10 April 2019, but exclude
the Door & Access Systems’ business which was sold on 3 July 2018.
20 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
6.1.1 GWA’s Executive Remuneration Structure for FY19
Objective
Attract and retain
best talent
Reward current year
performance
Reward long-term
performance
Fixed
Variable (at risk)
Remuneration
Components
Fixed Remuneration
Short Term
Incentive (STI)
Long Term
Incentive (LTI)
Delivery
• Base Salary
• Non-monetary benefits
• Superannuation
• Annual cash payment
subject to performance
• Portion deferred for one
year and paid in cash
• Annual grant of
Performance Rights
vesting after 3 years
subject to performance
FY19 Approach
• Fixed remuneration
STI performance measures:
LTI performance measures:
targeted between median
and 75th percentile of
comparator group
• Benchmark companies
of similar size and
operational scope
• Gateway: Revenue and
EBIT at 95% of target
• Financial targets (60%):
EBIT and ROFE
• Personal targets (40%):
measureable personal
KPIs
• 3 year performance
period
• Performance hurdles
(each 50%):
ROFE (absolute measure)
TSR (relative measure)
The Board is of the view that a combination of EBIT, ROFE and
TSR performance measures are an effective basis for STI and LTI
targets as they are currently key metrics used in the business
and aligned with the Group’s strategy.
ROFE is an appropriate target, both over the one year horizon,
for STI purposes, and over the three year horizon, for LTI
purposes. The Board is cognisant that in any one year or longer
period ROFE can be impacted by the timing of investments in
growth, e.g. capital spend, where benefits (EBIT) 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 and to ensure that
management make decisions aligned with shareholders’ interests
over time, notwithstanding, that in the short term, investments
in future growth may detract from headline ROFE numbers.
6.1.2 Managing Director and other executives’ remuneration mix
The components of remuneration for the Managing Director and
other executives’ for FY19 at ‘target’ and ‘stretch’ performance is
provided in the following table:
Managing Director Remuneration Mix
At target
Performance dependent
At stretch
50%
48%
15%
5%
30%
Performance dependent
17%
7%
28%
Other Executives’ Remuneration Mix1
At target
At stretch
59%
56%
Performance dependent
18%
6%
17%
Performance dependent
19%
8%
17%
6.1.3 Managing Director variable remuneration structure
The FY19 incentives structure for the Managing Director is
provided in 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
50
60
110
Managing
Director
FY19
The FY19 STI components for the Managing Director are
provided in the following table:
Financial
Targets as
maximum
% of fixed
remuneration
Personal
Goals as
maximum
% of fixed
remuneration
Maximum
STI as %
of fixed
remuneration
30
20
50
Managing
Director
FY19
6.1.4 Other Executives’ variable remuneration structure
The FY19 incentives structure for other executives is provided
in 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
50
30
80
Other
Executives
FY19
Fixed
STI (cash)
STI (deferred)
LTI (maximum)
Note:
1 Based on the average of the other executives’ fixed remuneration excluding
the Managing Director and CFO.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 21
The FY19 STI components for other executives are provided in
the following table:
6.3 SHORT-TERM INCENTIVE (STI)
6.3.1 STI overview
Financial
Targets as
maximum
% of fixed
remuneration
Personal Goals
as maximum
% of fixed
remuneration
Maximum
STI as %
of fixed
remuneration
30
20
50
Other
Executives
FY19
6.2 FIXED REMUNERATION
Fixed remuneration is the sum of base salary, non-monetary
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 out-performance 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 a market benchmarking report provided by an
independent adviser 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 for precise remuneration
positioning. The Nomination and Remuneration Committee
therefore exercised judgement in determining appropriate
remuneration levels, having regard to the background and
experience of the individuals.
While market levels of remuneration are monitored on a
regular basis, there is no contractual requirement that pay
will be adjusted each year. Where these levels are above the
75th percentile, fixed remuneration will either be frozen or
increases will be below market levels.
For FY19, the Board made no adjustment to the Managing
Director’s fixed remuneration which was at the median of the
comparator group based on the independent benchmark data.
The Managing Director’s fixed remuneration has remained
unchanged since his appointment during FY16. This is
reflected in the Remuneration Tables in section 7.1.
The STI plan provides for an annual payment that varies
with performance measured over the Group’s financial year
to 30 June 2019. The STI is aligned to shareholder interests
as executives will only become entitled to the majority of
payments if profitability improves (relative to peers in the
cyclical housing industry), with maximum incentive payments
above the target level linked directly to shareholder value
creation. As noted in section 6.1, the maximum STI that can
be earned is capped.
Financial gateways are in place to ensure a minimum level of
financial performance is achieved before any STI payments
(both financial and personal goals) are awarded to executives.
The gateways represent 95% of at target Revenue and EBIT.
If both gateways have not been achieved, then the executives
are not eligible for an STI payment of either component –
‘financials’ and ‘personal goals’.
The STI payment is made in cash after finalisation of the annual
audited financial statements. As outlined in the Remuneration
Tables in section 7.1, 50% of the financial target component
of the STI is deferred for executives that achieved their STI
financial targets for FY19. 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
next year’s (i.e. FY20) audited financial statements. If the Board
is satisfied the deferred component will be paid to executives in
September 2020 together with nominal interest at market rates.
However, if the Board is not satisfied the deferred component
will be subject to forfeiture.
6.3.2 STI performance requirements
6.3.2.1 Financial Performance Targets
For FY19, 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 4.
The ‘target’ and ‘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.
22 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
The budget performance levels are taken into consideration
in setting the financial targets but different targets may be set
(either higher or lower than budget) that ensure management
is motivated while reflecting the degree of difficulty in achieving
the budget. Performance between the ‘target’ and ‘stretch’
levels is rewarded on a straight line basis between ‘target’
achievement and ‘stretch’ achievement.
The Board retains the right to vary from policy if required.
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 FY19.
6.3.2.1.1 FY19 STI Financial Performance Outcomes
For FY19, GWA Corporate and Bathrooms & Kitchens achieved
their EBIT and ROFE STI financial targets at the ‘target’
achievement level reflecting the earnings growth and gains
in market share in core segments during the period. This was
a solid financial result despite challenging market conditions
during the period.
The following table provides an overview of the STI metrics
for FY19 and outcomes:
Financial Metric
Gateway
FY19 STI Outcome
Revenue
Achieved
–
EBIT
ROFE
Achieved
–
Achieved at
‘target’ level
Achieved at
‘target’ level
The STI outcomes for FY19 were aligned with shareholders’
interests as the Group achieved profit growth for FY19 despite
the significantly weaker market conditions, and generated
higher shareholder returns for the period through higher
dividends and an improvement in GWA’s share price at
30 June 2019.
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
2020 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 7.1.
The deferred component of the STI incentive payments for
FY18 for executives was tested by the Board in August 2019
to confirm the integrity of the achievement of the STI financial
targets in FY18. Following satisfaction with the testing, the
Board approved the payment of the deferred component to
executives together with interest at nominal market rates.
6.3.2.2 Personal Goals
The personal goals set for each executive include achievement
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 of 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.
Personal goals include both measurable financial and business
improvement goals. The measurable financial goals are financial
outcomes which the individual aims to achieve through their
effort and that of their team and influence on the wider
business. Examples may include achieving working capital
reductions, sales/margin targets or cost reduction targets.
The measurable business improvement goals are outcomes
which drive sustainable 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,
enhancing sustainability, delivering a major project on time
and budget, market share and productivity improvements
or implementing a significant change or strategic initiative.
Assessment of the personal goals STI component for FY19
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 bythe Nomination and Remuneration Committee.
The personal goals for executives for FY20 were established
at the performance reviews, and reviewed and approved by
the Nomination and Remuneration Committee.
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 FY19 is provided in section 6.3.2.2.1.
The other executives were awarded STI payments for FY19
based on achievement of personal goals following their
performance reviews. This is reflected in the Remuneration
Tables in section 7.1.
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 housing
industry cycle mean financial performance is consequently
weaker across the sector. The Group operates in the cyclical
housing industry so fluctuations in profitability can occur
through the cycle which is out of the control of 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 | 2019 ANNUAL REPORT | 23
6.3.2.2.1 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 FY19 is
provided in the following table.
FY19 Goals
Personal Objectives
Achieve leading safety
performance with the aim
of an injury free workplace.
Measures:
• Safety initiatives to reduce risk
• Leading safety indicators
(Safety Interactions, Hazards
Reported, Actions Closed)
• Lagging safety measures
(MTIFR, LTIFR, TIFR)
Executing and delivering FY19
business plan – ensure planned,
risk managed, communicated,
resourced and tracked.
Measures:
•
Improvement in profitability
and market share
• Strategy execution
•
Customer outcomes
Assessment
On target
Above target
Performance
WHS performance for FY19 is primarily assessed on ‘leading’ safety indicators
that include proactive measures to improve safety. Substantial progress
was made to improve the Group’s safety culture in FY19 with several safety
initiatives implemented such as accreditation to the Australian standard for
safety management, continuation of Safety Homecoming training to drive safe
behaviour and engagement, and the implementation of a wellness program
called Ritualize to assist staff in building healthy lifestyles.
TIFR decreased by 39% to 6.2 for FY19 reflecting the improved WHS
performance and culture. A three year safety plan is in place with specific
initiatives for FY20. Ownership and accountability for safety exists at all
levels in the business with “Caring For Each Other” central to the Group’s
cultural pillars and with employee engagement on safety at 87% based on
an AON survey in 2018.
Substantial progress has been made with the Group’s strategy in FY19 as
outlined in the Managing Director’s Review of Operations. Performance is
assessed on the basis of the improvement in the Group’s normalised profit
for continuing operations in FY19, principally driven by the implementation
of strategies to work more collaboratively with customers and improve
engagement with consumers.
The Group improved market share and maintained margins in FY19 despite
challenging market conditions. The Group successfully divested the non-core
Door & Access Systems’ (D&A) business on 3 July 2018 for an after tax profit
of $50.8m enabling the focus on the Group’s superior water solutions strategy.
The strategy was further progressed with the successful acquisition of the
leading taps, showers and valves business, Methven Ltd on 10 April 2019 at a
lower earnings multiple than the D&A sale (excluding synergies). With the solid
financial results for FY19 in a tough market and the acquisition of Methven,
a stronger platform for medium term growth has been created.
Build employee engagement and
culture and embed purpose and
values to deliver the strategy.
Continue to increase diversity
with a focus on increasing female
representation.
The Group continues to implement programs to drive a high performance
culture and to encourage staff to perform their best while upholding GWA’s
Cultural Pillars. There is an active Culture Council which is led by the Managing
Director who champions programs aligned to GWA’s Cultural Pillars. GWA’s
Cultural Pillars have been successfully rolled out to the newly acquired Methven
business ensuring alignment on company values and standards of behaviour.
On target
Measures:
• Culture and engagement
surveys
• Gender diversity
An employee engagement survey was conducted during FY19 with a baseline
established and initiatives in place to improve engagement levels. 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 39% as outlined
in the Group’s 2019 Workplace Gender Equality Report. Female representation
across all levels of management has increased versus the prior year and 65%
of all promotions were women.
The Group received notification during June 2019 that it is compliant with the
Workplace Gender Equality Act 2012.
24 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
FY19 Goals
Performance
Deliver the growth strategy
(including strategic acquisitions) in
accordance with the horizon plans.
Key growth initiatives planned,
underway, funded and tracked.
Long term growth plans have been developed for the Group in order to
accelerate growth and improve shareholder returns. The plans outline growth
initiatives to strengthen the core business, build emerging businesses and
create growth options into the future in line with the Group’s superior water
solutions strategy.
Assessment
Above target
Measures:
• Strategy development and
execution
• Growth from new business
and acquisitions
• Data services strategy
Financial Targets
STI financial performance targets
Measures:
• EBIT and ROFE
The acquisition of Methven strengthens the core Australasian business
while providing growth options leveraging Methven’s international presence.
The Group also successfully launched an intelligent bathroom solution,
Caroma Smart Command® (CSC) during FY19 to enable monitoring use
and management of water in commercial buildings.
Plans are in place to invest in CSC in Australia / New Zealand and select
Asian markets, and to develop and commercialise smart data solutions as a
new revenue stream. CSC was awarded the highest (Best in Class) in product
design, hardware and building at the Good Design Awards in July 2019.
For FY19, GWA Corporate and Bathrooms & Kitchens achieved their EBIT
and ROFE STI financial targets at the ‘target’ achievement level reflecting
the earnings growth and gains in market share in core segments during the
period. This was a solid financial result despite challenging market conditions.
This outcome is reflected in the Remuneration Tables in section 7.1.
On target
On target
Above target
Below target
6.4 LONG TERM INCENTIVE (LTI)
6.4.1 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 given the nature of the business.
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
in employment with the Group until the nominated vesting date.
If the vesting conditions and performance hurdles are achieved,
ordinary shares will be issued to the participants at no cost. Until
that time, the participants have no right to dividends or voting
rights on unvested Performance Rights. If the performance
hurdles are not met then the Performance Rights are cancelled.
The LTI 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.
The ROFE performance hurdle is calculated by reference to the
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.
For the FY19 LTI grant, a participant may not dispose of the
ordinary shares issued under the LTI until the seventh anniversary
of the grant date and the shares are subject to a holding lock
upon issue. 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 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 executive’s
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 FY19.
In accordance with the LTI plan rules, the executives are
prohibited from entering into hedging transactions or
arrangements which reduce or limit the economic risk
of holding unvested Performance Rights.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 25
In the event of a change of control, the Board will determine
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 FY19 LTI grant, the proportion of Performance Rights that
can vest will be calculated and the shares will vest in August 2021
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 2019 was
1,615,222 which represents 0.6% of the Group’s total issued shares.
6.4.2 LTI performance requirements
For the FY19 LTI grant, the performance hurdles continue to
provide for vesting scales graduated with performance and
demanding performance hurdles.
6.4.2.1 TSR hurdle
The performance hurdles and vesting proportions for the TSR
performance measure that applies to the FY19 LTI grant is
outlined in the following table:
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
50th percentile
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)
The group of comparator companies for the TSR hurdle
includes a bespoke group of 19 domestic ASX listed companies
exposed to similar economic, market, and/or financial factors.
GWA and the comparator companies operate in a number
of different sectors (e.g. Industrial, Material, Consumer
Discretionary) and the choosing of one sector or industry
will not provide a comprehensive list of related companies.
To ensure an adequate number of comparator companies is
included for the TSR hurdle, the Board has selected companies
outside the building supplies and construction materials
industry, but subject to similar external influences.
The group of comparator companies for the FY19 LTI grant
is as follows:
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. The Board reviews the
comparator group on an annual basis to ensure they remain
relevant and to ensure potential new peers are considered
for inclusion.
6.4.2.2 ROFE hurdle
The performance hurdles and vesting proportions for the ROFE
performance measure that applies to the FY19 LTI grant is
outlined in the following table:
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
16% and 19% per annum
Straight line vesting
between 12.5% and 50%
ROFE equal to 19%
or higher per annum
50% (i.e. 50% of total grant)
The ROFE hurdle is calculated as earnings before interest
and tax (EBIT) divided by funds employed and adjusted for
normalisation if applicable; refer section 4. Funds employed
is calculated as net assets minus cash plus borrowings.
26 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
7. DETAILS OF DIRECTOR AND EXECUTIVE REMUNERATION
7.1 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 2019 are provided in the following Remuneration Tables.
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
D McDonough, Chairman
J Mulcahy, Deputy Chairman
P Birtles, Non-Executive
Director
J McKellar, Non-Executive
Director
S Goddard, Non-Executive
Director
A Barrass, Non-Executive
Director (Appointed 24 May 2019)(f)
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
259,469
259,952
117,650
117,650
108,600
108,600
108,600
108,600
116,969
114,633
12,769
–
Total – Non-Executive
Directors Remuneration(g)
2019
724,057
2018
709,435
Executive Directors(h)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
T Salt, Managing Director(e)
2019
967,308 400,000
1,627 452,597
2018
1,009,615 500,000
1,585 399,523
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20,531
20,048
12,350
12,350
11,400
11,400
11,400
11,400
13,031
12,033
1,213
–
69,925
67,231
24,999
24,999
R Thornton, Executive Director
2019
389,008
163,816
8,013
92,763
6,325
20,531
2018
393,870 204,770
7,861
47,996
6,327
20,048
l
a
t
o
T
$
280,000
280,000
130,000
130,000
120,000
120,000
120,000
120,000
130,000
126,666
13,982
–
793,982
776,666
1,846,531
1,935,722
680,456
680,872
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total – Directors
Remuneration
Executives
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)
Total – Executives
Remuneration(h)
Total – Directors
and Executives
Remuneration
2019 2,080,373
563,816
9,640 545,360
6,325
115,455
– 3,320,969
2018
2,112,920 704,770
9,446 447,519
6,327
112,278
– 3,393,260
2019
2018
2019
2018
2019
2018
733,654 300,000
8,289
170,188
743,750 375,000
2,302 160,608
409,842
173,000
718
95,974
385,355 208,000
1,036
87,418
386,512
168,000
2,040
69,373
241,881
122,500
1,000
29,890
2019
1,530,008 641,000 11,047 335,535
2018
1,370,986 705,500
4,338 277,916
–
–
–
–
–
–
–
–
24,999
24,999
24,999
24,999
24,999
13,076
74,997
63,074
2019
3,610,381 1,204,816 20,687 880,895
6,325
190,452
2018 3,483,906 1,410,270 13,784 725,435
6,327
175,352
–
–
–
–
–
–
1,237,130
1,306,659
704,533
706,808
650,924
408,347
– 2,592,587
–
–
–
2,421,814
5,913,556
5,815,074
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
46
38
37
38
41
38
42
36
37
–
–
–
–
–
–
–
–
–
–
–
–
80
100
80
100
80
100
80
100
80
100
–
–
–
–
–
–
–
–
–
–
–
–
20
–
20
–
20
–
20
–
20
–
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 27
Notes to the Remuneration Tables
(a) Salary and fees represent base salary and includes the movement in
annual leave provision.
(b) The Short Term Incentive (STI) plan cash bonuses relate to performance
during FY19 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 FY19 at the ‘target’ achievement 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 2020. The FY19 STI cash
bonuses for GWA Corporate and Bathrooms & Kitchens executives will
be paid in FY20 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 2019 were granted to executives in FY17, FY18 and
FY19 (as applicable) and are subject to vesting conditions and the
achievement of specified performance hurdles over the three year
performance periods. During FY19, 100% of the Performance Rights
7.1.1 Actual remuneration received by executives for FY19
granted to executives in respect of the FY16 LTI grant vested as the ROFE
and TSR hurdles were fully achieved. The fair value of the Performance
Rights granted in FY17, FY18 and FY19 were calculated using Black
Scholes Model (ROFE hurdle) 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 8.1. The Managing Director’s fixed
remuneration for FY19 was at the median of the comparator group based
on the market benchmark data provided by an independent adviser and
has remained unchanged since his appointment during FY16.
(f) Ms Alison Barrass was appointed a non-executive director effective
24 May 2019.
(g) Non-executive director remuneration has remained frozen since FY16.
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 5.
(h) For the actual remuneration received by the executives for FY19,
please refer to the table in section 7.1.1.
The following table sets out the actual value of remuneration received by executives for FY19, derived from the various components
of their remuneration during FY19. This table differs from the more detailed statutory remuneration disclosures in the Remuneration
Tables in section 7.1 due to the exclusion of LTI amounts not vested or reversal of accounting expenses associated with LTI grants
and is therefore unaudited.
Executives
FY19
Fixed
Remuneration(a) $
Short Term
Incentive(b) $
Long Term Incentive
(Earned)(c) $
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
Total
Notes:
1,001,626
417,552
758,288
400,000
163,816
300,000
407,279
115,408
184,986
Total
$
1,808,905
696,776
1,243,274
430,467
173,000
97,934
701,401
408,577
3,016,511
168,000
1,204,816
–
576,577
805,607
5,026,934
(a) Fixed remuneration represents amounts actually paid to executives during FY19 and includes base salary, non-monetary benefits and superannuation.
(b) Represents the STI payments awarded for FY19 inclusive of deferred amounts. These amounts, exclusive of the deferred amounts, will be paid in FY20.
(c) The performance hurdles for the FY16 LTI grant were tested during FY19 and fully achieved; refer section 7.2.1 Performance Rights. Excludes the value
of any unvested LTI grants expensed or reversed during FY19.
(d) For details of Mr Tim Salt’s remuneration arrangements as Managing Director refer to section 8.1.
28 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
7.2 SHARE BASED PAYMENTS
7.2.1 Performance Rights
The following table shows details of the Performance Rights granted to key management personnel during the year ended
30 June 2019 and in prior years that affects compensation in this or future reporting periods.
Year
of
grant
Number
of rights
granted
%
vested
in year
%
forfeit
in year
Fair value
of rights at
grant date
$*
Issue price used
to determine
number of
rights granted
Grant date*
Executive Directors
T Salt, Managing Director
2019
220,000
18 February 2019
2018
224,000
19 February 2018
2017
214,500
24 February 2017
–
–
–
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 20 November 2017)
Note:
2016
262,000
23 March 2016
100
2019
2018
2017
2016
2019
2018
2017
2016
2019
2018
2017
2016
2019
2018
2017
2016
45,000
18 February 2019
46,000
19 February 2018
44,000
24 February 2017
–
–
–
65,000
23 March 2016
100
83,000
18 February 2019
84,000
19 February 2018
80,500
24 February 2017
–
–
–
119,000
23 March 2016
100
48,000
18 February 2019
47,000
19 February 2018
44,000
24 February 2017
–
–
–
63,000
23 March 2016
100
46,000
18 February 2019
47,000
19 February 2018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
566,500
427,358
363,931
407,279
115,875
87,761
74,653
115,408
213,725
160,259
136,580
184,986
118,450
89,669
74,653
97,934
123,600
89,669
–
–
2.73
2.68
2.80
2.29
2.73
2.68
2.80
1.89
2.73
2.68
2.80
1.89
2.73
2.68
2.80
1.89
2.73
2.68
–
–
* The issue price used to determine the number of Performance Rights offered to key management personnel during FY19 was $2.73 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 26 October 2018. 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 $2.92 per right and TSR hurdle was $2.23 per right.
All of the rights carry an exercise price of nil. The rights granted on 24 February 2017, 19 February 2018 and 18 February 2019 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 2019, 2020 and 2021 respectively, subject to the achievement of the performance hurdles. The rights granted to Mr Salt and
Mr Thornton were approved by shareholders at the 2016, 2017 and 2018 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.
The number of rights outstanding at 30 June 2019 represents the balance yet to be tested.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 29
7.2.2 Status and key dates of LTI awards
The following table shows the status and key dates for Performance Rights granted to key management personnel under the LTI plan.
Grant Date
23 March 2016
24 February 2017
19 February 2018
18 February 2019
Valuation Per
Right1
Performance
Testing Windows
Tranche A
(TSR) $1.33
Tranche B
(ROFE) $1.78
Tranche A
(TSR) $1.28
Tranche B
(ROFE) $2.11
Tranche A
(TSR) $1.43
Tranche B
(ROFE) $2.38
Tranche A
(TSR) $2.23
Tranche B
(ROFE) $2.92
30 October 2015
to 16 August 2018
(Tranche A)
1 July 2015 to
30 June 2018
(Tranche B)
28 October 2016
to 19 August 2019
(Tranche A)
1 July 2016 to
30 June 2019
(Tranche B)
27 October 2017
to August 2020
(Tranche A)
1 July 2017 to
30 June 2020
(Tranche B)
26 October 2018
to August 2021
(Tranche A)
1 July 2018 to
30 June 2021
(Tranche B)
Expiry Date
(if hurdle not met)
16 August 2018
Performance Status2
Tranche A (TSR): Performance condition
met at 95th percentile resulting in
maximum 100% vesting of the grant.
Tranche B (ROFE): Performance
condition met at an average of 20%
per annum resulting in maximum 100%
vesting of the grant.
19 August 2019
Performance testing in progress.
August 2020
Performance testing not yet
commenced.
August 2021
Performance testing not yet
commenced.
Notes:
1
The value of performance rights at grant date calculated in accordance with AASB 2 Share-based Payments. Valuations are performed by a third party,
PWC for the 2016 to 2018 grants and Deloitte for the 2019 grant.
2 To ensure an independent TSR measurement, GWA engages the services of external organisations, Orient Capital and Deloitte, to assist with determining
performance under the TSR hurdle. In addition, KPMG is engaged to perform agreed upon procedures to assist with ROFE measurement and the accuracy
of LTI vesting outcomes.
7.3 KEY MANAGEMENT PERSONNEL TRANSACTIONS
7.3.1 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 2019 (2018: nil).
7.3.2 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 2019 (2018: 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.
30 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
7.3.3 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
A Barrass (Appointed 24 May 2019)
Executive Directors
T Salt
R Thornton
Executives
P Gibson
C Norwell
C Reil
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 20 November 2017)
Held at
1 July 2018
Granted as
compensation
Purchases
Sales
30 June 2019
Held at
150,000
40,950
38,650
1,000
10,000
n/a
36,070
120,577
10,000
–
–
–
–
–
–
–
–
262,000
65,000
119,000
63,000
–
–
–
–
2,054
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
150,000
40,950
38,650
3,054
10,000
–
298,070
185,577
129,000
63,000
–
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
–
–
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 2019 is listed in the Directors’ Report
under Directors’ Interests.
During the FY19 reporting period, there were 509,000 shares granted to key management personnel as compensation
(2018: 20,475). The aggregate number of shares held by key management personnel or their related parties at 30 June 2019
was 918,301 (2018: 407,247).
8. KEY TERMS OF EMPLOYMENT CONTRACTS
8.1 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.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 31
The following is a summary of Mr Salt’s remuneration package for FY19:
• 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 out-performance 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).
For the FY19 executive remuneration review, the market benchmark data provided by an independent adviser confirmed that
the Managing Director’s fixed remuneration was at the median level of the comparator group consisting of 18 companies with
comparable operational scope and size to GWA.
8.2 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.
8.3 TREATMENT OF INCENTIVES ON TERMINATION
The following table shows the treatment of incentives on termination of employment in the various circumstances shown.
Circumstances
Short term incentive1
Immediate termination
for cause
No STI payable and clawback provisions
may apply (including deferred STI)
Long term incentive –
unvested Performance Rights
Performance Rights are forfeited
Resignation
Board discretion to award STI on a
pro-rata basis (including deferred STI)
Performance Rights are forfeited unless
Board determines otherwise
Notice by company,
good leaver, retirement,
redundancy, death or
permanent disability
Board discretion to award STI on a
pro-rata basis (including deferred STI)
Board discretion to allow awards to vest
or remain subject to performance hurdles
after termination on a pro-rata basis
Change of control
STI will be paid on a pro-rata basis
The Board has discretion to allow awards
to vest on a change of control of GWA
(e.g. a takeover or merger).
Note:
1. Any STI payments will be paid according to the normal annual STI payment time frame (i.e. payment timing will not be accelerated).
The Directors’ Report is made out in accordance with a resolution of the directors:
Darryl D McDonough
Chairman
Tim R Salt
Managing Director
19 August 2019
32 | GWA GROUP LIMITED | 2019 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
Notes to the consolidated financial statements
NOTE
1. Significant accounting policies
2. Operating segments
3. Business combination
4. Discontinued operations
5.
Income and expenses
6. Income tax expenses
7. Earnings per share
8. Cash and cash equivalents
9. Trade and other receivables
10. Inventories
11. Deferred tax assets and liabilities
12. Property, plant and equipment
13. Intangible assets
14. Trade and other payables
15. Employee benefits
Directors’ declaration
16. Provisions
17. Loans and borrowings
18. Capital and reserves
19. Financial instruments and financial
risk management
20. Share-based payments
21. Related parties
22. Auditor’s remuneration
23. Operating lease commitments
24. Capital commitments
25. Consolidated entities
26. Deed of cross guarantee
27. Parent entity disclosures
28. Subsequent events
38
41
43
45
46
48
50
51
51
52
52
54
56
58
58
Independent Auditor’s Report to the shareholders of GWA Group Limited
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
34
35
36
37
38
59
60
61
62
69
70
71
71
72
72
73
75
75
76
77
79
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 33
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 33
CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME
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 (excluding transaction & integration costs)
Transaction & integration costs on business combination***
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, net of tax
Total comprehensive income for the period
EARNINGS PER SHARE (CENTS)
Total
– Basic
– Diluted
Continuing operations (excluding transaction
& integration costs)
– Basic
– Diluted
Continuing operations
– Basic
– Diluted
Note
2019
2018
**Restated
5a
5c
5b
5d
3
5f
6
4
7
7
7
7
7
7
381,730
(219,015)
162,715
2,014
(52,001)
(35,325)
(22)
77,381
(8,737)
68,644
414
(4,175)
(3,761)
64,883
(20,723)
44,160
50,802
94,962
(1,488)
(3,086)
(4,574)
90,388
36.0
35.8
19.6
19.5
16.7
16.6
358,622
(204,553)
154,069
383
(44,652)
(33,295)
(263)
76,242
–
76,242
374
(5,187)
(4,813)
71,429
(21,290)
50,139
4,113
54,252
(168)
5,020
4,852
59,104
20.6
20.4
19.0
18.9
19.0
18.9
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 4 for further information regarding
discontinued operations.
** Refer to Note 1(c) for information on the impact of the adoption of AASB 15 Revenue from Contracts with Customers,
including restatement of comparatives.
*** Transaction costs are a form of ‘other expenses’ however disclosed separately due to their significance.
34 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June
In thousands of AUD
CURRENT ASSETS
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
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
Derivative financial instruments
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
2019
2018
**Restated
8a
9
10
19
4
11
12
13
14
15
6
16
19
4
14
17
15
16
18
18
39,637
71,057
76,846
1,656
4,178
–
193,374
13,224
21,951
402,699
71
437,945
631,319
55,456
5,786
947
7,839
1,448
–
71,476
3,413
177,759
3,884
994
186,050
257,526
373,793
307,790
(1,289)
67,292
373,793
27,860
61,476
70,029
4,777
2,413
61,912
228,467
10,175
14,906
286,808
297
312,186
540,653
46,044
4,371
6,532
6,348
156
12,025
75,476
718
125,000
4,427
1,631
131,776
207,252
333,401
307,790
4,451
21,160
333,401
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.
Refer to Note 4 for further information regarding discontinued operations.
**
Refer to Note 1(c) for information on the impact of the adoption of AASB 15 Revenue from Contracts with Customers,
including restatement of comparatives.
GWA GROUP LIMITED | 2019 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
Proceeds from business disposal, net of transaction costs
Acquisition of subsidiary, net of cash acquired
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 from/(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
Note
2019
2018
424,661
(342,498)
82,163
(3,357)
225
(22,853)
56,178
210
(3,137)
(1,399)
98,883
(108,671)
(14,114)
193,759
(177,275)
(48,830)
–
(32,346)
9,718
29,070
849
–
39,637
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
4b
3
18
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 4 for further information regarding discontinued
operations including summarised cash flow information.
*
Including cash within assets held for sale as at 30 June 2018 which was disposed of within ‘Proceeds from business disposal,
net of transaction costs’.
36 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
In thousands of AUD
Share capital
Translation
reserve
Hedging
reserve
Equity
compensation
reserve
Retained
earnings
Total
Balance as at 1 July 2018
307,790
(1,161)
3,235
2,377
21,160
333,401
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
–
–
–
–
–
–
–
–
–
(1,488)
–
(1,488)
(1,488)
–
–
–
–
–
(3,086)
(3,086)
(3,086)
–
–
–
Balance at 30 June 2019
307,790
(2,649)
149
–
–
–
–
–
94,962
94,962
–
–
–
94,962
(1,488)
(3,086)
(4,574)
90,388
(1,166)
–
(1,166)
–
(48,830)
(48,830)
(1,166)
1,211
(48,830)
(49,996)
67,292
373,793
For the year ended 30 June 2018
In thousands of AUD
Balance at 1 July 2017
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
307,838
(993)
(1,785)
2,444
13,099
320,603
–
–
–
–
–
(48)
–
(48)
–
(168)
–
(168)
(168)
–
–
–
–
–
5,020
5,020
5,020
–
–
–
–
–
–
–
–
54,252
54,252
–
–
–
54,252
(168)
5,020
4,852
59,104
(67)
–
(67)
–
(46,191)
(46,191)
(115)
(46,191)
(46,306)
Balance at 30 June 2018
307,790
(1,161)
3,235
2,377
21,160
333,401
The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 37
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 2019 comprises
the Company and its subsidiaries (together referred to as the
‘consolidated entity’).
The principal activities during the year of the consolidated
entity were the research, design, manufacture, import, and
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 19 August 2019.
(a) Statement of compliance
The financial report is a general purpose financial report which
has been prepared in accordance with Australian Accounting
Standards (‘AASB’) adopted by the Australian Accounting
Standards Board (‘AASB’) and the Corporations Act 2001.
The consolidated entity’s financial report complies with
International Financial Reporting Standards (‘IFRS’) adopted
by the International Accounting Standards Board (‘IASB’).
(b) Basis of preparation
The financial report is presented in Australian dollars which
is the Company’s functional currency and the functional
currency of the majority of the consolidated entity.
The financial report is prepared on the historical cost basis
except for derivative financial instruments which 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
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making
the judgements about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and
future periods if the revision affects both current and future
periods. Information about significant areas of estimation
uncertainty and critical judgements in applying accounting
policies that have the most significant effect on the amount
38 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
recognised in the financial statements are described in
the following notes:
•
•
Note 3 – valuation of identifiable assets and liabilities
of businesses acquired
Note 13 – measurement of the recoverable amounts
of intangible assets
• Note 19 – 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.
Certain comparative 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 2019:
• AASB 9 Financial Instruments
AASB 9 sets out requirements for recognising and
measuring financial assets and financial liabilities, and
replaces AASB 139 Financial Instruments: Recognition
and Measurement. On adoption, there were no material changes
to the classification or measurement of financial instruments,
and no opening balance adjustments were required.
The consolidated entity has adopted the general hedge
accounting model which ensures hedge accounting
relationships are aligned with risk management objectives and
strategy, and applies a more qualitative and forward-looking
approach to assessing hedge effectiveness.
AASB 9 introduces an expected credit loss (ECL) model for
impairment of financial assets. The consolidated entity has
applied a simplified approach in calculating ECLs. Refer to
Note 9.
• AASB 15 Revenue from Contracts with Customers
The full retrospective transition method has been applied in
adopting AASB 15 and no practical expedients were made
on transition. The measurement and recognition impact of this
standard is currently limited to accounting for estimated future
stock returns.
This has led to a decrease in sales revenue and cost of sales
(no impact to gross profit), and increases in inventories, trade
and other receivables, and 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).
GWA 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
The impact accounted for in the consolidated financial report is a $0.7m decrease to sales revenue and cost of sales for the
30 June 2018 Income Statement, and increases in inventories ($1.9m), trade and other receivables ($2.8m), and trade and other
payables ($4.7m) for the 30 June 2018 Balance Sheet.
Refer to Note 5 for the consolidated entity’s revised revenue accounting policy.
• AASB 2016-5 Amendments to Australian Accounting Standards – Classification and; Measurement of Share-based Payment
Transactions; and
• AASB Interpretation 22 Foreign Currency Transactions and Advance Consideration.
The initial adoption of the above Standards and Interpretations have not had a material impact on the amounts reported,
or disclosures made, in the consolidated financial report.
(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 16 Leases
IFRIC 23 Uncertainty over Income Tax Treatments
Annual Improvements to IFRS Standards 2015-2017 Cycle
Effective for
the annual reporting
period beginning on
Expected to be
initially applied in
the period ending
1 January 2019
30 June 2020
1 January 2019
30 June 2020
1 January 2019
30 June 2020
The consolidated entity is assessing the potential impact of the above standards and interpretations issued but not yet effective
on its consolidated financial statements.
AASB 16 will be first applicable for the year commencing 1 July 2019. The impact of this standard will 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.
The consolidated entity will initially apply the new standard using the full retrospective approach, which requires restatement of
comparative information (e.g. 30 June 2019 results and balances in the 30 June 2020 financial statements), including an adjustment
to opening retained earnings. The consolidated entity is in the final stages of its assessment determining the impact on its
consolidated financial statements, and estimates the impact to be approximately as follows:
Statement of Financial Position as at 30 June 2019
Right of use assets
Liabilities (lease liabilities, payables & make good provisions)
Deferred tax asset
Retained earnings
Income Statement for the year ending 30 June 2019
EBITDA
EBIT
Profit/(loss) before tax
AUD 'm
47.9 – 50.3
(53.9) – (56.6)
1.6 – 2.0
4.1 – 4.5
AUD 'm
10.4 – 10.9
0.7 – 0.9
(1.1) – (1.4)
Adjustments are also required for any prepayment or accrued lease payments recognised in the financial position prior to adoption.
Operating cash flows will increase and financing cash flows will decrease as the principle portion of the lease liabilities will be
classified as financing cash flows.
Included within non-cancellable operating lease commitments (refer note 23) are low value leases (less than AUD5,000)
and the consolidated entity will adopt the practical expedient to recognise these leases on a straight-line basis as an expense
in the Income Statement.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION I: OVERVIEW CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
(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 a business
combination shall be measured at fair value, which shall be
calculated as the sum of the business combination date fair
values of the assets transferred by the acquirer, the liabilities
incurred by the acquirer to former owners of the acquiree
and the equity issued by the acquirer, and the amount of any
non-controlling interest in the acquiree. 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.
(e) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are retranslated to Australian dollars at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in profit or
loss. Non-monetary assets and liabilities that are measured in
terms of historical cost in a foreign currency are retranslated
to Australian dollars using the exchange rate at the date of the
transaction. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at fair value are translated to
Australian dollars at foreign exchange rates ruling at the date
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 balance date are recognised in
other comprehensive income, 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.
(f) Current vs non-current classification
The consolidated entity presents assets and liabilities in the
consolidated statement of financial position based on current/
non-current classification.
An asset is current when it is:
•
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
months after the reporting period.
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.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current
assets and liabilities.
40 | GWA GROUP LIMITED | 2019 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 two continuing reportable segments for the year ended 30 June 2019; Bathrooms & Kitchens and Methven.
The Bathrooms & Kitchens segment includes the sale of vitreous china toilet suites, basins, plastic cisterns, tapware, baths, kitchen
sinks, laundry tubs and bathroom accessories. The Methven segment includes the sale of showerware, tapware and domestic water
control valves. The CEO reviews internal management reports on a monthly basis.
Information regarding the results of the reportable segments are 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, transaction and integration costs, 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 4 for further information regarding discontinued operations.
In thousands
of AUD
For the year
ended 30 June
Bathrooms
& Kitchens
Methven
Discontinued
Total
2019
2018
2019
2018
2019
2018
2019
2018
Sales revenue
358,658
358,622
23,072
93,890
381,730
452,512
–
–
–
–
–
–
–
–
–
8,176
91,192
50,060
(1,860)
50,060
50,060
6,316
141,252
97,978
(1,860)
96,118
–
–
–
825
304
3,588
2,858
156
304
1,143
2,869
10,720
Segment EBIT
before gain on
sale
Gain on sale*
90,220
89,802
–
–
Segment EBIT
90,220
89,802
972
–
972
403
156
995
3,185
–
2,033
–
1,874
9,577
Depreciation
Amortisation
Capital
expenditure
As at
Reportable
segment assets
Reportable
30 June
2019
30 June
2018
30 June
2019
30 June
2018
30 June
2019
30 June
2018
30 June
2019
30 June
2018
412,426
430,765
159,157
segment liabilities
41,379
46,758
21,416
–
–
–
–
57,612
571,583
488,377
12,025
62,795
58,783
*
Gain on sale of discontinued operations excluding tax benefit. Refer to Note 4 for further information regarding the gain on sale
of discontinued operations.
GWA GROUP LIMITED | 2019 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
Transaction & integration costs on business combination**
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 | 2019 ANNUAL REPORT
2019
2018
381,730
–
381,730
141,252
(50,060)
(13,811)
77,381
(8,737)
(3,761)
64,883
571,583
59,736
631,319
62,795
194,731
257,526
3,588
–
146
3,734
156
–
1,068
1,224
2,869
–
1,457
4,326
452,512
(93,890)
358,622
96,118
(6,316)
(13,560)
76,242
–
(4,813)
71,429
488,377
52,276
540,653
58,783
148,469
207,252
2,858
(825)
379
2,412
304
(304)
1,517
1,517
10,720
(1,143)
1,748
11,325
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
2. OPERATING SEGMENTS CONTINUED
Geographical information
In thousands of AUD
2019
2018
2019
2018
2019
2018
2019
2018
External sales revenue
342,406
429,230
31,401
23,941
Non-current assets*
340,058
301,159
74,246
852
7,923
10,417
–
–
381,730
453,171
424,721
302,011
Australia
New Zealand
Other
Consolidated
* Non-current assets exclude financial instruments and deferred tax assets.
The revenue information above is based on the geographical location of customers. Non-current assets are based on the
geographical location of the assets.
Major customers
The consolidated entity conducts business with four customers (2018: three) where the net revenue generated from each customer
exceeds 10% of the consolidated entity’s net revenue. Net revenue from these customers was:
In thousands of AUD
Customer in all segments
Customer in all segments
Customer in all segments*
Customer in all segments**
2019
79,370
65,136
48,122
45,183
2018
75,874
65,654
42,911
65,194
* Customer over 10% threshold in 2019 but not in 2018. Comparative added for information purposes.
**
2018 consolidated net revenue was $65,194,000. Of which, $45,182,000 was from continuing operations and $20,012,000
from discontinued operations (Door & Access Systems). 2019 consolidated net revenue is from continuing operations only.
3. BUSINESS COMBINATION
On 10 April 2019, the consolidated entity acquired 100% of the share capital of Methven Limited.
The acquisition provides a number of strategic benefits, strengthening the consolidated entities’ position in bathroom and kitchen
fixtures across Australia and New Zealand, provides a platform for international growth, and opportunity to realise product, freight,
logistics, and public company cost savings.
The provisional amount of goodwill recognised of $48,963,000 comprises the value of synergies to be achieved as a result of
combining Methven Limited and its subsidiaries (‘Methven’) with the rest of the consolidated entity, as well as intangible assets
that do not qualify for separate recognition. None of the goodwill recognised is expected to be deductible for tax purposes.
The fair value of the identifiable assets and liabilities of Methven as at the date of the acquisition recognised in the financial
statements for the year ended 30 June 2019, as disclosed on the following page, have been determined on a provisional basis
only due to the timing of the acquisition. As such, goodwill has not yet been allocated to cash-generating units (CGU’s) or group
of CGU’s.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION II: RESULTS FOR THE YEAR CONTINUED
3. BUSINESS COMBINATION CONTINUED
In thousands of AUD
Cash and cash equivalents
Trade and other receivables
Inventories
Other assets
Deferred tax assets
Property, plant and equipment
Intangible assets
Trade and other payables
Employee benefits
Income tax payable
Loans and borrowings
Provisions
Derivative financial instruments
Fair value of identifiable net assets – provisional
Goodwill arising on acquisition – provisional
Cash paid
Acquisition date fair value of consideration transferred
Direct costs relating to the acquisition
Integration costs
Transaction and integration costs on business combination
Cash acquired on acquisition
Cash paid
Net consolidated cash outflow
10 April 2019
3,762
14,518
21,955
1,867
4,178
7,453
68,336
(16,995)
(1,636)
(226)
(36,275)
(3,296)
(171)
63,470
48,963
112,433
112,433
112,433
5,843
2,894
8,737
3,762
(112,433)
(108,671)
The fair value of the acquired receivables amounts to $14,518,000. The gross contractual amount receivable was $14,551,000,
however only the fair value amount is expected to be collected.
Various valuation techniques were used to determine fair value of the identifiable assets and liability of Methven.
The relief-from-royalty method was used to value identifiable intangibles.
For the period 10 April 2019 to 30 June 2019, Methven contributed the following amounts to the consolidated entities’ results:
In thousands of AUD
Sales revenue
(Loss) after tax – including integration costs
Profit after tax – excluding integration costs
23,072
(425)
201
If the acquisition had occurred on 1 July 2018, the results of the continuing operations of the consolidated entity would have
been approximately:
In thousands of AUD
Sales revenue
Profit after tax – including transaction & integration costs
Profit after tax – excluding transaction & integration costs
453,790
43,750
55,017
44 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
4. 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 was classified as held for sale at 30 June 2018.
(a) Results of discontinued operations
In thousands of AUD
For the year ended 30 June
Revenue
Expenses
Profit before tax from operating activities
Tax expense on operating activities
Profit from operating activities
Gain on sale of discontinued operations*
Profit
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
* Gain on sale of discontinued operations calculated as follows:
For the year ended 30 June 2019
Consideration proceeds
Net assets and liabilities
Disposal costs
Tax benefit on disposal costs
For the year ended 30 June 2018
Disposal costs
Tax benefit on disposal costs
Total gain on sale of discontinued operations
2019
2018
93,890
(85,714)
8,176
(2,391)
5,785
(1,672)
4,113
1.6
1.5
–
–
–
–
–
50,802
50,802
19.2
19.2
105,370
(50,595)
(4,715)
742
50,802
(1,860)
188
(1,672)
49,130
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION II: RESULTS FOR THE YEAR CONTINUED
(b) Cash flows from discontinued operations
In thousands of AUD
For the year ended 30 June
Net cash from operating activities
Net cash from/(used in) investing activities*
Net cash from discontinued operations
* Including net cash inflow from disposal of discontinued operations:
Consideration proceeds
Cash and cash equivalents disposed of
Disposal costs cash flows
Proceeds from business disposal, net of transaction costs
(c) Effect on the financial position of the consolidated entity
2019
–
98,883
98,883
105,370
(1,210)
104,160
(5,277)
98,883
2018
12,343
(1,889)
10,454
–
–
–
(1,889)
(1,889)
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
5.
INCOME AND EXPENSES
(a) Sales revenue
In thousands of AUD
Sales revenue
As at
30 June 2018
1,210
10,027
17,106
136
3,530
26,803
3,100
61,912
(6,380)
(4,625)
(1,020)
(12,025)
2019
2018
381,730
358,622
381,730
358,622
Sales revenue is recognised on the satisfaction of each performance obligation the consolidated entity has with its customers,
and is measured based on an allocation of the contract’s transaction price. The consolidated entity’s key performance obligation
is the delivery of goods to its customers. Key components of the transaction price include the price for the goods, along with
retrospective rebates and stock return estimates.
Refer to Note 2 geographical segments for disaggregated revenue information.
46 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION II: RESULTS FOR THE YEAR CONTINUED
5. INCOME AND EXPENSES CONTINUED
(b) Other income
In thousands of AUD
Foreign currency gains
Other – transitional services income, scrap income, royalties
(c) Cost of sales
In thousands of AUD
Cost of sales
2019
106
1,908
2,014
2018
185
198
383
2019
219,015
219,015
2018
204,553
204,553
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
2019
22
–
22
2019
60,912
1,113
2018
253
10
263
2018
61,714
474
62,025
62,188
Superannuation
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 $3,738,000 for the financial year ended 30 June 2019 (2018: $3,725,000) for
continuing operations.
(f) Net financing costs
In thousands of AUD
Finance income
Finance expense
Interest expense on financial liabilities
Interest expense on swaps
Fees on financial liabilities including amortisation
Net financing costs
2019
414
3,572
331
272
4,175
3,761
2018
374
4,523
348
316
5,187
4,813
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
5. INCOME AND EXPENSES CONTINUED
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.
6. 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% (2018: 30%)
Tax expense/(benefit) due to:
Non-deductible expenses
Effect of tax rate in foreign jurisdictions
Non-deductible transaction & integration costs on business combination
Non-assessable accounting gain on disposal of discontinued operations
on capital account (2018: 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
48 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
2019
2018
18,310
(81)
18,229
2,494
20,723
(742)
19,981
64,883
50,060
114,943
34,483
184
(23)
1,454
(15,760)
(158)
(118)
20,062
(81)
19,981
(1,320)
25
(1,295)
20,743
(74)
20,669
621
21,290
2,203
23,493
71,429
6,316
77,745
23,324
147
(40)
–
370
(200)
(12)
23,589
(96)
23,493
2,151
25
2,176
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION II: RESULTS FOR THE YEAR CONTINUED
6. INCOME TAX EXPENSES CONTINUED
Income tax
Tax expense comprises current and deferred tax. Current and deferred taxes are recognised in profit or loss except to the extent
that they relate 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.
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.
In thousands of AUD
Current tax liability
30 June 2019
30 June 2018
947
6,532
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.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 49
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION II: RESULTS FOR THE YEAR CONTINUED
7. EARNINGS PER SHARE
In cents
Total
– Basic
– Diluted
Continuing operations
– Basic
– Diluted
- Basic (excluding transaction & integration costs)
- Diluted (excluding transaction & integration costs)
Discontinued operations
– Basic
– Diluted
2019
36.0
35.8
16.7
16.6
19.6
19.5
19.2
19.2
2018
20.6
20.4
19.0
18.9
19.0
18.9
1.6
1.5
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 and diluted
In thousands of AUD
Continuing operations
Profit before transaction & integration costs
Net transaction & integration costs
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year
2019
2018
51,757
(7,597)
44,160
50,802
94,962
50,139
–
50,139
4,113
54,252
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
2019
263,948
263,948
2018
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 (diluted)
In thousands of AUD
Weighted average number of ordinary shares (basic)
Effect of performance rights on issue
Weighted average number of ordinary shares (diluted)
2019
263,948
1,319
265,267
2018
263,948
1,515
265,463
50 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION III: ASSETS AND LIABILITIES CONTINUED
8. CASH AND CASH EQUIVALENTS
(a) Balances
In thousands of AUD
Bank balances
Cash and cash equivalents
2019
39,637
39,637
2018
27,860
27,860
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 19.
(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
Gain on sale of the Door & Access Systems' business
Cash flow hedge movements
Other non-cash movements
Changes in assets and liabilities*:
Decrease/(increase) in trade and other receivables
Decrease/(increase) 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.
9. TRADE AND OTHER RECEIVABLES
In thousands of AUD
Net trade receivables
Other
2019
94,962
3,734
1,223
(1,624)
(36)
(160)
(50,802)
4,413
(3,160)
4,938
15,138
328
(4,888)
(4,682)
(3,206)
56,178
2019
70,151
906
71,057
2018
54,252
3,237
1,821
(167)
135
15
–
7,172
(1,532)
(10,418)
(14,816)
120
1,688
1,934
(4,283)
39,158
2018
61,287
189
61,476
Trade receivables are initially measured at the transaction price determined under AASB 15 (refer to Note 5(a)) and subsequently
measured at amortised cost using the effective interest rate (EIR) method and are subject to impairment. Impairment losses are
recognised in profit or loss and reflected in an allowance account against trade receivables.
The consolidated entity recognises an allowance for expected credit losses (ECLs) for trade receivables. ECLs are based on the
difference between the contractual cash flows due in accordance with the contract and all the cash flows expected to be received,
discounted at an approximation of the original EIR.
The consolidated entity applies a simplified approach in calculating ECLs. Therefore, the consolidated entity does not track changes
in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The consolidated entity has
established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific
to the debtors and the economic environment.
The consolidated entity’s exposure to credit and currency risk and impairment loss related to trade and other receivables are
disclosed in Note 19.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION III: ASSETS AND LIABILITIES CONTINUED
10. INVENTORIES
In thousands of AUD
Raw materials and consumables
Work in progress
Finished goods
2019
2,763
466
73,617
76,846
2018
–
259
69,770
70,029
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
(i.e. ageing analysis), discontinued product lines and risk weightings applied by management with reference to their assessment
of recovery rates.
11. 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
2019
1,028
732
3,522
2,934
2,860
3,849
14,925
(1,701)
13,224
2018
–
752
2,763
2,638
3,229
2,483
11,865
(1,690)
10,175
2019
(924)
(777)
–
–
–
–
(1,701)
1,701
–
2018
(311)
–
–
–
–
(1,379)
(1,690)
1,690
2019
104
(45)
3,522
2,934
2,860
3,849
13,224
–
2018
(311)
752
2,763
2,638
3,229
1,104
10,175
–
–
13,224
10,175
52 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
11. DEFERRED TAX ASSETS AND LIABILITIES CONTINUED
Movement in temporary differences during the year
In thousands of AUD
Property, plant & equipment
Intangible assets
Inventories
Employee benefits
Provisions
Other items
In thousands of AUD
Property, plant & equipment
Intangible assets
Inventories
Employee benefits
Provisions
Other items
Balance
1 July 18
Recognised
in income
Recognised
in equity
Exchange
differences
Acquisition
of subsidiary
Balance
30 June 19
(311)
752
2,763
2,638
3,229
1,104
10,175
(626)
(21)
(1,430)
(184)
(1,434)
1,201
(2,494)
–
–
–
–
–
1,295
1,295
(5)
2
(5)
(1)
(1)
80
70
1,046
(778)
2,194
481
1,066
169
4,178
104
(45)
3,522
2,934
2,860
3,849
13,224
Recognised
in income
Recognised
in equity
Reclassified
to assets
classified
Held for Sale
Balance
30 June 18
Balance
1 July 17
(15)
1,103
3,893
4,152
4,452
2,438
16,023
(348)
(107)
31
(126)
(917)
895
(572)
–
–
–
–
–
(2,176)
(2,176)
52
(244)
(1,161)
(1,388)
(306)
(53)
(3,100)
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
2019
15,203
–
The deductible capital losses accumulated at balance date do not expire under current tax legislation.
Refer to Note 6 for the consolidated entity’s accounting policy on deferred tax.
(311)
752
2,763
2,638
3,229
1,104
10,175
2018
71,337
275
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
Plant and
equipment
Work in
progress
39,712
2,614
5,797
(680)
828
187
48,458
43,080
9,849
(11,148)
(3,756)
1,717
(30)
39,712
(25,767)
(3,734)
680
(28)
(28,849)
(34,868)
(3,237)
8,642
3,685
11
(25,767)
961
504
1,656
–
(828)
49
2,342
2,281
1,421
(1,024)
–
(1,717)
–
961
–
–
–
–
–
–
–
–
–
–
–
Total
40,673
3,118
7,453
(680)
–
236
50,800
45,361
11,270
(12,172)
(3,756)
–
(30)
40,673
(25,767)
(3,734)
680
(28)
(28,849)
(34,868)
(3,237)
8,642
3,685
11
(25,767)
19,609
13,945
2,342
961
21,951
14,906
SECTION III: ASSETS AND LIABILITIES CONTINUED
12. PROPERTY, PLANT AND EQUIPMENT
In thousands of AUD
Cost
Balance at 1 July 2018
Additions
Acquisition of controlled entities
Disposals
Transfers
Exchange rate movements
Balance at 30 June 2019
Balance at 1 July 2017
Additions
Transferred to assets classified as held for sale
Disposals
Transfers
Exchange rate movements
Balance at 30 June 2018
Depreciation and impairment losses
Balance at 1 July 2018
Depreciation
Disposals
Exchange rate movements
Balance at 30 June 2019
Balance at 1 July 2017
Depreciation
Transferred to assets classified as held for sale
Disposals
Exchange rate movements
Balance at 30 June 2018
Carrying amounts
As at 30 June 2019
As at 30 June 2018
54 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
12. 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.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
13. INTANGIBLE ASSETS
In thousands of AUD
Cost
Balance at 1 July 2018
Acquisition of controlled entities
Additions
Disposals
Exchange rate movements
Balance at 30 June 2019
Balance at 1 July 2017
Additions
Transferred to assets classified
as held for sale
Disposals
Transfers
Exchange rate movements
Balance at 30 June 2018
Amortisation and impairment losses
Balance at 1 July 2018
Amortisation
Disposals
Exchange rate movements
Balance at 30 June 2019
Balance at 1 July 2017
Amortisation
Transferred to assets classified
as held for sale
Disposals
Balance at 30 June 2018
Carrying amounts
As at 30 June 2019
As at 30 June 2018
Software
Brand names
Trade names, designs,
patents and customer
relationships
Goodwill
Total
30,202
474
950
–
(8)
31,618
29,642
1,205
–
(645)
–
30,202
(27,575)
(1,224)
–
51
(28,748)
(26,706)
(1,516)
–
647
(27,575)
284,181
63,208
–
–
(421)
346,968
302,800
–
(18,602)
–
(17)
284,181
–
–
–
–
–
–
–
–
–
–
–
–
4,654
48,963
478
(50)
(75)
5,007
–
–
(1,109)
47,854
314,383
117,299
1,428
(50)
(1,613)
431,447
5,580
6,006
344,028
–
–
1,205
(5,580)
(6,006)
(30,188)
–
–
–
–
–
–
–
–
(3,080)
(305)
3,385
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(645)
–
(17)
314,383
(27,575)
(1,224)
–
51
(28,748)
(29,786)
(1,821)
3,385
647
(27,575)
2,870
2,627
346,968
284,181
5,007
47,854
–
–
402,699
286,808
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.
56 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
13. INTANGIBLE ASSETS CONTINUED
Recognition and measurement continued
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.
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
•
• designs
• patents
• customer relationships 8 years
indefinite
indefinite
3-5 years
10-20 years
15 years
3-19 years (based on patent term)
trade names
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 or CGU’s.
Subject to an operating segment ceiling test, CGU’s to which goodwill has been allocated are aggregated so that the level at which
impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in
a business combination is allocated to groups of 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
Unallocated
Refer to Note 3 for further information on unallocated goodwill.
2019
284,199
110,623
394,822
2018
284,181
–
284,181
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION III: ASSETS AND LIABILITIES CONTINUED
13. INTANGIBLE ASSETS CONTINUED
Impairment testing for brand names
The recoverable amounts of Bathrooms & Kitchens’ brand names were assessed as at 30 June 2019 based on internal value in use
calculations and no impairment was identified (2018: 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 2.6% (2018: 2.5%) 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 (2018: 12.8%).
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 2019 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.
14. TRADE AND OTHER PAYABLES
In thousands of AUD
Current
Trade payables and accrued expenses
Non-current
Trade payables and accrued expenses
2019
2018
55,456
46,044
3,413
718
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 19.
2019
2018
4,837
949
5,786
3,265
1,106
4,371
3,884
4,427
15. EMPLOYEE BENEFITS
In thousands of AUD
Current
Liability for annual leave
Liability for long service leave
Non-current
Liability for long service leave
58 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION III: ASSETS AND LIABILITIES CONTINUED
15. 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.
16. PROVISIONS
In thousands of AUD
Balance at 1 July 2018
Acquisition of controlled entities
Additional provisions made/(written back)
Provisions used
Exchange rate differences
Balance at 30 June 2019
Current
Non-current
Warranties
Restructuring
Site
restoration
2,018
2,495
(121)
–
(9)
4,383
4,383
–
4,383
3,984
–
–
(2,291)
–
1,693
1,693
–
1,693
1,341
801
136
–
(9)
2,269
1,637
632
2,269
Other
636
–
–
(148)
–
488
126
362
488
Total
7,979
3,296
15
(2,439)
(18)
8,833
7,839
994
8,833
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.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT
17. 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, refer to
note 19.
Non-current liabilities
In thousands of AUD
Unsecured cash advance facilities
Financing facilities
Facilities available
Unsecured cash advance facilities
Bank guarantees and standby letters of credit
Facilities utilised at reporting date
Unsecured cash advance facilities
Bank guarantees and standby letters of credit
Facilities not utilised at reporting date
Unsecured cash advance facilities
Bank guarantees and standby letters of credit
2019
177,759
2018
125,000
250,000
7,418
257,418
177,759
3,808
181,567
72,241
3,610
75,851
225,000
9,000
234,000
125,000
1,799
126,799
100,000
7,201
107,201
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 using the effective interest rate (EIR) method. The EIR amortisation is
included as finance costs in profit or loss.
Unsecured cash advance facility
On 10 April 2019, GWA increased its syndicate banking facility limit by $25,000,000 to $250,000,000. The facility comprises a single
revolving facility which matures in October 2020, and was drawn in the following currencies.
In thousands of AUD
AUD
NZD
GBP
2019
115,000
61,500
2,200
2018
125,000
–
–
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 (refer Note 19d).
Bank guarantee and standby letter of credit facilities
The bank guarantee and standby letter of credit facilities are committed facilities available to be drawn down under the facility
agreement. The limits are specified in the facility agreement.
60 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. 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
2019
263,948
–
2018
263,948
–
2019
307,790
–
2018
307,838
(48)
On issue at 30 June – fully paid
263,948
263,948
307,790
307,790
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 20).
Dividends
Dividends recognised in the current year are:
2019
Interim 2019 ordinary
Final 2018 ordinary
Total amount
2018
Interim 2018 ordinary
Final 2017 ordinary
Total amount
Costs per share
(In cents)
Total amount
(In thousands of
AUD)
9.0
9.5
18.5
8.5
9.0
17.5
23,755
25,075
48,830
22,436
23,755
46,191
Franked
Date of Payment
100%
100%
5th March 2019
6th September 2018
100%
100%
6th March 2018
5th September 2017
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
retained earnings in accordance with the Corporations Act 2001. The dividends have not been provided for as at the balance date.
The declaration and subsequent payment of the dividend has no income tax consequences
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
18. CAPITAL AND RESERVES CONTINUED
Dividends declared
Final 2019 ordinary
Costs per share
(In cents)
9.5
Total amount
(In thousands
of AUD)
25,075
Franked
Date of Payment
100%
4th September 2019
The financial effect of these dividends has not been brought to account in the financial statements for the financial year ended
30 June 2019 and will be recognised in subsequent financial reports.
Dividend franking account
In thousands of AUD
30 per cent franking credits available to shareholders of GWA Group Limited
for subsequent financial years (i.e. prior to payment of final 2019 ordinary dividend.)
The Company
2019
2018
13,371
16,936
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.
19. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
(a) Policies
Exposure to credit, interest rate and currency risks arise 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 Audit and Risk Committee 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.
62 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
19. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(a) Policies continued
Derivative financial instruments 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 hedged items. 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.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
19. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(b) Credit risk continued
The consolidated entity has four major customers which comprise 83% of the trade receivables carrying amount at 30 June 2019
(2018: three customers comprising 58% of trade receivables).
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
2019
39,637
70,151
906
110,694
2018
27,860
61,287
189
89,336
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
2019 Receivables
2019 Impairment
2018 Receivables
2018 Impairment
67,283
18,545
1,296
109
225
(17,236)
70,222
–
–
(53)
–
(18)
–
(71)
49,403
29,224
325
99
11
(17,774)
61,288
–
–
–
–
(1)
–
(1)
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
Acquisition of controlled entities
Impairment losses (recognised)/written back
Provisions used during the year
Reclassification to assets held for sale
Balance at 30 June
(c) Liquidity risk
2019
(1)
(33)
(62)
25
–
(71)
2018
(20)
–
3
5
11
(1)
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.
64 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
19. 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
2019
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
(177,759)
(185,869)
(3,139)
(3,139)
(179,591)
–
–
Trade and other payables
(58,869)
(59,373)
(58,554)
–
(117)
(351)
(351)
Derivative financial instruments
Interest rate swaps used for hedging (net)
(1,448)
(1,448)
(293)
(299)
(466)
(390)
Forward exchange contracts used for
hedging (net)
1,656
1,656
1,408
248
–
–
–
–
Total at 30 June 2019
(236,420)
(245,034)
(60,578)
(3,190)
(180,174)
(741)
(351)
2018
Non-derivatives financial liabilities
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
(d) Market risk
4,777
4,777
3,105
(162,481)
(173,788)
(40,961)
1,672
(725)
–
–
(4,885)
(126,749)
(468)
–
–
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 in Australia, New Zealand
and the United Kingdom.
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 and New Zealand dollars, have been entered into to achieve an appropriate mix of
fixed and floating rate exposure.
As at 30 June 2019, the consolidated entity had interest rate swaps in operation with a notional contract amount of $119,117,000
(2018: $50,000,000). These swaps have fixed rates ranging from 1.49% to 2.30% (2018: 2.20% to 2.30%) and mature over the next
four years.
The consolidated entity also has a replacement interest rate swap effective in the following financial year with a notional contract
amount of $25,000,000. This swap has a fixed rate of 1.37% and matures over the next 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 2019 of $1,448,000 was recognised as a fair value derivative liability (2018: $156,000
liability). No hedge ineffectiveness was recognised, and therefore the full movement in the value of the hedging instrument was
recognised in Other Comprehensive Income.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
19. 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
Cash
Fixed rate financial instruments
Interest rate swap derivatives
2019
Notional
value
2019
Carrying
amount
2018
Notional
value
2018
Carrying
amount
(177,759)
39,637
(138,122)
(177,759)
(125,000)
(125,000)
39,637
(138,122)
27,860
(97,140)
27,860
(97,140)
144,117
(1,448)
50,000
(156)
Total
5,995
(139,570)
(47,140)
(97,296)
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.
2019
2019
2018
2018
Post Tax
Profit
53
(53)
(84)
84
(3)
3
OCI*
1,293
(1,293)
Post Tax
Profit
(339)
169
OCI*
579
(289)
342
(342)
–
–
–
–
–
–
–
–
–
–
In thousands of AUD – Higher / (Lower)
AUD denominated loans
+75 basis points (2018: +100 basis points)
-75 basis points (2018: -50 basis points)
NZD denominated loans
+75 basis points
-75 basis points
GBP denominated loans
+50 basis points
-50 basis points
* Other Comprehensive Income: cash flow hedges, net of tax
66 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
19. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(d) Market risk continued
(ii) Foreign currency risk
The consolidated entity is exposed to foreign currency risk on sales, purchases and asset and liability holdings that are denominated
in a currency other than the respective functional currencies of its subsidiaries. The currencies giving rise to this risk are primarily
USD and RMB.
The consolidated entity hedges its foreign currency exposure in respect of forecasted sales and purchases by entering into forward
exchange contracts. The forward exchange contracts have maturities of up to 12 months after the balance date.
Forward exposure for the 12 months after the
balance date covered by forward exchange contracts
AUD:USD
AUD:RMB
NZD:USD
GBP:USD
2019
77%
78%
82%
83%
2018
79%
78%
–
–
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 2019 of $1,656,000 was recognised as a fair value derivative asset (2017: $4,777,000 asset).
The consolidated entity is also exposed to foreign currency risk on retranslation of the financial statements of foreign subsidiaries
into AUD. The currencies giving rise to this risk are NZD, GBP and RMB. The consolidated entity hedges this exposure by holding
net borrowings in foreign currencies, and designates these as net investment hedges.
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, as well as from changes in the net borrowings in foreign currencies designated as net
investment hedges (these movements will offset the translation of the financial statements foreign subsidiaries into AUD).
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 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)
10% increase in USD:NZD – OCI (cash flow hedges, net of tax)
10% decrease in USD:NZD – OCI (cash flow hedges, net of tax)
10% increase in USD:GBP – OCI (cash flow hedges, net of tax)
10% decrease in USD:GBP – 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 (net investment hedge, net of tax)
10% decrease in NZD:AUD – OCI (net investment hedge, net of tax)
GBP
10% increase in GBP:AUD – OCI (net investment hedge, net of tax)
10% decrease in GBP:AUD – OCI (net investment hedge, net of tax)
2019
5,573
(4,961)
485
(593)
451
(551)
2,500
(2,045)
(3,186)
2,607
(442)
361
2018
5,971
(4,885)
–
–
–
–
1,717
(1,405)
–
–
–
–
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION IV. FUNDING AND RISK MANAGEMENT CONTINUED
19. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED
(e) Fair values
The carrying value of financial assets and liabilities as at 30 June 2019 equalled fair value (30 June 2018: equalled fair value).
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.
(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 the balance date plus an adequate constant credit spread to discount
financial instruments. The interest rates used are as follows:
Derivatives
Loans and borrowings denominated in AUD
Loans and borrowings denominated in NZD
Loans and borrowings denominated in GBP
(v) Fair value hierarchy
2019
2.0% – 2.1%
3.3% – 3.8%
3.2% – 3.7%
2.1% – 2.6%
2018
2.0% – 2.1%
3.3% – 3.8%
–
–
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 2019
Forward contracts used for hedging
Interest rate swaps used for hedging
30 June 2018
Forward contracts used for hedging
Interest rate swaps used for hedging
68 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
Level 1
Level 2
Level 3
Total
–
–
–
–
–
–
1,656
(1,448)
208
4,777
(156)
4,621
–
–
–
–
–
–
1,656
(1,448)
208
4,777
(156)
4,621
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION V. OTHER INFORMATION CONTINUED
20. 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 2018/19 year and 2017/18 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.
For performance rights granted to executives in the 2018/19 year and 2017/18 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
ROFE equal to 16% per annum
Proportion of Performance Rights
to Vest if ROFE hurdle is met
0%
12.5%
ROFE between 16% and 19% per annum
Straight line vesting between 12.5% and 50%
ROFE equal to 19% or higher per annum
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 (equity compensation reserve), 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 617,000 performance rights were granted to employees (2018: 537,000) at a weighted average fair value of
$2.23 (TSR) and $2.92 (ROFE) (2018: $1.43 (TSR) and $2.38 (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 5.39%, the risk free rate
was 1.69% and annualised share price volatility was 34% for the Company and its comparator companies listed for the TSR hurdle.
The amount recognised as personnel expenses (Note 5) in the current financial year was $1,112,587 (2018: $473,879).
For further details of the Long Term Incentive (Equity) Plan, refer to the Remuneration Report section of the Directors’ Report.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION V. OTHER INFORMATION CONTINUED
20. SHARE-BASED PAYMENTS CONTINUED
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
2019
2018
23/03/2016
30/06/2018
24/02/2017
30/06/2019
19/02/2018
30/06/2020
18/02/2019
30/06/2021
767,750
464,972
537,000
–
1,769,722
25/02/2015
30/06/2017
423,000
23/03/2016
30/06/2018
24/02/2017
30/06/2019
19/02/2018
30/06/2020
819,000
581,500
–
1,823,500
–
–
–
617,000
617,000
–
–
–
537,000
537,000
(767,750)
–
–
–
–
–
(3,750)
461,222
–
–
537,000
617,000
(767,750)
(3,750)
1,615,222
(211,500)
(211,500)
–
–
–
–
(51,250)
767,750
(116,528)
464,972
–
537,000
(211,500)
(379,278)
1,769,722
21. RELATED PARTIES
Key management personnel compensation
The key management personnel compensation included in personnel expenses (Note 5) are as follows:
In AUD
Short-term employee benefits
Post-employment benefits
Termination benefits
Share-based payments
Other long term employee benefits
2019
4,835,884
190,452
–
880,895
6,325
5,913,556
2018
4,947,173
179,468
–
725,436
6,327
5,858,404
Individual directors and executives compensation disclosures
Information regarding individual and executives compensation is provided in the Remuneration Report section of the Directors’ Report.
70 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION V. OTHER INFORMATION CONTINUED
22. AUDITOR’S REMUNERATION
In AUD
The auditor of GWA Group Limited is KPMG Australia.
2019
2018
Audit services
KPMG Australia:
Audit and review of financial reports
Other assurance services
Overseas KPMG Firms:
KPMG – Audit of financial reports
Non-KPMG audit firms:
PwC - Audit of financial reports
Other services
KPMG Australia:
Other services
Overseas KPMG Firms:
Taxation services
23. 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
403,710
15,965
17,000
436,675
181,900
618,575
–
9,118
9,118
2019
13,210
49,360
24,091
86,661
393,000
15,375
17,000
425,375
–
425,375
–
29,000
29,000
2018
12,897
27,498
20,064
60,459
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 2019, $12,126,000 (2018: $15,282,000) was recognised as an expense in profit or loss
in respect of operating leases.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
SECTION V. OTHER INFORMATION CONTINUED
24. CAPITAL COMMITMENTS
Capital expenditure commitments for plant and equipment purchases contracted but not provided for are payable as follows:
In thousands of AUD
Less than one year
25. CONSOLIDATED ENTITIES
Parent entity
GWA Group Limited
Subsidiaries
API Services and Solutions Pty Limited(d)
Austral Lock Pty Ltd(b)
Canereb Pty Ltd
Caroma Holdings Limited
Caroma Industries Limited
Caroma Industries (NZ) Limited
Caroma International Pty Ltd(b)
Corille Limited(b)
Deva Tap Company Ltd
Dorf Clark Industries
Dorf Industries (NZ) Ltd(c)
G Subs Pty Ltd(b)
Gainsborough Hardware Industries Limited(d)
GWA Finance Pty Limited
GWA Group Holdings Limited
GWAIL (NZ) Ltd
GWA Taps Manufacturing Limited(b)
GWA Trading (Shanghai) Co Ltd
Heshan Methven Bathroom Fittings Co. Limited
Industrial Mowers (Australia) Limited
Methven Australia Pty Limited(a)
Methven Hotel Solutions Pty Ltd
Methven Limited
Methven UK Limited
Methven USA Inc
McIlwraith Davey Pty Ltd(b)
Plumbing Supplies (NZ) Ltd
Sebel Furniture Holdings Pty Ltd(b)
Starion Tapware Pty Ltd(b)
Stylus Pty Ltd(b)
2019
3,438
3,438
2018
1,888
1,888
Parties
to cross
guarantee
Country
of incorporation
Ownership Interest
2019
2018
Y
Australia
N
N
N
Y
Y
N
N
N
N
N
N
N
N
Y
Y
N
N
N
N
N
Y
N
N
N
N
N
N
N
N
N
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
United Kingdom
Australia
New Zealand
Australia
Australia
Australia
Australia
New Zealand
Australia
China
China
Australia
Australia
Australia
New Zealand
United Kingdom
USA
Australia
New Zealand
Australia
Australia
Australia
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
–
100%
100%
100%
100%
100%
100%
100%
–
100%
–
–
–
–
–
100%
–
100%
100%
100%
(a) Entity joined the Deed via a Deed of Variation dated 24 May 2019.
(b) Entities removed from the Deed via a Deed of Variation dated 24 May 2019.
(c) Entity liquidated and removed from NZ Companies Register on 30 April 2018.
(d) Entities sold on 3 July 2018 and released from their obligations under the Deed by executing a Notice of Disposal.
72 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION V. OTHER INFORMATION CONTINUED
26. 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
25 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 2019, is set out in the table below. Comparatives have been updated to align to entities
party to the Deed at 30 June 2019.
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 at beginning of the year
Dividends recognised during the year
Retained earnings at end of the year
2019
342,321
(159,513)
182,808
(95,649)
1,687
(3,734)
85,112
(20,172)
64,940
50,802
115,742
115,742
377,458
(48,830)
444,370
2018
335,198
(151,538)
183,660
(109,055)
373
(5,187)
69,791
(20,705)
49,086
4,113
53,199
53,199
370,450
(46,191)
377,458
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION V. OTHER INFORMATION CONTINUED
26. DEED OF CROSS GUARANTEE CONTINUED
Statement of financial position
In thousands of AUD
Assets
Cash and cash equivalents
Trade and other receivables
Inventories
Assets classified as held for sale
Total current assets
Investments
Intercompany receivable
Deferred tax assets
Property, plant and equipment
Intangible assets
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
In thousands of AUD
Loans and borrowings
Employee benefits
Provisions
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued capital
Reserves
Retained earnings
Total equity
74 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
2019
2018
29,486
61,081
59,694
–
150,261
448,367
39,963
11,242
15,239
328,696
843,507
993,768
45,104
4,693
1,618
4,945
–
56,360
2019
177,759
3,778
1,840
183,777
239,737
754,031
307,790
1,871
444,370
754,031
25,051
61,607
60,113
61,912
208,683
345,136
37,941
11,355
14,527
274,969
683,928
892,611
44,864
4,308
6,385
6,348
12,025
73,930
2018
125,000
4,427
1,631
131,058
204,988
687,623
307,790
2,375
377,458
687,623
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSGWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SECTION V. OTHER INFORMATION CONTINUED
27. PARENT ENTITY DISCLOSURES
As at, and throughout, the financial year ended 30 June 2019 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
2019
2018
79,244
–
79,244
848
852,486
–
419,162
307,790
1,211
124,323
433,324
99,651
–
99,651
203
823,239
–
419,162
307,790
2,377
93,910
404,077
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 (2018: $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 (2018: $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 25 and 26.
28. SUBSEQUENT EVENTS
To the Directors’ best knowledge, there are no events that have arisen subsequent to 30 June 2019 that will, or may,
significantly affect the operation or results of the consolidated entity.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 75
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 2019 and of its performance
for the year ended on that date; and
b) complying with Australian Accounting Standards and the Corporations Regulations 2001;
2.
3.
There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and
payable;
There are reasonable grounds to believe that the Company and the group entities identified in Note 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 2019; 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 19 August 2019.
Signed in accordance with a resolution of the directors:
Darryl D McDonough
Director
Tim R Salt
Director
76 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
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 2019 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 2019;
• 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
The Key Audit Matters we identified are:
• Business Acquisition; and
• Valuation of Inventory.
BUSINESS ACQUISITION $112.4M
Refer to Note 3 to the Financial Report
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.
These matters were 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 these matters.
The key audit matter
How the matter was addressed in our audit
During the year, the Group acquired Methven Limited
for consideration of NZ$117.5M on 10 April 2019. The
acquisition was considered a key audit matter due to the:
• Size of the acquisition having a pervasive impact on
the financial statements;
• Extent of judgement and complexity relating to the
valuation and preliminary purchase price allocation
(PPA). The Group engaged an independent
valuation expert to advise on the identification and
measurement of acquired assets and liabilities in
particular determining the allocation of purchase
consideration to goodwill and separately identifiable
intangible assets; and
• The preliminary acquisition accounting, which remains
provisional at year end. This increases the possible
range of outcomes for the auditor to consider and is
impacted by the reduced precision of audit evidence.
Our procedures included:
• Reading the transaction documents related to the acquisition to
understand the structure, key terms and conditions;
• Evaluating the methodology used for the acquisition accounting
against accounting standard requirements;
• Working with our valuation specialists to assess and challenge key
assumptions used in the PPA to identify and value separate assets.
This involved:
» Assessing the objectivity, competence, experience and scope
of the Group’s independent valuation expert;
» Comparing inputs used by the Group’s independent valuation expert
to the Group’s strategic plans and approved business forecasts; and
» Challenging the Group’s significant judgmental assumptions such
as identification of separate identifiable intangible assets and the
Group’s independent expert’s approach and methodology to valuing
their assets by comparing to the requirements of the accounting
standards;
These conditions and associated complex acquisition
accounting required significant audit effort and greater
involvement by senior team members.
• Assessing the Group’s accounting treatment of post-acquisition
payments against the transaction documents and relevant accounting
standards; and
• Assessing the adequacy of the Group’s disclosures of the quantitative
and qualitative considerations in relation to the business acquisition,
by comparing these disclosures to our understanding of the acquisition
and the requirements of the accounting standards.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 77
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF GWA GROUP LIMITED
CONTINUED
VALUATION OF INVENTORY $76.8M
Refer to Note 10 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.
These conditions gave rise to additional audit effort,
including greater involvement by our senior team
members, to gather evidence over the estimation
of the valuation of inventory.
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, new products, excess or fast
moving range, as they attribute different values due
to the differing provision policy rates;
• Expected forecast demand which is based on the last
12 months’ sales, as this determines the categorisation
of inventory SKU’s as excess or fast moving; and
• 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 fast
moving and 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;
• We tested a sample of inventory items to purchase invoices and sales
invoices to determine the recoverability and valuation of inventory in
line with accounting standards; and
• We assessed the write off history for the last 3 years against the
provision to determine the adequacy of the inventory provision.
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.
78 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF GWA GROUP LIMITED
CONTINUED
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 the 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 2019, 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 Annual report for the year ended 30 June 2019.
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, 19 August 2019
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 2019 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
Julie Cleary
Partner
Sydney, 19 August 2019
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.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 79
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES
OTHER STATUTORY INFORMATION
AS AT 16 AUGUST 2019
STATEMENT OF SHAREHOLDING
In accordance with the Australian Securities Exchange Listing Rules, the directors state that, as at 16 August 2019, 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
1,512
3,145
1,319
949
73
6,998
657,512
8,696,298
9,606,998
19,844,267
225,142,555
263,947,630
%
0.25
3.29
3.64
7.52
85.30
100.00
The number of shareholders with less than a marketable parcel of 150 shares is 468.
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 16 August 2019:
Shareholder
Ethical Partners Funds Management Pty Ltd
Investors Mutual Ltd
Marathon Asset Management LLP
The Vanguard Group, Inc
Credit Suisse Holdings (Australia) Limited
(on behalf of Credit Suisse Group AG and its affiliates)
20 LARGEST SHAREHOLDERS AS AT 16 AUGUST 2019
Number of Shares
% Shares on Issue
13,834,228
18,552,000
13,265,084
13,282,393
18,623,743
5.24%
7.03%
5.03%
5.03%
7.06%
Shareholder
Number of Shares
% Shares on Issue
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
Citicorp Nominees Pty Limited
HGT Investments Pty Ltd
KFA Investments Pty Ltd
JMB Investments Pty Ltd
National Nominees Limited
Mr Peter Zinn
Ashberg Pty Ltd
CS Third Nominees Pty Limited
Theme (No 3) Pty Ltd
ITA Investments Pty Ltd
Dabary Investments Pty Ltd
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
CJZ Investments Pty Ltd
Eidde Pty Ltd
Mr Michael John McFadyen
HSBC Custody Nominees (Australia) Limited – GSCO ECA
AMP Life Limited
Total
80 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
83,667,597
30,935,323
17,160,269
10,000,000
9,200,684
6,984,655
6,943,869
5,898,176
5,887,783
5,404,118
5,100,000
4,688,628
3,178,986
3,166,767
3,154,576
2,841,565
2,019,940
1,975,734
964,548
957,546
210,130,764
31.70
11.72
6.50
3.79
3.49
2.65
2.63
2.23
2.23
2.05
1.93
1.78
1.20
1.20
1.20
1.08
0.77
0.75
0.37
0.36
79.61
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES SHAREHOLDER INFORMATION
Annual General Meeting
Dividend Reinvestment Plan
The Dividend Reinvestment Plan was suspended by the
Board in 2013. At the present time the Company has
access to sufficient capital to meet its funding requirements.
The Board keeps this position under review.
Securities Exchange Listing
The Company’s shares are listed on the Australian Securities
Exchange under the ASX code: GWA. Details of the trading
activity of the Company’s shares are published in most daily
newspapers, generally under the abbreviation GWA Grp.
Shareholder Timetable 2019
30 June
Financial year end
19 August
FY19 full year results and final
dividend announcement
26 August
Ex dividend date for final dividend
27 August
Record date for determining final
dividend entitlement
4 September
Final dividend paid
20 September
Notice of Annual General Meeting
and Proxy Form mailed to shareholders
23 October
Proxy returns close 10:30am AEST
25 October
Annual General Meeting
31 December
Half year end
The Annual General Meeting of GWA Group Limited will be held
on Level 6, at the Hilton Hotel, 190 Elizabeth Street, Brisbane
on Friday 25 October 2019 commencing at 10:30am (AEST).
Shareholders will be mailed their Notice of Annual General
Meeting and Proxy Form during September 2019.
Shareholder Enquiries
Shareholders with enquiries about their shareholding or
dividend payments should contact the Company’s share
registry, Computershare Investor Services Pty Limited, on
1300 850 505 or write to GPO Box 2975 Melbourne Victoria
Australia 3001. Alternatively, you can view details of your
holding or make changes to your personal information
online at www.investorcentre.com.
Change of Address
Shareholders who have changed their address should
immediately notify the Company’s share registry in writing
or update your details online at www.investorcentre.com.
If you are a CHESS sponsored holder and wish to change
your address, please contact your broker.
Consolidation of Shareholdings
Shareholders who wish to consolidate their separate
shareholdings into one holding should complete a Request
to Consolidate Holdings Form which can be downloaded
at www.investorcentre.com. If you are a CHESS sponsored
holder and wish to consolidate your holdings, please contact
your broker.
Annual Reports
Annual Reports are made available to shareholders on the
Company’s website at www.gwagroup.com.au. Shareholders
wishing to be mailed a copy of the Annual Report should
notify the Company’s share registry in writing or update your
communication preferences online at www.investorcentre.com.
Shareholders who have elected to receive the Notice of Annual
General Meeting and Proxy Form via post will include details on
accessing the online Annual Report.
Dividends
Dividends are determined by the Board having regard to the
financial circumstances of the Company. Dividends are normally
paid in March and September each year following the release of
the Company’s half and full year financial results to the market.
The latest dividend details can be found on the Company’s
website at www.gwagroup.com.au.
Direct Credit of Dividends
To minimise cost and ensure fast and efficient payment of
dividends to shareholders, the Company mandates direct credit
for payment of dividends. Dividends may be paid directly to
a bank, building society or credit union account in Australia.
Payments are electronically credited on the dividend payment
date and confirmed by an advice mailed to shareholders on that
date, or emailed where shareholders have requested this form of
communication. Direct credit application forms can be obtained
by contacting the Company’s share registry or can be updated
online at www.investorcentre.com.
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 81
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES HEAD OFFICE LOCATIONS
GWA GROUP LIMITED
7 Eagleview Place
Eagle Farm QLD 4009
AUSTRALIA
Telephone 61 7 3109 6000
Facsimile 61 7 3852 2201
www.gwagroup.com.au
GWA BATHROOMS & KITCHENS
Caroma Industries Limited
Level 1, 7-9 Irvine Place
Bella Vista NSW 2153
AUSTRALIA
Telephone 61 2 8825 4400
Facsimile 61 2 8825 4567
www.caroma.com.au
www.caroma.co.nz
specify.caroma.com.au
www.smartcommand.com.au
www.dorf.com.au
www.clark.com.au
Methven Limited
41 Jomac Place
Avondale AUCKLAND 1026
NEW ZEALAND
Telephone +64 9 829 0429
www.methven.com
www.flexispray.com.au
www.deva-uk.com
82 | GWA GROUP LIMITED | 2019 ANNUAL REPORT
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES Group Bankers
Commonwealth Bank of Australia
Australia and New Zealand Banking Group
HSBC Bank Australia
CORPORATE DIRECTORY
Directors
D D McDonough, Chairman
J F Mulcahy, Deputy Chairman
T R Salt, Managing Director
P A Birtles, Non-Executive Director
J M McKellar, Non-Executive Director
A J Barrass, Non-Executive Director
S T Goddard, Non-Executive Director
R J Thornton, Executive Director
Chief Financial Officer
P A Gibson
BA, FCMA, FAICD, FGIA
Auditor
KPMG
Level 38, Tower Three
International Towers Sydney
300 Barangaroo Avenue
Sydney NSW 2000
AUSTRALIA
Telephone 61 2 9335 7000
Facsimile 61 2 9335 7001
Share Registry
Computershare Investor Services
Pty Limited
Level 1, 200 Mary Street
Brisbane QLD 4000
AUSTRALIA
Company Secretary
R J Thornton
CA, BCom (Acc), LLB (Hons), LLM
GPO Box 2975
Melbourne VIC 3001
AUSTRALIA
(within Australia) 1300 850 505
(outside Australia) 61 3 9415 4000
www.computershare.com.au
Registered Office
7 Eagleview Place
Eagle Farm QLD 4009
AUSTRALIA
Telephone 61 7 3109 6000
Facsimile 61 7 3852 2201
www.gwagroup.com.au
ASX code: GWA
GWA GROUP LIMITED | 2019 ANNUAL REPORT | 83
GWA GROUP LIMITED AND ITS CONTROLLED ENTITIES 7 Eagleview Place
Eagle Farm, QLD 4009
AUSTRALIA
Telephone: 61 7 3109 6000
Facsimile: 61 7 3852 2201
Website: www.gwagroup.com.au