R E L I A N C E W O R L D W I D E C O R P O R A T I O N L I M I T E D A C N 6 1 0 8 5 5 8 7 7 A N N U A L R E P O R T 2 0 1 7 RELIANCE WORLDWIDE CORPORATION LIMITED ACN 610 855 877 ANNUAL REPORT 2017 Contents Financial Highlights Chairman’s Report Chief Executive Officer’s Report Operating and Financial Review Corporate Governance Statement Financial Report Directors’ Report Remuneration Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Corporate Directory 2 3 4 6 10 16 16 22 32 33 34 35 36 37 63 64 69 72 Annual Report 2017 Annual Report 2017 1 1 FINANCIAL HIGHLIGHTS FY2017 Net sales, EBITDA and NPAT all ahead of Prospectus Forecast1 Net sales EBITDA $601.7m +13% growth vs pro forma FY20162 $120.7m +22% growth vs pro forma FY20162 NPAT $65.6m +26% growth vs pro forma FY20162 Free cash flow conversion 82.4% of EBITDA Total dividend for FY2017 of 6.0 cents per share NPAT Payout ratio of 48% Strong net sales growth from Americas +19% growth vs pro forma FY20162 Strong balance sheet at 30 June 2017 (net leverage of 1.95x) 1. Prospectus dated 18 April 2016. 2. Pro forma unaudited results for the 12 months ending 30 June 2016 prepared on the same basis as set out in the Prospectus. 2 Reliance Worldwide Corporation Limited CHAIRMAN’S REPORT IMPORTANT NOTICES Dear fellow shareholders, On behalf of the Board, I am pleased to present to you the 2017 Annual Report of Reliance Worldwide Corporation Limited (“RWC”). This is the first full year report following the successful listing of the Company’s shares on the Australian Securities Exchange on 29 April 2016. The financial results for FY2017 have continued our track record of delivering strong sales and earnings growth. Pleasingly, we exceeded the sales and profit forecasts contained in the Prospectus issued for the ASX listing. RWC is a leader in the design, manufacture and supply of premium branded, high quality water flow and control products and solutions for the plumbing industry. We are a global business with established in the residential and commercial new construction sectors. The acquisition provides some exciting new products and will aid our efforts to expand penetration into those sectors; • Launch of the EvoPEX PTC system into the residential new construction sector; and • We continue to invest in new product development and technology. Work continues on developing connected devices for application within the Internet of WaterTM platform. The following report from our Chief Executive Officer, Heath Sharp, and the accompanying review of operations provide commentary on performance and business outlook. manufacturing and distribution operations in the The balance sheet remains strong and we have USA, Australia, the UK, Canada, New Zealand and Spain. RWC’s key products and solutions significant liquidity available to fund projected growth. Financing facilities were increased by are primarily used in “Behind the Wall” plumbing $100 million during the year, in part to fund and hot water systems. These products and the Holdrite acquisition, with the maturity date solutions include pipe fittings and related pipe, extended to 30 September 2020. control valves and thermostatic products and are used for both residential and commercial applications, with a principal focus on the residential repair and renovation end-market. RWC now has a global workforce of over 1,100 employees who bring a diverse range of capabilities and skills. On behalf of the Board, I would like to recognise and thank our Key achievements during the past year include: management team and employees for their • Continued strong growth in sales, particularly for Push-to Connect (“PTC”) fittings in the efforts and dedication which continue to deliver strong outcomes. Americas; • Completion of the first phase of the rollout of SharkBite PTC fittings and accessories into Lowe’s Home Improvement Centers in the USA. The second phase of the rollout will be completed in the first half of FY2018 so that SharkBite will then be in an additional 1,700+ outlets in the USA; • Sales of PTC to The Home Depot (“THD”) continuing to grow. We continued to work on new projects with THD; • Acquiring the Holdrite business in June 2017. Holdrite brings complementary engineered products to RWC. Holdrite is well I also take this opportunity to thank shareholders for your ongoing support and look forward to meeting with you at the Annual General Meeting to be held on 30 October 2017. Jonathan Munz Chairman Annual Report 2017 3 CHIEF EXECUTIVE OFFICER’S REPORT IMPORTANT NOTICES Dear shareholders, I am pleased to report the excellent business that is highly unusual in a manufacturing and distribution operation. performance of your Company for the year A fundamental tenet of our culture is that ended 30 June 2017, with operating and financial results exceeding sales and profit forecasts1. In this, our first full-year report since RWC’s shares were listed on the ASX, the Company can report outstanding growth in net sales2 and earnings with strong and sustainable growth expected to continue in FY2018. I could not be prouder of our people It is a rare opportunity to be part of a team that delivers the forecasts in a prospectus year. The entire RWC team deserves credit for delivering everyone deserves to return home at the end of the day as healthy as they started. We commenced implementing wellness programs in a number of locations with other locations to follow. To sharpen our focus on shop-floor safety, we are aligning safety reporting protocols and metrics across all locations. We look forward to reporting on the results of these initiatives. I offer my sincere gratitude to the global RWC team for their continuing dedication to the business during the past 12 months. Their efforts are generating outstanding total shareholder returns and are positioning us to achieve and such outstanding financial and operating results. sustain growth. We have a team that enthusiastically comes together to collaborate across all our geographic and market segments – aligning activities, sharing innovative ideas, raising performance levels, rising to meet immediate challenges and adapting to the public company environment – while making decisions for the long-term growth of the business. RWC is fortunate to have a unique culture that underpins our success. Our long-serving workforce readily welcomes new talent and embraces diversity, creating an exciting, dynamic atmosphere that allows us to attract and retain the best people. One standout example is our Cullman, Alabama workforce which comprises a tremendous group of people, both longstanding and more recent team members, and is proudly represented by roughly equal numbers of men and women, an employment ratio I would also like to thank the Board for its continuing support and guidance. Holdrite: the newest RWC business The Holdrite acquisition was completed in June 2017. Holdrite brings to RWC a broad range of innovative products that are installed immediately adjacent to SharkBite and Cash Acme products in residential and commercial buildings and sold via our existing sales channels. Holdrite is a product development and commercialisation engine that belies its size. As we deepen our understanding of Holdrite, we become even more delighted with the move to join our companies. Perhaps the most pleasing aspect is the tremendous culture, so closely aligned with RWC’s. The Holdrite team have built a great business. They are a very welcome addition to the RWC family. 4 Reliance Worldwide Corporation Limited Products: Innovation drives our strategy As a global provider of water control systems and plumbing solutions for domestic, commercial and industrial applications, RWC recognises that meeting demand for market-leading products requires ongoing investment in research and tradesman’s tasks more efficient. Our goal is to be the premier supplier of superior platforms and product solutions for all “Behind the Wall” plumbing requirements, from meter to fixture in sectors that include not only residential repair and maintenance but also in residential and commercial new construction. We expect to continue introducing these sector-changing achieved. Net sales2 grew by 12.6% compared with pro forma FY20163, an impressive 2.4% above Prospectus Forecast4. On a constant currency basis, net sales2 increased by 17.2% with local currency growth in all operating segments. The Compound Annual Growth Rate in net sales2 over the last 10 financial years is 12%, an increase principally attributable to innovations as we expand market share continued expansion of the core SharkBite PTC and penetration. business in the Americas operating segment. development, training, and manufacturing and distribution facilities. We have long been known for products that exceed global industry standards. Creating new products, smarter products, products that solve real- world problems, products that improve lives and living conditions is the vision that drives RWC’s strategy. Customers Of course, without our customers, we have no business. Our beginnings, more than 60 years ago in Australia, have seen multiple decade relationships with world class performers such Our flagship line, SharkBite Push-to-Connect as Reece and Rheem Australia. In 2017, we (“PTC”) plumbing fittings and associated celebrated the 15th anniversary of the acquisition accessories, continues to lead sales growth and of Cash Acme which has seen the building of market penetration in the residential repair and relationships with leading names in the North remodel markets, particularly in the Americas, American plumbing industry, including A.O. EBITDA5, EBIT5 and NPAT showed double digit growth compared with pro forma FY20163 and also exceeded Prospectus Forecasts4, reflecting the combined benefits of strong growth in net sales, careful procurement initiatives and improvements in manufacturing efficiencies. Increased selling, general and administrative expenses in the second half, including costs to support retail channel expansion activities in the Americas and expensing of transaction costs associated with the Holdrite acquisition, partially where our efforts to build brand awareness Smith, Bradford White, Ferguson, Ace Hardware offset these results. and expand retail distribution are proving quite successful. The launch of the EvoPEX system, the first PTC meter-to-fixture solution specifically optimised for new construction, together with the Holdrite product range of engineered solutions for the plumbing and mechanical contractor markets, are now driving penetration into the residential and commercial new construction markets in the USA. By design, all RWC products are transformative to traditional plumbing methods. SharkBite led this concept in the USA starting in 2004. Now with Holdrite, we expand to converting makeshift methods into commercialised engineered solutions, making plumbing installations faster and easier, performance more reliable and the and Wolseley Canada. This year also marked the 10th anniversary of supplying The Home Depot, a commercial partnership that created a powerhouse PTC fitting franchise in the big-box retail channel. This year we are also delighted to welcome Lowe’s to the SharkBite PTC family. We are proud of these relationships and look forward to developing them further in coming years. Our long time and ongoing goal is to always make RWC an easy company with which to do business. FY2017 Financial Review: A continuous record of strong annual growth1 Our record of strong annual growth continued in FY2017 with outstanding financial results I look forward to providing shareholders with further updates on our progress in products and performance. Heath Sharp Chief Executive Officer This report should be read in conjunction with the Operating and Financial Review commentary on page 6. 1 2. Net sales after eliminating intercompany sales. 3. Pro forma unaudited results for the 12 months ended 30 June 2016 prepared on the same basis as set out in the Prospectus dated 18 April 2016. Comparison is made to the Pro Forma FY2016 results as comparison with the FY2016 Statutory Period results is not considered meaningful. The FY2016 Statutory Period covered the period from incorporation of the Company on 19 February 2016 to 30 June 2016 with Australian trading operations consolidated from 6 April 2016 and non-Australian trading operations consolidated from 3 May 2016. The FY2016 Statutory Period results are presented in the 30 June 2017 Financial Report. 4. Forecast results presented in the Prospectus dated 18 April 2016. 5. EBITDA and EBIT both before significant items (including non-operating foreign exchange gains and losses) in Pro Forma FY2016. Annual Report 2017 5 OPERATING AND FINANCIAL REVIEW IMPORTANT NOTICES This Operating and Financial Review forms part of, and should be read in conjunction with, the statutory Directors’ Report for the year ended 30 June 2017. Results for the financial year Net sales EBITDA3 EBIT3 Net profit after tax Group Overview Actual FY2017 ($m) 601.7 120.7 101.3 65.6 Pro Forma FY20161 ($m) 534.4 99.1 82.7 52.1 Prospectus Forecast2 FY2017 Variance (%) 12.6 21.8 22.5 25.9 ($m) 587.8 117.7 97.8 62.6 Variance (%) 2.4 2.5 3.6 4.8 RWC is a leader in the design, manufacture and supply of water flow and control products and solutions for use in “behind the wall” plumbing. RWC is the clear number one manufacturer in the world of brass PTC plumbing fittings which are sold under our SharkBite brand. PTC replaces the traditional labour intensive crimp and expansion PEX systems and copper solder fittings. The SharkBite PTC business in North America is at the core of the RWC growth story and that business continued to deliver strong double digit sales growth in FY2017. RWC has continued its strategic focus on building awareness of SharkBite PTC fittings and associated accessories to drive sales growth and market penetration. The majority of SharkBite PTC sales are in the defensive repair and maintenance and renovation end markets. The launch of the EvoPEX PTC system into target markets late in 2016 began our penetration into the residential new construction sector in North America. Penetration into this sector has been expanded following completion of the Holdrite acquisition. Holdrite also provides us with expansion into the commercial construction market. Holdrite’s results have been consolidated from 12 June 2017 and are included in the Americas segment. Revenue and profit contribution from Holdrite in FY2017 was minimal given the short period of inclusion. RWC has 12 manufacturing facilities across Australia, New Zealand, the USA and Spain. Manufacturing of SharkBite SKUs for the Americas segment continues to be transitioned to Cullman, Alabama following the successful completion of the installation and commissioning of two new SharkBite PTC fittings production cells at that facility during 2016. Holdrite products are manufactured at a facility in Tennessee, USA. Group Results Review Net sales for FY2017 of $601.7 million were 12.6% higher than for Pro Forma FY20161 (17.2% higher on a constant currency basis) and 2.4% ahead of Prospectus Forecast2. The increase was driven principally through continued expansion of SharkBite PTC business in the Americas operating segment, including a sales benefit in the second half from the initial rollout of product to approximately half of Lowe’s 1,700+ stores in the USA. This was partially offset by a decline in the AUD translated value of sales in the EMEA segment that was primarily due to a materially stronger AUD/GBP exchange rate post Brexit. On a local currency basis, sales in the UK increased 7.5% on the prior year. EBITDA was $120.7 million, an increase of 21.8% over Pro Forma FY20161 and 2.5% ahead of Prospectus Forecast2. This strong result reflects growth in net sales combined with benefits of procurement initiatives and improved manufacturing efficiencies achieved during the year. Partially offsetting this was increased SG&A spending in the second half to support retail channel expansion activities in the Americas together with expensing transaction costs associated with the Holdrite acquisition. Net profit after tax (“NPAT”) was also ahead of Prospectus Forecast at $65.6 million, an increase of 25.9% over Pro Forma FY20161 and 4.8% ahead of Prospectus Forecast. Segment Review Americas Net sales4 EBITDA3 EBITDA margin Actual FY2017 ($m) 435.3 74.6 17.1% Pro Forma FY20161 ($m) 365.0 58.4 16.0% Prospectus Forecast2 FY2017 Variance 19.3% 27.7% +110 bps ($m) 397.6 69.3 17.4% Variance 9.5% 7.6% -30 bps 6 Reliance Worldwide Corporation Limited The Americas segment delivered solid growth in net sales and EBITDA. Net sales for the year were $435.3 million4, an increase of 19.3% over Pro Forma FY20161 (23.4% increase on a constant currency basis) and 9.5% ahead of Prospectus Forecast2. EBITDA contribution was $74.6 million, an increase of 27.7% over Pro Forma FY20161 and 7.6% ahead of Prospectus Forecast2. The Americas performance was driven by continued market penetration of SharkBite products and execution of the retail channel strategy in the USA. Procurement and other ongoing cost saving initiatives also contributed to EBITDA margin improvement compared with Pro Forma FY2016. The EBITDA margin was slightly lower than Prospectus Forecast mainly as a result of expensing Holdrite related transaction costs and set up costs incurred for the roll out to Lowe’s. The segment enjoyed strong growth across all market sectors and product groups with continued investment in building awareness, expanding distribution and educating end users about the efficiency and effectiveness of RWC’s core SharkBite products and solutions. As noted at the half year result, we benefited from the impact of customers increasing their inventory levels in anticipation of potential freeze events occurring during the North American winter. No weather conditions which RWC would classify as a freeze event eventuated and, as a result, customers managed down their inventory levels during the second half consistent with what occurred in FY2016. Customers have returned to normal buying patterns. Asia Pacific Net sales4 EBITDA3 EBITDA margin Actual FY2017 ($m) 218.1 47.5 21.8% Pro Forma FY20161 ($m) 201.0 39.3 19.6% Prospectus Forecast2 FY2017 Variance 8.5% 20.9% +220 bps ($m) 209.8 45.6 21.7% Variance 4.0% 4.2% +10 bps Asia Pacific delivered net sales of $218.1 million4, an increase of 8.5% over Pro Forma FY20161 and 4.0% ahead of Prospectus Forecast2. Growth was mainly achieved from increased sales to the Americas. External sales saw demand from Wholesale customers partially offset by somewhat lower demand in the OEM channel. EBITDA for the year was $47.5 million, an increase of 20.9% over the comparative period and 4.2% ahead of Prospectus Forecast2. Asia Pacific also achieved savings from procurement activities, ongoing manufacturing efficiencies and other cost saving initiatives. EBITDA margin for the year was 21.8%, up from 19.6% for Pro Forma FY2016 but below the 24.4% achieved in the first half of FY2017. This reflects both normal seasonality in the business, with production volumes increasing in the December half year period in preparation for the northern hemisphere winter, as well as the relatively higher cost of copper experienced in the second half. Production for the Lowe’s rollout helped the second half margin for Asia Pacific. EMEA Net sales4 EBITDA3 EBITDA margin Actual FY2017 ($m) 50.1 0.5 1.0% Pro Forma FY20161 ($m) 51.1 3.8 7.4% Prospectus Forecast2 FY2017 Variance (2.0%) (86.8%) -640 bps ($m) 67.2 5.2 7.7% Variance (25.4%) (90.4%) -670 bps Net sales in EMEA were $50.1 million4, down 2.0% on Pro Forma FY20161 sales. Pleasingly, segment sales increased 19% in constant currencies with external sales in the UK increasing by 7.5% in GBP. Uncertainty following Brexit adversely affected sales in the United Kingdom, particularly in the first quarter. Sales in the UK improved in the second half of the year. Demand from Wholesale customers, particularly for thermostatic products, remained strong in the period while sales to OEM customers increased. A materially stronger AUD/GBP exchange rate impacted both the cost of goods sold and the translated results in FY2017. Spain continues to supply its PEX pipe product to Australia to meet external demand. Increased production capacity in the second half enabled that business to support higher demand in local markets. EBITDA in EMEA for the full year of $0.5 million declined slightly from $0.8 million at the half year. This reflects both the higher cost of goods sold related to the weakening of the GBP as well as a one-time non-cash expense of $1.0 million in the second half associated with restructuring and business improvement initiatives in 2H FY2017 designed to position the UK business to better capitalise on its solutions-oriented value proposition to the market. Dividend A fully franked final dividend for FY2017 of 3.0 cents per share has been declared. This takes the total dividend for FY2017 to 6.0 cents per share, franked to 70%, which represents a NPAT payout ratio of 48%, within the targeted payout range of 40% to 60% stated in the Prospectus dated 18 April 2016. The record date for dividend entitlement is 12 September 2017. The payment date is 10 October 2017. At the lower end of the targeted payout range, RWC expects dividends to continue to be fully franked for the foreseeable future. Annual Report 2017 7 OPERATING AND FINANCIAL REVIEW IMPORTANT NOTICES Capital expenditure Capital expenditure payments during FY2017 totalled $25.5 million, split between maintenance expenditure ($13.3 million) and growth capital expenditure ($12.2 million). The latter included acquisition of a property in Cullman, Alabama, which is presently being utilised as a warehouse / distribution facility, as well as the fit out of a previously acquired facility at the site. Both were acquired to support growing demand and the need for additional manufacturing and warehousing space. Following regular review of our capital plans, growth expenditure was also incurred to build additional capacity to meet expected future demand, particularly for additional fitting capacity in the USA and Australia and increased PEX production capacity in Spain. Some growth capital expenditure originally planned for FY2019 has been brought forward to FY2018, driven by sales growth in core SharkBite PTC products in the USA, which has resulted in a requirement to pay equipment deposits during FY2017 given the lead time of up to 12 months required by equipment manufacturers. The current program of investment in capacity expansion to meet forecast growth in demand for SharkBite PTC and EvoPEX fittings as well as PEX pipe is expected to be substantially completed during FY2018. Capital expenditure for FY2018 is currently forecast at $35 million. Cash Flow Cash flow from Operations for the period was $71.9 million. EBITDA performance, along with continued active management of inventory, trade debtors and trade creditors delivered a strong cash conversion result. This result was achieved despite the increase in inventory levels in 2H FY2017 in preparation for the second phase of the Lowe’s store rollout, which will take place in 1H FY2018. We expect inventory levels to reduce as that rollout occurs. Balance Sheet The balance sheet at 30 June 2017 continued to be in a strong position with liquidity to support further growth. Net debt at 30 June 2017 was $235.4 million (30 June 2016 - $127.9 million). The increase over 30 June 2016 reflects additional borrowings of A$125 million to fund the Holdrite acquisition partially offset by net cash generated from operations during the year being used to reduce borrowings. Net Debt, including the effect of the Holdrite funding, to EBITDA was 1.95 times as at 30 June 2017 (30 June 2016 - 1.29 times) and EBIT to net finance costs was 20.2 times (30 June 2016 - 13.1 times). EBITDA and EBIT reflect contributions from Holdrite only for the post-acquisition period from 12 June 2017 to 30 June 2017. Health and Safety RWC places a strong emphasis on the health and safety of our workforce and is committed to providing a safe and healthy workplace for all employees and contractors. We aim for zero harm across the group. A robust health and safety management system is maintained which assists in the identification of potential issues and hazards and the development of strategies and initiatives to mitigate the risk of harm. We have a good track record in managing and preventing injuries. Strategy and Business Development Activities Overview As noted in the Group Overview, RWC’s core brass PTC fittings have been the primary driver of growth and are likely to remain so over the coming period, particularly in the Americas. RWC plans to continue its strong focus on building awareness of the SharkBite PTC fittings and associated accessories to drive sales growth and market penetration in the repair and re-model markets. Expansion into the residential and commercial new construction markets in the USA will be driven by the EvoPEX and Holdrite products. The Company also continues to pursue and invest in other adjacent growth opportunities. These include products and solution systems that have resonance in both the residential new construction and repair and remodel markets as well as the commercial construction market (to include large multi-family developments as well as office, retail, education, hospitality, health care facilities and other institutions). Of particular interest are products or technologies that support growth in more than one area. These effective “platform enablers” could be ones we develop, acquire or partner to develop. What continues to link them all together is their focus on conveying, regulating, controlling, filtering and monitoring water from the source to the fixture in a reliable and effective manner and increasing the ease and efficiency of installation. Beyond product and system solutions the Company also continues to explore and evaluate opportunities to expand sales and distribution into new geographic markets. Focus remains on key markets in the UK and continental Europe, developed and developing markets in Asia, and select markets in Central or South America. Growth opportunities in new products and/or geographies could be pursued organically, through acquisition or via joint venture partnership. Any acquisitions or partnerships will need to deliver products complementary to our existing product range or provide access to new distribution channels and will be carefully evaluated against RWC’s business strategy and investment criteria. 8 Reliance Worldwide Corporation Limited New product development and innovation Product development and innovation remain a key pillar of RWC’s growth strategy. Holdrite, with its strong innovation culture, has added to this capability. RWC’s already strong Research and Development team has been enhanced following the Holdrite acquisition and will continue to focus on developing innovative engineered product solutions to solve the everyday problems of plumbers and contractors and facilitate professional and time saving installations in the residential and commercial new construction markets, while creating value for our distributors. The team has been undertaking preliminary work on Connected Devices, in the context of application within the Internet of WaterTM (“IoW”TM) platform. During the year, we acquired intellectual property specifically related to this field which has advanced our capabilities in flow monitoring and associated IoWTM infrastructure. In the mid-term, this is expected to yield a number of unique water usage monitoring products which are expected to launch in FY2018, although these are not expected to deliver significant revenue until after FY2019. Longer term, this area of development raises the possibility of a range of advancements, in conjunction with our existing product range, to move towards “smart plumbing” systems. USA Retail Distribution arrangements In the second half of FY2017, we successfully completed the rollout of RWC’s full range of SharkBite Plumbing Solutions – PTC fittings, PTC accessories, PEX pipe and crimp fittings – to approximately half of Lowe’s home improvement centres. The rollout added to our revenue for FY2017 although the EBITDA contribution also reflects the set up and training costs incurred in the rollout. The final phase of the rollout has commenced and will be completed during the first half of FY2018. We continued to work with The Home Depot (“THD”) to deliver growth in their sales. THD’s buying followed the same pattern as prior periods through to late June. During June, THD commenced the process of destocking RWC’s PEX pipe and crimp fittings in all but a small number of its stores where it will retain the entire SharkBite Plumbing Solutions platform. THD continues to stock and support RWC’s SharkBite PTC fittings and accessories across its national network of stores, excluding a small number of outlets in one region. Implementation of these changes is consistent with our expectations advised at the time of the half year results announcement in February. RWC remains committed to investing in and supporting all our distribution partners with industry leading solutions and service and a broader range of solutions for plumbers. FY2018 Outlook RWC currently expects FY2018 EBITDA to be in the range of $145 million to $150 million. This compares with EBITDA of $120.7 million in FY2017. The result will be driven by continued strong top line growth expected from ongoing expansion of the PTC business in the Americas, inclusion of a full year of Holdrite results and ongoing growth and targeted opportunities to gain market share in Asia Pacific and EMEA. The forecast assumes, among other things, that current general economic conditions are maintained, including in the geographies where RWC operates and no significant changes to current foreign currency exchange rates, particularly USD/AUD and GBP/AUD5. We have also assumed the copper price in FY2018 to be similar to prices experienced during the second half of FY2017 noting that we buy brass bar from our suppliers who in turn mainly use scrap brass in their production cycle (with swarf from brass machining being the largest constituent). 1. Pro forma unaudited results for the 12 months ended 30 June 2016 prepared on the same basis as set out in the Prospectus dated 18 April 2016. Comparison is made to the Pro Forma FY2016 results as comparison with the FY2016 Statutory Period results is not considered meaningful. The FY2016 Statutory Period covered the period from incorporation of the Company on 19 February 2016 to 30 June 2016 with Australian trading operations consolidated from 6 April 2016 and non-Australian trading operations consolidated from 3 May 2016. The FY2016 Statutory Period results are presented in the 30 June 2017 Financial Report. 2. Forecast results presented in the Prospectus dated 18 April 2016. 3. Before significant items (including non-operating foreign exchange gains and losses) in Pro Forma FY2016. 4. Prior to elimination of inter-segment sales. 5. RWC traditionally does not hedge foreign currency exposures. Unfavourable rate movements may erode the translated value of results in the Americas and EMEA segments. Annual Report 2017 9 CORPORATE GOVERNANCE STATEMENT The Board of Directors is responsible for the overall corporate governance of Reliance Worldwide Corporation Limited (“the Company”) and its controlled entities (together “the Group”). The Board monitors the operational and financial position and performance of the Group and oversees its business strategy, including approving the strategic objectives, plans and budgets of the Group. The Board is committed to optimising performance and building sustainable value for shareholders. In conducting business with these objectives, the Board seeks to ensure that the Group is properly managed to protect and enhance shareholder interests and that the Group, its Directors, officers and personnel operate in an appropriate environment of corporate governance. Accordingly, the Board has created a framework for managing the Group, including adopting relevant internal controls, risk management processes and corporate governance policies and practices that it believes are appropriate for the Group’s business and that are designed to promote responsible management and conduct of the Group. The Australian Securities Exchange (“ASX”) Corporate Governance Council has developed and released its Corporate Governance Principles and Recommendations 3rd edition (“ASX Recommendations”) for entities listed on the ASX in order to promote investor confidence and to assist companies to meet stakeholder expectations. This Corporate Governance Statement outlines the key aspects of the Company’s governance framework and governance practices which are consistent with the ASX Recommendations unless stated otherwise. Details of the key policies and practices and the charters for the Board and each of its Committees are available on the Company’s website at www.rwc.com. This statement has been approved by the Board of Reliance Worldwide Corporation Limited and is current at 28 September 2017. Board and management The Board has adopted a written charter to provide a framework for its effective operation. The Board Charter sets out details of the Board’s composition, its role and responsibilities, the expected relationship and interaction between the Board and management, details of the responsibilities and functions expressly reserved to the Board and those authorities which can be delegated by the Board to management and Board Committees. A copy of the charter can be viewed on the Company’s website. The Board’s role is to: • represent and serve the interests of shareholders by overseeing and appraising the Group’s strategies, policies and performance. This includes overseeing the financial and human resources the Group has in place to meet its objectives and reviewing management performance; • protect and optimise Group performance and build sustainable value for shareholders in accordance with any duties and obligations imposed on the Board by law and the Company’s Constitution and within a framework of prudent and effective controls that enable risk to be assessed and managed; • set, review and ensure compliance with the Company’s values and governance framework (including establishing and observing high ethical standards); and • ensure shareholders are kept informed of the Group’s performance and major developments affecting its state of affairs. The management function is delegated by the Board to the CEO (and to other officers to whom the management function is properly delegated by the CEO). A delegation of authority document has been approved by the Board. Management must supply the Board with information in a form, timeframe and quality that will enable the Board to discharge its duties effectively. Directors are entitled to request additional information at any time when they consider it appropriate. Appointment of Directors The Company has a formal agreement in place with each Director setting out the terms of their appointment. Directors have rights of access to relevant Company documents, management and Company advisors to assist in the performance of their duties. The process for selecting directors for appointment to the Board is overseen by the Nomination and Remuneration Committee. The Nomination and Remuneration Committee undertakes appropriate checks on any potential candidates before a person is appointed by the Board or put forward to shareholders as a candidate for election as a director. The Company provides shareholders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director. This information is provided in the notice for the Annual General Meeting. Once appointed, the Nomination and Remuneration Committee oversees processes to support a director’s induction and ongoing professional development and training opportunities. Ongoing professional development and training activities for directors may include visits to operational facilities, new product demonstrations presented by the development team and management presentations. The Board collectively and each Director individually has the right to seek independent professional advice at the Company’s expense subject to the approval of the Chairman or the Board as a whole. Structure of the Board and Director independence The composition of the Board at the date of this report is: Jonathan Munz, Chairman Heath Sharp, Managing Director and Chief Executive Officer Russell Chenu, Independent, Non-executive Director Stuart Crosby, Independent, Non-executive Director Ross Dobinson, Independent, Non-executive Director 10 Reliance Worldwide Corporation Limited Details of the experience, qualifications and length of service of each current director are set out in the Directors’ Report. The Board comprises a majority of independent directors. A director is considered to be independent where he or she is independent of management and is free of any business or other relationship which could materially interfere with, or could reasonably be perceived to interfere with, the exercise of their unfettered and independent judgement. The Board Charter sets out guidelines to assist in considering the independence of Directors and the Board has adopted a definition of independence that is based on box 2.3 in the ASX Recommendations. The Board will consider the materiality of any given relationship on a case- by-case basis. The Board reviews the independence of each Non-Executive Director in light of information disclosed to it. The Board considers that each of Russell Chenu, Stuart Crosby and Ross Dobinson are independent for the purposes of the ASX Recommendations. Jonathan Munz is not considered to be an independent director as entities associated with the Munz family are substantial holders of the Company’s issued ordinary shares. However, the Board considers that Mr. Munz is the most appropriate person to lead the Board as Chairman because of his extensive and unparalleled knowledge of the Company and its markets, growth prospects and management structure developed from a 30 year involvement with the Group’s business. Heath Sharp is not independent as he is an executive. Board skills and experience The Board seeks to have a mix of skills, personal attributes and experience amongst its members which is appropriate for the requirements of the Company and to maximise its effectiveness in meeting its responsibilities for corporate governance and oversight. The current Board composition provides the necessary experience and skills to meet the Company’s current needs. This includes relevant business and industry experience, financial management and corporate governance knowledge. The skills matrix below sets out the mix of skills and diversity that the Board currently has and is looking to achieve in its membership. Strategic priorities/areas Skills matrix Industry experience • Industry and market experience • Understanding of manufacturing technology • Workplace health and safety requirements and product development and innovation Growth & financial management • Business strategy, including identification of risks • Financial acumen and reporting and opportunities • Global experience relevant to the Group’s operations and expansion plans • Debt and equity capital markets Governance • Board experience, including listed companies • Social responsibility and sustainability • Corporate governance and regulatory • Remuneration and human resources compliance • Succession planning The Board is committed to reviewing the performance of non-executive directors and the Board as a whole. Annually, the Board, with the assistance of the Nomination and Remuneration Committee, undertakes a performance evaluation of individual directors, Board Committees, the CEO and the Board itself. A formal review was undertaken during June 2017 which took the form of a questionnaire seeking written feedback from each of the directors about the effectiveness and performance of the Board and its Committees. Analysis of the data indicates that the Board and Committees are considered to be operating effectively. Committees of the Board The Board has established the following Committees to assist in discharging its responsibilities: • Audit and Risk Committee • Nomination and Remuneration Committee Each Committee is governed by a Board approved charter setting out its duties and responsibilities. Copies of each charter can be viewed on the Company’s website. Each Committee is chaired by an independent director, comprises three members all of whom are Non-Executive Directors and comprises a majority of independent directors. Details of the relevant qualifications and experience of the members of each Committee, the number of times each Committee met throughout the reporting period and the attendance of each Committee member at those meetings are set out in the Directors’ Report. The members of each Committee at the date of this report are: Audit and Risk Committee • Russell Chenu (chair); • Ross Dobinson; and • Jonathan Munz. Annual Report 2017 11 CORPORATE GOVERNANCE STATEMENT IMPORTANT NOTICES Nomination and Remuneration Committee • Stuart Crosby (chair); • Ross Dobinson; and • Jonathan Munz. The Audit and Risk Committee’s responsibilities include: • overseeing the Company’s relationship with the external auditor and the external audit function generally; • overseeing the Company’s internal audit function generally; • overseeing the preparation of the financial statements and reports; • overseeing the Company’s financial controls and systems; and • managing the process of identification and management of risk. The responsibilities of the Nomination and Remuneration Committee include: • • reviewing and recommending to the Board remuneration and employment arrangements for the CEO and the Non-Executive Directors; reviewing and approving remuneration and employment arrangements for the CEO’s direct reports; • overseeing the operation of the Company’s employee equity incentive plans and recommending to the Board whether offers are to be made under any or all of the Company’s employee equity incentive plans in respect of a financial year; • approving the appointment of remuneration consultants for the purposes of the Corporations Act; • reviewing and recommending to the Board the Remuneration Report prepared in accordance with the Corporations Act for inclusion in the annual Directors’ Report; • reviewing and facilitating shareholder and other stakeholder engagement in relation to the Company’s remuneration policies and practices; • assisting the Board in developing a Board skills matrix; • • reviewing and recommending to the Board the size and composition of the Board including reviewing Board succession plans; reviewing and recommending to the Board the criteria for nomination as a Director and the membership of the Board more generally; • assisting the Board in relation to the performance evaluation of the Board, its Committees and individual Directors; • ensuring that processes are in place to support Director induction and ongoing education and regularly reviewing the effectiveness of these processes; • in accordance with the Diversity Policy, reviewing the measurable objectives for achieving gender diversity set by the Board on an annual basis and recommending any changes to the Board; and • on an annual basis, reviewing the relative proportion of women and men on the Board, in senior executive positions and in the workforce at all levels of the Group. Company Secretary The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. The Company Secretary is responsible for coordination of all Board and Committee business, including agendas, meeting papers, minutes, communication with regulatory bodies and the ASX, and all statutory and other filings. The Company Secretary also supports the Board and its Committees on governance matters in conjunction with senior executives. All Directors have direct access to the Company Secretary. Diversity The Company recognises that people are its most important asset and is committed to the maintenance and promotion of workplace diversity. Diversity drives the Company’s ability to attract, retain, motivate and develop the best talent, create an engaged workforce, deliver the highest quality services to its customers and continue to grow the business. The Board has formally approved a Diversity Policy in order to address the representation of women in senior management positions and on the Board and to actively facilitate a more diverse and representative management and leadership structure. The policy sets out the manner in which the Company’s diversity strategies will aim to achieve the objectives of the policy. A copy of the policy is available on the Company’s website at www.rwc.com. The Diversity Policy includes requirements for the Board to set measurable objectives for achieving gender diversity and to assess annually both the objectives and the Company’s progress in achieving them. The Company’s vision for diversity incorporates a number of different factors, including gender, ethnicity, disability, age and educational experience. The Board, through the Nomination and Remuneration Committee, continues to have a focus on achieving a balanced representation of women in senior roles and on the Board over a reasonable transition period following the Initial Public Offering of the Company in 2016. This includes a process of active assessment and recruitment of female representation on the Board. 12 Reliance Worldwide Corporation Limited The Company has submitted its Workplace Gender Equality Public Report in respect of its Australian operations in compliance with the Workplace Gender Equality Act 2012 (Cth). A copy can be viewed at www.wgea.gov.au. The group’s total number of employees at 30 June 2017 was 1,147 of which 369 (32%) were women. Women are in professional and support roles across all departments. Measurable Diversity Objectives The following table sets out approved diversity objectives for 2017, key plans for achieving those objectives and progress to date towards implementing the plans. These plans and objectives will continue to be pursued during the 2018 financial year. Objectives Plans Progress to date Promote a culture of diversity, inclusion • Continuing focus on increasing female • A process of active assessment and recruitment and opportunity representation at Board and senior management of female representation on the Board has level. commenced. • Introduce an annual engagement survey to • Pay equity review commenced. give all employees the opportunity to provide feedback on issues and potential barriers to diversity. • Consider documenting a formal workplace level diversity policy. • Consider establishing a diversity council to focus on developing a strong pipeline of diverse talent • Introduce appropriate education and development programs to raise knowledge and understanding of the benefits of diversity practices. • Researching appropriate online training programs for employees to undertake. • Considering how best to introduce a survey and what form it should take. • Establishment of a diversity council remains under consideration. Recruitment and selection processes • Promote RWC as a diverse employer with an • A review is expected to commence before the to seek out candidates from diverse inclusive culture. backgrounds • Develop inclusive recruiting practices. end of 2017 to determine if any enhancements are required to the way in which the Group promotes itself as an employer or to recruitment practices. Provide flexible work practices • Review the paid parental leave policies for each • Reviewing policies in USA and Australia. Other country. countries to follow. • Track the percentage of females taking parental • Assessing return to work statistics. leave that return to work. • Continue developing policies supporting and implementing defined flexible working arrangements. • Policy handbooks are periodically reviewed. Act ethically and responsibly The Board recognises the need to observe the highest standards of ethics, integrity and behaviour. Accordingly, the Board has adopted a formal Code of Conduct which outlines how the Company expects its senior executives, employees and Directors to behave during the course of their employment in dealing with employees, suppliers and customers. Business must be conducted honestly and ethically, applying best skills and judgment, and for the benefit of customers, employees, shareholders and the Company alike. The key aspects of this Code are to: • comply with all Company and Group policies, procedures, rules and regulations; • be honest and fair in dealings with customers, clients, co-workers, Group management and the general public; • protect from unauthorised use any information, records or other materials acquired during the course of employment with the Group; and • respect the Group’s ownership of assets and property. A copy of the Code of Conduct is available on the Company’s website. The key aspects of this code are reflected in policy handbooks provided to employees. In addition to the Code of Conduct, the Board has approved governance policies to guide expectations for behaviour, actions and commercial relationships. These include a Continuous Disclosure Policy, External Audit Policy, Non-Audit Services Policy, Diversity Policy and a Securities Dealing Policy. Annual Report 2017 13 CORPORATE GOVERNANCE STATEMENT IMPORTANT NOTICES External Auditor The Company’s external auditor, KPMG, was appointed in 2016. KPMG is invited to all meetings of the Audit and Risk Committee and receives the papers for each meeting. KPMG attends the Company’s Annual General Meeting and is available to answer questions from shareholders relevant to the conduct of the audit and the preparation and content of the auditor’s report. The Company has an approved External Audit Policy which governs the appointment and assessment of the external auditor, auditor independence and rotation of the audit partner. The Company has also adopted a policy on non-audit services which may be provided by the external auditor. KPMG is prohibited from providing services which would create a real or perceived threat to audit independence. The Audit and Risk Committee monitors compliance with the policy with delegated authority for approving certain non-audit services up to specified limits given to the Global Chief Financial Officer. KPMG provides an independence declaration which is included in the Directors’ Report issued with each annual and half year financial report. The declaration states KPMG’s view that it has not contravened auditor independence requirements set out in the Corporations Act 2001 or any applicable professional code of conduct in relation to the audit. Continuous Disclosure obligations The Company has adopted a Continuous Disclosure Policy which sets out procedures aimed at ensuring the Company fulfils its obligations in relation to the timely disclosure of material price-sensitive information. The Company has an obligation to keep the market fully informed of any information it becomes aware of concerning the Company which may have a material effect on the price or value of the Company’s securities, subject to certain exceptions. A copy of the Continuous Disclosure Policy is available on the Company’s website. A Disclosure Committee has been formed to oversee and monitor compliance with the Continuous Disclosure Policy. The Disclosure Committee comprises the Chairman, Chief Executive Officer, Global Chief Financial Officer and the Company Secretary. Responsibilities of the Disclosure Committee include: • ensuring the Company complies with its continuous disclosure requirements; • reviewing information which is brought to its attention to determine if there is a disclosable matter and, if so, whether any Listing Rule non-disclosure exception applies; • overseeing and coordinating disclosure of information to the ASX, analysts, brokers, shareholders, the media and the public; • establishing and maintaining the Company’s disclosure policies and procedures and ensuring that there is an adequate system in place for the disclosure of all material information to the ASX and other authorities in a timely fashion; and • educating management and staff on the Company’s disclosure policies and procedures. Communicating with Shareholders The Company aims to communicate all important information relating to its shareholders in a timely manner. The Company also recognises that potential investors and other interested stakeholders may wish to obtain information about the Company from time to time. To achieve this, the Company communicates information through a range of forums and publications, including the Company’s corporate website, shareholder meetings, ASX announcements, annual reports and presentations. The Company also has in place an investor relations program to facilitate two-way communication with investors. The process for communicating with shareholders and other parties is documented in the Continuous Disclosure Policy. Shareholders have an option to receive communications electronically by providing relevant details to the Company’s share registry. The website also contains a facility for shareholders to direct questions to the Company. The Board encourages the attendance and participation of shareholders at general meetings. Notices of meetings, including proposed resolutions, are issued in advance of meetings in accordance with legal requirements and allow for shareholders to send written questions to the Company’s auditor where applicable. Recognising and managing risk The Audit and Risk Committee assists the Board with and makes recommendations on matters relating to risk management responsibilities. The Committee’s primary role with respect to risk management and compliance is to review and report to the Board that: • adequate policies and processes have been designed and implemented to manage identified risks; • a regular program of audits is undertaken to test the adequacy of and compliance with prescribed policies; and • proper remedial action is undertaken to redress areas of weakness. The Company’s risk management framework is reviewed at least annually by the Committee to satisfy itself that the framework continues to be sound. Management is responsible for the development and implementation of effective risk management and internal compliance and control systems based on the risk management policies adopted by the Board. This includes having robust processes in place to identify and then manage key business risks. A formal review of the risk framework commenced during 2017 and is continuing with progress reports being presented to the Audit and Risk Committee for consideration. The Board receives a written declaration from the CEO and CFO prior to approving the Company’s financial statements for a reporting period. The declaration includes statements from the CEO and the CFO that, in their opinion, the financial records have been properly maintained and the financial statements comply with appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively in all material respects. 14 Reliance Worldwide Corporation Limited Internal Audit An internal audit function has been established to evaluate and provide recommendations to improve the effectiveness of the Company’s risk management, internal control and governance processes. Internal audit functions are provided by internal resources with assistance from an independent externally appointed provider where considered appropriate. The head of the internal audit function has direct access to the Chairman of the Audit and Risk Committee and provides reports to the Committee on progress and achievements against an approved internal audit work program. Economic, environmental and social sustainability risks Economic sustainability risks The Group is exposed to economic sustainability risks associated with its business activities. Details of key economic sustainability risks and how these are managed are discussed in the Material Business Risks section of the Directors’ Report for the year ended 30 June 2017. Environmental and social sustainability risks The Group has exposure to environmental and social sustainability risks. Manufacturing operations primarily involve brass forging and machining, PEX extrusion, plastic moulding and product assembly. The manufacture of the Group’s products involve heavy machinery and hazardous processes. There may be an incident or accident at a facility that results in serious injury or damage to property, which in turn may result in a penalty being imposed by a regulatory authority, an interruption of manufacturing operations, a worker’s compensation claim, a work health and safety claim or a claim for damages. Such claims or events may not be covered by insurance or may exceed insured limits. They may also adversely impact business reputation. Any such occurrences could therefore adversely impact the Group’s operations and profitability. The Group seeks to manage and minimise the impact of these risks through health and safety initiatives along with operational and product initiatives. Historically, the environmental impact of these processes has been minimal and the Company believes it meets current environmental standards in all material respects. Manufacturing operations have to date not been significantly affected by environmental laws and regulations. The Group’s operations and properties are subject to environmental protection laws and regulations, including those regulating air emissions, water discharges, waste management and disposal and workplace safety. If the Group were to breach or otherwise fail to comply with any such law or regulation, the cost of curing a breach or resolving associated enforcement actions initiated by government authorities could be substantial and may materially reduce the Group’s profit in a given reporting period. The Group adopts appropriate risk management and internal control processes to minimise the risk of breaching these laws and regulations. The Company believes that it operates its business in compliance with all regulatory and government requirements including environmental, health and safety, workplace and related regulations. The Group carries out required procedures with the aim of ensuring compliance with all applicable safety and product performance regulations. Operational initiatives undertaken by the Group in recent years include: • working with equipment manufacturers to introduce more efficient production processes into next generation machinery; • • • • • installation of LED lighting at manufacturing facilities and solar panels in some locations; focusing on recycling of unused raw materials to reduce wastage. For example, brass swarf is collected and returned to our suppliers to recycle back into new bars; recycling programs introduced to reduce landfill. These programs include use of shrink-wrapping and cardboard recycling; implementing water recycling in assembly applications to reduce energy costs; and identifying better ways to ship products to reduce the number of deliveries leading to less transportation requirements and lower greenhouse emissions; From a product perspective, the Group continues to develop and refine products that will mitigate potential water damage and wasted water, reduce energy costs and enable more effective and efficient installation and product operation. The Group invests extensively in research and development at facilities in Australia and the USA to achieve these aims. The new Streamlabs products are being developed specifically to mitigate water damage and wastage. Holdrite’s range includes products which save substantial water consumption and reduce noise and acoustics in pipe systems. The Group also actively participates in local communities and aims to support social issues and causes identified by its employees. Community involvement occurs through corporate donations, sponsorships, fund raising and employee participation. Remuneration Details of the Company’s key remuneration policies and practices, director and executive remuneration and employment terms of executive Key Management Personnel are discussed in the annual Remuneration Report. Details of the Company’s long term incentive plan, which provides for equity based remuneration, are also set out in the Remuneration Report. The performance of Key Management Personnel and other senior executives has been subject to review and evaluation during the 2017 fiscal year. Discussions have been held with the executives. Dealing in Securities The Securities Dealing Policy is intended to explain the types of conduct in relation to dealings in securities that are prohibited by law and establish procedures for the buying and selling of securities that protect the Company, Directors and employees against the misuse of unpublished information, which could materially affect the price or value of the Company’s securities. The policy sets out when and how dealing in the Company’s securities may or may not occur. Equity received by senior executives under the long term incentive plan cannot be hedged prior to vesting. A copy of the policy is available on the Company’s website. Annual Report 2017 15 DIRECTORS’ REPORT For the year ended 30 June 2017 The Directors present their report together with the Financial Report comprising Reliance Worldwide Corporation Limited (“the Company” or “Reliance”) and its controlled entities (together “the Group”) for the financial year ended 30 June 2017 and the Auditor’s report thereon. The following sections, which are presented separately, form part of and are to be read in conjunction with this Directors’ Report: • Operating and Financial Review; and • Remuneration Report. Directors The Directors of the Company at any time during or since the end of the financial year were: Jonathan Munz (Chairman) Heath Sharp (Chief Executive Officer and Managing Director) Russell Chenu Stuart Crosby Ross Dobinson Details of the experience and qualifications of Directors in office at the date of this report are: Jonathan Munz Chairman Member of Audit and Risk Committee Member of Nomination and Remuneration Committee Appointed 19 February 2016 19 February 2016 11 April 2016 11 April 2016 11 April 2016 Mr. Munz has had an involvement with the Group for almost 30 years, dating back to the acquisition of the original Australian business Reliance Manufacturing Company by his family in 1986. Mr. Munz has strongly supported the management team and its vision to grow the business from a small Australian company to a substantial international business. This includes strategic initiatives, such as the Group’s highly successful entry into the USA market in the early 2000s as well as the ongoing success of its SharkBite brand and products. Mr. Munz’s strong commercial and legal background has also enabled him to play a leading role in the various bolt-on acquisitions that have been completed by the Group over the years. He holds law and economics degrees from Monash University and remains a director of his family corporation, GSA Group, which retains a large investment in Reliance. Other listed company directorships in the past 3 years: None Heath Sharp Chief Executive Officer and Managing Director Mr. Sharp joined the Group in 1990 as a Design Engineer in the Brisbane based Product Development team. He has worked in each international division of the business throughout his career, holding senior management positions in Engineering, Product Management, Sales and Operations. He was appointed General Manager of the Cash Acme facility in Alabama following its acquisition in 2002. He returned to lead the Australian division in late 2004, the largest Group operation at the time. Mr Sharp moved back to the USA in 2007 to re-join the US business and steer its rapid growth in Reliance’s largest market. Mr. Sharp held the roles of President of the USA business and global Chief Operating Officer prior to his current role as Chief Executive Officer. Mr. Sharp holds a Bachelor of Mechanical Engineering degree from the University of Southern Queensland. Other listed company directorships in the past 3 years: None Russell Chenu Independent Non-Executive Director Chairman of Audit and Risk Committee Mr. Chenu is an experienced corporate and finance executive who has held senior finance and management positions with a number of ASX listed companies. His most recent role was Chief Financial Officer of ASX listed James Hardie Industries plc from 2004 to 2013. He is currently a Director of James Hardie Industries plc, CIMIC Group Limited and Metro Performance Glass Limited. Mr. Chenu holds a Bachelor of Commerce from the University of Melbourne and an MBA from Macquarie Graduate School of Management, Australia. Other listed company directorships in the past 3 years: CIMIC Group Limited (since June 2014) James Hardie Industries plc (since August 2014) Metro Performance Glass Limited (since July 2014) 16 Reliance Worldwide Corporation Limited Stuart Crosby Independent Non-Executive Director Chairman of Nomination and Remuneration Committee Mr. Crosby was the Chief Executive Officer and President of Computershare Limited for nearly eight years until June 2014. Mr. Crosby previously held a number of senior executive positions across the Computershare business. These included Head of Strategic Business Development in Europe and Asia, Head of the Asia Pacific region and Chief Operating Officer. Prior to joining Computershare, Mr. Crosby worked for the Australian National Companies and Securities Commission, the Hong Kong Securities and Futures Commission and at ASX Limited. Mr. Crosby is Chairman of AMES Australia. Other listed company directorships in the past 3 years: None Ross Dobinson Independent Non-Executive Director Member of Audit and Risk Committee Member of Nomination and Remuneration Committee Mr. Dobinson has a background in venture capital and investment banking and is currently the Managing Director of TSL Group Ltd. He is a founder, former CEO and current Non-Executive Chairman of ASX listed Acrux Limited. Mr. Dobinson was previously a director of ASX listed companies Starpharma Holdings Limited and Roc Oil Company Limited, a former Chairman of ASX listed TPI Enterprises Limited and a former Director of Racing Victoria Limited. Mr. Dobinson holds a Bachelor of Business (Accounting) from the Queensland University of Technology. Other listed company directorships in the past 3 years: Acrux Limited (since 1998) TPI Enterprises Limited (until June 2015) Company Secretary David Neufeld Mr. Neufeld has been the Company Secretary since April 2016. He has worked in chartered accounting and corporate organisations for over 30 years and has over 10 years experience as Company Secretary and Chief Financial Officer of ASX listed companies. Mr. Neufeld has extensive experience in financial and management reporting, corporate compliance, governance and risk management, audit and business acquisitions and divestments. He holds a Bachelor of Commerce (Honours) degree from The University of Melbourne and is a member of Chartered Accountants - Australia & New Zealand and The Australian Institute of Company Directors. Director Meetings The number of Board meetings and meetings of Board Committees held and the number of meetings attended by each of the Directors of the Company during the financial year are listed below. Director Russell Chenu Stuart Crosby Ross Dobinson Jonathan Munz Heath Sharp Audit and Risk Committee Remuneration Committee Nomination and Board Meetings Meetings Meetings Held1 Attended1 Held1 Attended1 Held1 Attended1 7 7 7 7 7 7 7 7 7 7 6 - 6 6 - 6 - 6 6 - - 3 3 3 - - 3 3 3 - 1. Number of meetings held and attended during the period the Director was a member of the Board or Committee. Directors who are not members of Board Committees have a standing invitation to attend Committee meetings and do attend from time to time. The above table only reflects attendance at Committee meetings by members of the relevant Committees. Environmental Regulation and Performance The Group’s manufacturing operations have to date not been significantly affected by environmental laws and regulations. Environmental and social sustainability are core to the Group’s operations and important to its strategy. The Group seeks to minimise the impact of its operations on the environment through initiatives such as minimising waste by recycling production materials. The Group’s manufacturing operations primarily involve brass forging and machining, PEX extrusion, plastic moulding and product assembly. Historically, the environmental impact of these processes has been minimal and Reliance believes it meets current environmental standards in all material respects. Annual Report 2017 17 DIRECTORS’ REPORT For the year ended 30 June 2017 Principal Activities The principal activities of the Group are the design, manufacture and supply of high quality, reliable and premium branded water flow and control products and solutions for the plumbing industry. Significant Changes in the State of Affairs The Group acquired all of the issued shares of Securus, Inc. (trading as HOLDRITE) for a purchase consideration of US$92.5 million (subject to customary closing adjustments) with completion occurring on 12 June 2017. The acquisition was funded from the Company’s borrowing facilities with existing lenders. The available limits under these facilities were increased in June 2017 by $A100 million to $A350 million. Further details are provided in the Operating and Financial Review. There were no other significant changes in the affairs of the Group during the financial period. Comparative figures in Financial Statements Comparative figures shown in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Cashflows and associated Notes to the Financial Statements are for the period from the date of incorporation of the Company (19 February 2016) to 30 June 2016. Material Business Risks Set out in the following table is: • a summary of specific material business risks which could impact upon Reliance’s ability to achieve its business objectives and/or its financial results and position; and • management plans to mitigate against each risk. The list is provided in no particular order and is not exhaustive. Risk Description Management plans Reliance is exposed to changes • Reliance’s financial performance is largely • Processes in place to be able to respond to in general economic conditions, dependent on activity in the residential and changes in conditions and adjust production, legislation and regulation which commercial repair and renovation and new delivery and raw materials purchasing requirements may impact activity in Reliance’s construction end-markets. Activities in these as well as manage operating and overhead costs as end-markets. end-markets are impacted by changes in general considered necessary and appropriate. economic conditions and to legislation and regulation (including plumbing codes). Activities in the repair end-market may also be impacted by extreme weather events. • A prolonged downturn in general economic conditions either globally or in any geographic region in which Reliance operates may therefore impact demand for plumbing services in the residential and commercial repair and renovation and new construction end-markets, thereby decreasing demand for Reliance’s products and services. • Any such downturn may have a material adverse impact on Reliance’s operations and financial results. Loss of customer risk • There can be no guarantee that key customers will • Continuing focus on differentiated products and continue to purchase the same or similar quantities of Reliance’s products as they have historically. Competition, including the price of competing products relative to Reliance’s products, could impact upon customer orders. solutions as well as customer service. • Investment in research and development to provide innovative products and remain the supplier of choice. • Continue business expansion and sales activity to • The loss of any of Reliance’s key customers or diversify the customer base. a significant reduction in the volume of products purchased by one or more key customers may adversely impact Reliance’s financial performance. 18 Reliance Worldwide Corporation Limited Risk Description Management plans Foreign currency risk • Reliance’s results are impacted by exchange rate • Reliance does not typically hedge its foreign movements. • Furthermore, as Reliance expands globally, it will be exposed to additional currencies and a higher proportion of its net sales, profitability, cash flows and financial position will be affected by exchange rate movements. exchange exposures. Reliance currently benefits from a partial “natural hedge” against key currency movements as Australia’s sales to the USA are denominated in US dollars and the majority of raw materials and components purchased by Australia for use in production for the USA are denominated in US dollars. Events affecting manufacturing or • The equipment and management systems • Manufacturing facilities are at various locations delivery capability necessary for the operation of Reliance’s thereby reducing the impact on total production manufacturing facilities may break down, perform output if an adverse event occurs at another of the poorly, fail, or be impacted by a fire or major weather sites. event (such as a snow storm, tornado, cyclone or flood), resulting in manufacturing delays, increased manufacturing costs or an inability to meet customer demand. • Events could also arise which impact upon Reliance’s ability to ship and deliver product from its facilities in a timely manner. • Any significant or sustained interruption to Reliance’s manufacturing or delivery processes, may adversely impact Reliance’s net sales and profitability. • Reliance has established long term machine maintenance support programs with key suppliers. • Reliance carries stores of key maintenance spare parts to support timely R&M. • Investment in high quality machinery and extensive operator training to enable machine/operator substitution in the event of machinery breakdown. • Safety hazard training undertaken and appropriate onsite procedures in place. • Business interruption insurance in place. Materials supply and price risk • Any adverse change in Reliance’s ability to procure • Reliance aims to have appropriate agreements in raw materials, a material increase in the cost of place with major suppliers. raw materials or any increase in indirect production input costs of such raw materials, would result in an increase in Reliance’s overall costs and if Reliance is unable to pass on such cost increases to its customers, could thereby reduce the Company’s profitability. • Active management of procurement processes. • Continuing program to “dual source” key materials and components to enable price verification and reduce risk of supplier concentration. • Reliance periodically benchmarks prices for key material/product supply. Impact of product recalls, product • Reliance is exposed to the risk of product recalls and • Continuing investment in production technology liability claims or claims against product liability claims where a defect in a product and quality control processes to minimise the risk of Reliance where a product has not sold or supplied by Reliance or incorrectly installed product defects. been correctly installed by a third by a third party contractor could result in, results in party. or is alleged to have resulted in, personal injury or property damage. • Reliance maintains rigorous quality assurance accreditation in all of its manufacturing/distribution locations. These quality systems are regularly audited by external third parties. • Investment in training of professional contractors on correct installation and use of products. • Appropriate insurance policies. Key personnel risk • Reliance’s success depends on the continued • Reliance seeks to employ high quality personnel active participation of its key personnel. who are remunerated by market competitive Cyber security • If Reliance were to lose any of its key personnel or if it were unable to employ additional or replacement personnel, its operations and financial results could be adversely affected. • Technological advancements and risks of cyber- crime can impact the integrity of Reliance’s IT systems and make them vulnerable to attack if appropriate security measures are not in place. arrangements. • Historically, there is a good record of retaining key staff. • IT security policies and recovery plans in place. • Ongoing system monitoring and testing, including review of security protocols. • Appropriate insurance policies. • Alerts and reminders sent to employees. Annual Report 2017 19 DIRECTORS’ REPORT For the year ended 30 June 2017 Dividends The Company declared an interim dividend of 3.0 cents per share which was paid on 31 March 2017. The interim dividend was franked to 40%. Since the end of the financial year, the Directors have resolved to declare a fully franked final dividend for the 2017 financial year of 3.0 cents per share payable to eligible shareholders on 10 October 2017. The record date for entitlement to the dividend is 12 September 2017. The total dividend for FY2017 is 6.0 cents per share franked to 70%. No dividends for the 2016 financial period were proposed or declared. The Company does not have a dividend reinvestment plan. Events subsequent to reporting date The Directors are not aware of any matter or circumstance that has occurred since the end of the financial year that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial periods which has not been covered in this report or the financial statements. Likely Developments and Prospects Details of likely developments for the Group and prospects for future financial periods are contained in the Operating and Financial Review. Share Options Details of options granted under the Company’s Equity Incentive Plan are set out in the Remuneration Report. No other share options have been granted by the Company at the date of this report. Directors’ interests Details of Directors’ interests in the Company’s issued securities are set out in the Remuneration Report. Indemnification and Insurance of Officers The Company’s Constitution provides that the Company may indemnify any current or former Director, Secretary or executive officer of the Company or of a subsidiary of the Company out of the property of the Company against every liability incurred by a person in that capacity whether civil or criminal or of an administrative or investigatory nature in which the person becomes involved because of that capacity. In accordance with the provisions of the Corporations Act 2001, the Company has a Directors’ and Officers’ Liability policy which covers all past, present or future Directors, Secretaries and executive officers of the Company and its controlled entities. The terms of the policy specifically prohibit disclosure of details of the amount of the insurance cover and the premium paid. The indemnification and insurances are limited to the extent permitted by law. Audit and Non-Audit Services Fees paid or payable by the Group for services provided by KPMG, the Company’s auditor, during the financial year were: KPMG Australia Audit services Other assurance and non-audit services • Due diligence • Tax compliance • Other assurance services • Other services Total remuneration paid to KPMG Australia Overseas KPMG offices • Due diligence • Other services Total remuneration paid to overseas KPMG offices Total remuneration to KPMG 2017 $ 177,000 22,500 79,500 25,000 15,000 319,000 313,159 22,722 335,881 654,881 20 Reliance Worldwide Corporation Limited The Directors, in accordance with advice from the Audit and Risk Committee which has considered the non-audit services provided by KPMG during the financial year, are satisfied that the provision of those non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001, 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 Company 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 APES110 - 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 Company, acting as an advocate for the Company or jointly sharing risks and rewards. Lead auditor’s independence declaration under Section 307C of the Corporations Act 2001 The lead auditor’s independence declaration set out on page 32 forms part of this Directors’ Report. Rounding off In accordance with the Australian Securities and Investments Commission Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191 values are rounded to the nearest thousand dollars, unless otherwise stated. Where an amount is $500 or less the amount is rounded to zero, unless otherwise stated. This report is made in accordance with a resolution of the Directors. Jonathan Munz Chairman Melbourne 28 August 2017 Heath Sharp Chief Executive Officer and Managing Director Annual Report 2017 21 REMUNERATION REPORT IMPORTANT NOTICES IMPORTANT NOTICES For the year ended 30 June 2017 (audited) (a) Introduction The Directors present the Remuneration Report of the Group for the financial year ended 30 June 2017 (“FY2017”). The Remuneration Report forms part of the Directors’ Report and has been audited in accordance with the requirements of the Corporations Act 2001 (Cth). The Remuneration Report sets out remuneration arrangements for the Key Management Personnel (“KMP”) of the Group for the reporting period. Under Australian Accounting Standards, the term KMP refers to directors (both non-executive directors and executive directors) and those persons having the authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. All KMP held their positions for the entire period covered by this report unless otherwise stated. The KMP for the year ended 30 June 2017 were: Name Non-Executive Directors Jonathan Munz, Chairman Russell Chenu Stuart Crosby Ross Dobinson Senior Executives Heath Sharp Gerry Bollman Terry Scott Executive Position Managing Director and Chief Executive Officer (“CEO”) Global Chief Financial Officer (from 5 December 2016) Global Chief Financial Officer (until 5 December 2016)1 1. Mr. Scott ceased to be Global Chief Financial Officer on 5 December 2016. Mr. Scott continued with the Group in a full time Senior Executive role through to 30 June 2017. Remuneration details for Mr. Scott have been provided for the entire reporting period as he was still considered to be KMP. For the remainder of this Remuneration Report, KMP are referred to as either Non–Executive Directors or Senior Executives as set out in the above table. Prior period comparative information covers the period from the Company’s listing on the Australian Securities Exchange (“ASX”) on 29 April 2016 through to 30 June 2016. (b) Remuneration framework and governance The Board believes that the Company’s success depends upon the performance of all employees and that remuneration policies should be structured to deliver positive benefits for employees, the Company and shareholders. The Nomination and Remuneration Committee is responsible for reviewing and recommending to the Board the remuneration arrangements for the CEO, the CEO’s direct reports, the Chairman and Non-Executive Directors. The Committee also oversees the operation of the Company’s Equity Incentive Plan (“Plan”) and makes recommendations to the Board about whether or not offers are to be made under the Plan. In discharging its responsibilities, the Nomination and Remuneration Committee must have regard to the following policy objectives: • remuneration structures are to be equitable and aligned with the long term interests of the Company and its shareholders and have regard to relevant Company policies; • attract and retain skilled executives; and • structure short term and long term incentives that are challenging and linked to the creation of sustainable shareholder returns. The Nomination and Remuneration Committee comprises only Non-Executive Directors and is chaired by an independent Director. The Committee’s Charter is available on the Company’s website at www.rwc.com and further information regarding the Committee is set out in the Corporate Governance Statement. Remuneration consultants and other advisors To assist in performing its duties and in making recommendations to the Board, the Nomination and Remuneration Committee from time to time may seek independent advice from remuneration consultants and other advisors on various remuneration related matters. Remuneration consultants and other advisors are required to engage directly with the Chairman of the Nomination and Remuneration Committee as the first point of contact. No remuneration recommendations relating to KMP remuneration were received from remuneration consultants or other advisors during the reporting period. 22 Reliance Worldwide Corporation Limited Review of remuneration strategy During the 2017 financial year, the Nomination and Remuneration Committee focused on: • reviewing the mix of fixed and incentive components applicable to Senior Executive remuneration arrangements and remuneration arrangements of other executives; • determining appropriate equity based compensation arrangements with a view to expanding participation by Senior Executives in the Plan; and • introducing standard terms into employment agreements for executives across the Group. In the 2018 financial year, the Nomination and Remuneration Committee intends to: • continue reviewing remuneration arrangements of executives, including the balance of fixed and incentive components, with the aim of providing competitive remuneration packages to attract and retain high calibre executives; • have a focus on ‘at risk’ incentive arrangements being appropriately aligned with business strategies and outcomes; and • oversee a project being implemented by management in connection with a review of pay equity. (c) Principles used to determine the nature and amount of remuneration Non-Executive Director remuneration In order to maintain director independence, the remuneration of Non-Executive Directors is not linked to Company performance and is comprised solely of Directors’ fees (including applicable superannuation). In addition, any changes to the maximum aggregate amount available to remunerate Non-Executive Directors must be approved by shareholders. The Company’s remuneration policy for Non-Executive Directors aims to ensure that the Company can attract and retain suitably qualified and experienced Non-Executive Directors having regard to: • the level of fees paid to non-executive directors of other major Australian companies; • the size and complexity of the Company’s operations; and • the responsibilities and work requirements of Board members. Senior Executive remuneration The Board, through the Nomination and Remuneration Committee, is responsible for designing and reviewing remuneration policies which align the remuneration of executives with the long term interests of shareholders. Remuneration packages for Senior Executives are set to properly reflect a Senior Executive’s duties and responsibilities and to be competitive in attracting, retaining and motivating appropriately qualified and experienced people capable of managing the Company’s operations and achieving the Company’s business objectives. Remuneration arrangements will be regularly reviewed with regard to various factors, including key performance objectives, an appraisal process and relevant comparable information. Senior Executive remuneration packages comprise fixed remuneration, represented by a base salary and contributions to superannuation or pension funds, as applicable, and may also include cash bonuses awarded at the discretion of the Company as a short term incentive (“STI”) and/or ‘at risk’ long term incentives (“LTI”). During the reporting period, the remuneration mix for Senior Executives was: Senior Executive Fixed remuneration (%) STI (%) Heath Sharp Gerry Bollman Terry Scott 36.3 55.9 82.0 55.1 11.7 18.0 LTI (%) 8.6 32.5 - The percentage of ‘at risk’ LTI assumes all applicable performance conditions are achieved in full. Details of Senior Executive remuneration are set out in section (l) below. Company performance The following table shows the financial performance of the Group during the financial year ended 30 June 2017. It is not possible to address the statutory requirement that the Company provides a five-year discussion of the link between performance and reward in this Remuneration Report as the Company has been listed since April 2016. Annual Report 2017 23 REMUNERATION REPORT IMPORTANT NOTICES For the year ended 30 June 2017 (audited) Key performance indicators Sales revenue Net profit before tax Net profit (loss) after tax Share price at beginning of year Share price at end of year Dividends per share Basic earnings (loss) per share Diluted earnings (loss) per share FY2017 FY20161 $601.7 million $98.3 million $96.3 million $0.8 million $65.6 million ($1.6) million $3.09 $3.34 6.0 cents 12.5 cents 12.4 cents $2.872 $3.09 - (0.30) cents (0.30) cents 1. Prior period comparative information covers the period from the Company’s IPO on 29 April 2016 through to 30 June 2016. 2. The share price disclosed as being at the beginning of the year in FY2016 was the share price on listing (29 April 2016). The Company’s share price experienced an increase of 8.1% during FY2017 and an increase of 16.4% from listing to 30 June 2017. Shares issued under the initial public offering had an issue price of $2.50 so that the closing share price at 30 June 2017 represented a 33.6% premium to that issue price (30 June 2016 – 23.6%). A maiden interim dividend of 3.0 cents per share franked to 40% was paid to eligible shareholders on 31 March 2017. The Company has declared a fully franked final dividend for the year ended 30 June 2017 of 3.0 cents per share. The total dividend for FY2017 is 6.0 cents per share which represents 48% of NPAT and is consistent with the target payout ratio contained in the Prospectus dated 18 April 2016. Senior Executives were awarded a short term incentive in recognition of this strong performance and delivering returns to shareholders. Further details are set out in section (e) below. (d) Non-Executive Directors’ fees and arrangements The Board, in accordance with the terms of the Company’s Constitution, has determined the remuneration to which each Non- Executive Director is entitled for services as a Director. The total aggregate amount provided to all Non-Executive Directors for their services as Directors in any financial year must not exceed the amount fixed by the Company in a general meeting. This maximum aggregate amount is presently fixed at $1.0 million. The annual base Non-Executive Directors’ fees agreed to be paid by the Company to each Non-Executive Director except the Chairman is $120,000 (including applicable superannuation and committee fees). The fees payable to Non-Executive Directors may be reviewed and amended in future years. Mr. Munz has waived his entitlement to any Non-Executive Director and committee fees for the initial three years following the Company’s listing on the ASX. Any Non–Executive Director who performs extra services, makes any special exertions for the benefit of the Company or who otherwise performs services which, in the opinion of the Board, are outside the scope of the ordinary duties of a Non-Executive Director, may, as determined by the Board, be remunerated for those services out of funds of the Company. No such fees were paid or are payable for the reporting period. Non-Executive Directors may also be reimbursed for travel and other expenses incurred in attending to the Company’s affairs, including attending and returning from general meetings of the Company or meetings of the Board or committees of the Board. There are no retirement benefit schemes for Non-Executive Directors other than applicable statutory superannuation contributions. (e) Senior Executive remuneration structure Fixed Remuneration The terms of employment for the Senior Executives contain: • a fixed annual remuneration component comprising base salary and applicable superannuation/pension fund contributions; and • other approved benefits (which may include items such as motor vehicles, mobile phone, travel allowances and health cover). Senior Executives are offered competitive fixed remuneration which is reviewed in accordance with the terms of the Senior Executive’s Service Agreement to ensure remuneration is competitive with the market and meets the responsibilities of the position. 24 Reliance Worldwide Corporation Limited Short term incentive Under the Company’s STI plan, bonuses may be awarded to Senior Executives at the discretion of the Board. In determining if a cash bonus will be awarded, consideration is given to achievement of agreed key performance objectives, the overall performance of the Group and/or relevant divisional performance. The Nomination and Remuneration Committee reviews and makes recommendations to the Board as to whether or not a STI entitlement should be made to eligible Senior Executives. Details of cash bonuses awarded to Senior Executives for FY2017 are set out in the remuneration table in section (l). The bonuses will be paid during the first quarter of FY2018. No bonuses were paid or payable to Senior Executives by the Group in respect of the FY2016 reporting period. The STI bonuses awarded to the Senior Executives recognise their performance in leading the Group during its successful first full year since listing on the ASX, including the expansion of the retail distribution network for SharkBite PTC in the USA and the acquisition of Holdrite. The Company experienced strong performance during FY2017 as reflected in the financial results and positive shareholder returns. With regard to the CEO, the Nomination and Remuneration Committee also took into account that his existing LTI has a longer vesting period than is usual. The Board, other than Mr. Sharp who abstained in respect of himself, agreed with the recommendations of the Nomination and Remuneration Committee. Long term incentive The Company established the Equity Incentive Plan to assist in the motivation, retention and reward of eligible employees. The Plan is designed to align the interests of employees with the interests of shareholders by providing an opportunity for eligible employees to receive an equity interest in the Company. The Plan provides flexibility for the Company to grant rights, options and/or restricted shares as incentives, subject to the terms of individual offers and the satisfaction of performance conditions determined by the Board from time to time. Mr. Bollman was the only KMP to receive a grant under the Plan in FY2017. A summary of the terms of the grants made to Mr. Bollman are set out below. As disclosed in the Company’s Prospectus and the 2016 Annual Report, Mr. Sharp was granted 4,000,000 Options as his LTI grant shortly after the Company’s shares listed on the ASX. Those Options have a performance period commencing on the date of the Company’s listing (29 April 2016) until 30 June 2022. None of those Options will vest unless Mr Sharp remains employed by the Group until 30 June 2022. In addition to the service period hurdle, those Options are subject to two performance conditions as follows: • 30% of the Options were subject to a net profit after tax (“NPAT”) performance condition based on the Company meeting or exceeding its pro forma NPAT forecast for the year ended 30 June 2017 of $62.6 million, as stated in the Prospectus dated 18 April 2016. This condition has now been satisfied; and • 70% of the Options are subject to a relative total shareholder return (“TSR”) performance condition, which compares the TSR performance of the Company since listing with the TSR performance of each of the entities in the S&P ASX200 Index (excluding mining and energy companies) over the period from 29 April 2016 to 30 June 2021. The TSR performance conditions are the same as set out in the table below. Further information and details on the terms of the Options granted to Mr. Sharp can be found in the Company’s FY2016 Remuneration Report. The Board has determined that the CEO will not receive an LTI award for FY2017 as he has significant LTI equity arrangements which remain ‘at risk’ and subject to satisfaction of vesting conditions until 30 June 2022. Further details of Options held by Senior Executives are set out in section (i). LTI Options Grant made to Gerry Bollman, Global Chief Financial Officer (“CFO”) in FY2017 Type of award The CFO’s LTI award was delivered in the form of 1,307,190 options. Each option entitles the CFO to acquire an ordinary share in the Company subject to meeting specific vesting conditions and payment of an exercise price of $3.06 per Option (“Options”). The Options were granted at no cost to the CFO as they form part of his remuneration. Performance Period Five years from the date of commencement of employment (5 December 2016). Annual Report 2017 25 REMUNERATION REPORT IMPORTANT NOTICES For the year ended 30 June 2017 (audited) Vesting conditions The Options will vest and become exercisable subject to the satisfaction of a service period hurdle and a performance condition. The Board considers these vesting conditions to be an appropriate combination of stretch financial hurdles directly linked to Company performance and reflecting shareholder interests; and as a mechanism which assists in the retention of the CFO. 1. Service period hurdle None of the Options will vest unless the CFO remains employed by the Group at the expiration of 5 years from the date of commencement of employment (5 December 2016). 2. Performance condition In addition to the service period hurdle, the Options are subject to a relative total shareholder return (“TSR”) performance condition, which compares the TSR performance of the Company since listing with the TSR performance of each of the entities in the S&P ASX200 Index (excluding mining and energy companies) over the period from 29 April 2016 to 30 June 2021 (“TSR Hurdle”). The TSR Hurdle measurement period aligns with Options granted to other Senior Executives. The percentage of Options that vest in relation to the TSR Hurdle, if any, will be determined by reference to the following vesting schedule: Relative TSR Ranking Below 50th percentile 50th percentile % of Options that vest subject to the TSR Hurdle Nil 50% Between 50th and 75th percentile Pro rata straight line vesting between 50% to 100% 75th percentile or above 100% The number of Options that vest and become exercisable (if any) will be determined shortly after the end of the Performance Period. Any Options that remain unvested will lapse immediately. Relative TSR measures the performance of an ordinary share in the Company (including the value of any cash dividend and any other shareholder benefits paid during the period) against total shareholder return performance of constituents of the S&P ASX200 Index (excluding mining and energy companies), over the same period. Relative TSR has been chosen because, in the opinion of the Board, it provides the most direct link to shareholder return. No reward is achieved unless the Company’s TSR is higher than the median of this comparator group. The starting point for measuring the Company’s TSR performance is the $2.50 issue price for the shares issued under the Prospectus. Process for assessing the Relative TSR performance will be independently assessed against a peer group comprising constituents of the S&P vesting conditions ASX 200 Index (excluding mining and energy companies) in accordance with pre-determined TSR methodology. No retesting is permitted. The service condition will be satisfied if the CFO remains employed by the Group at the expiration of 5 years from the date of commencement of employment (5 December 2016). Exercise of Options The Options will vest and become exercisable if the relevant vesting conditions have been met. The CFO may then exercise any vested Options until 5 December 2024. After 5 December 2024, any unexercised Options will lapse. Voting and dividend rights Options do not carry any voting or dividend rights prior to vesting and exercise. 26 Reliance Worldwide Corporation Limited Cessation of employment If the CFO ceases employment within the first twelve months of his employment (or is under notice), all Options will lapse unless the Board determines otherwise. Where the CFO ceases employment after the first 12 months from the date of commencing employment and either: • the employer terminates without cause (with notice given after the initial 12 month employment period); or • the CFO terminates for good reason (with notice given after the initial 12 month employment period), then a pro rata number of unvested Options will vest and become exercisable based on the relevant part of the service period hurdle achieved and will apply subject to the TSR Hurdle to the date notice is given having been met. Where: • the employer terminates the CFO’s employment for cause; or • the CFO terminates without good reason after the first twelve months of his employment but before the end of the service period hurdle, the CFO will forfeit all rights to Options unless the Board determines otherwise. If employment ceases by reason of death or disability then the Board shall at its discretion vest the Options in full or in part. Change of control Where there is likely to be a change of control, the Board has the discretion to accelerate vesting of some or all of the Options. If an actual change of control occurs before the Board exercises its discretion, a pro-rata portion of the Options (equal to the portion of the relevant Performance Period that has elapsed up to the change of control) will vest. The Board retains a discretion to determine whether the remaining unvested Options will vest or lapse. (f) Sign-on grant of restricted shares Mr. Bollman (“CFO”) was appointed the Global Chief Financial Officer on 5 December 2016. On commencement of his employment with the Group, Mr. Bollman was offered 680,272 restricted shares under the Plan. The offer was made in recognition of incentives forgone from his previous employer, to align Mr. Bollman’s interests with the interest of shareholders and with other executives from a performance and reward perspective. There is a vesting condition which requires the CFO to remain employed by the Group until the expiration of 5 years from the date of commencement of employment (5 December 2016). Continued service was chosen as a vesting condition as it reflects the need to retain Mr. Bollman as CFO during the Group’s period of growth and expansion and to encourage stability at the Senior Executive level. The CFO cannot deal in the restricted shares until the vesting condition is satisfied. The CFO does not have any voting or dividend rights prior to vesting. The restricted shares will be awarded at no cost to Mr. Bollman. If the CFO ceases employment within the first twelve months of his employment (or is under notice) the restricted shares will be forfeited unless the Board determines otherwise. If the CFO ceases employment after the first 12 months of his employment and either: • • the employer terminates without cause (with notice given after the initial 12 month employment period); or the CFO terminates for good reason (with notice given after the initial 12 month employment period), the CFO will be entitled to a pro rata portion of the restricted shares based on the length of his period of service and the restrictions attached to those restricted shares will cease. The CFO will forfeit all rights to his restricted shares grant unless the Board determines otherwise where: • • the employer terminates the CFO’s employment for cause; or the CFO terminates without good reason after the first twelve months of his employment but before the end of the service period. The Board has discretion to vest all or some of the restricted shares if the CFO ceases employment due to death or disability. During FY2017, no restricted shares vested or were forfeited. If the minimum vesting condition is not met, the minimum possible value of the grant is $nil. The maximum possible value of the grant is $2.0 million based on a price of $2.94 per share, being the closing share price for the Company’s shares on the calculation date (1 November 2016). Annual Report 2017 27 REMUNERATION REPORT IMPORTANT NOTICES For the year ended 30 June 2017 (audited) (g) Service Agreements of Senior Executives Employment and remuneration arrangements of the Senior Executives are formalised in written service agreements between the Senior Executive and a member of the Group. The key terms and conditions of the employment contracts of the Senior Executives are set out below. The remuneration arrangements were set after having regard to arrangements for comparable companies considered by size, industry and geography. Heath Sharp, Managing Director and Chief Executive Officer Term Notice Mr. Sharp is employed by Reliance Worldwide Corporation (a company in the Group which carries on operations in the USA) for an initial period of four years from the date of listing (29 April 2016). Thereafter, one year rolling periods unless either party provides 90 days notice of non-renewal. Termination by the employer • Mr. Sharp’s employment may be terminated by the employer without cause (excluding due to death or disability) upon giving 90 days’ written notice; and • may be terminated by the employer for cause at any time. Termination by Heath Sharp • Mr. Sharp may terminate his employment with good reason upon giving 90 days written notice and allowing a subsequent cure period. • Where he terminates without good reason, 12 months written notice is required to be provided. Termination payments • Where Mr Sharp’s employment is terminated by the employer without cause, he is entitled to 24 months severance pay (inclusive of any notice period), plus accrued entitlements. He is also eligible for a pro rata bonus for the days he was employed during the fiscal year and payment of health insurance premiums. • Where the employer provides notice of non-renewal, he is entitled to his accrued entitlements and 12 months severance pay. He is also eligible for a pro rata bonus for the days he was employed during the fiscal year and payment of health insurance premiums during the period of severance pay. • Where Mr. Sharp provides notice of non-renewal, he is entitled to receive his accrued entitlements (excluding any earned but unpaid performance bonus) and continuation of applicable welfare and health benefits entitlements. Restraint Mr. Sharp employment agreement contains a restraint of trade, which operates for a maximum period of 24 months following cessation of employment. Gerry Bollman, Global Chief Financial Officer (from 5 December 2016) Term Notice Mr. Bollman is employed by Reliance Worldwide Corporation (a company in the Group which carries on operations in the USA). His employment agreement contains no fixed term. Termination by the employer • Mr. Bollman’s employment may be terminated by the employer without cause upon giving three months written notice; and • may be terminated by the employer for cause at any time. Termination by Gerry Bollman • Mr. Bollman may terminate his employment with good reason upon giving the employer written notice within 90 days of an event occurring and allowing a subsequent cure period. • Where he terminates his employment agreement without good reason, three months written notice needs to be provided. 28 Reliance Worldwide Corporation Limited Termination payments • Where Mr. Bollman’s employment is terminated by the employer without cause or by him for good reason, he is entitled to: • no severance payments if the employment agreement is terminated in the first year of employment; • 6 months severance pay where notice is given after the first year of employment and before the fifth year of employment; and • 12 months severance pay if notice is given after commencement of the fifth year of employment. He will also receive payment of accrued entitlements and remain eligible for a pro rata bonus for the days he was employed during the applicable fiscal year, and payment of health insurance premiums. • Where his employment is terminated due to death or disability, he is entitled to accrued entitlements (including any earned but unpaid performance bonus), he remains eligible for a pro rata bonus for the days he was employed during the applicable fiscal year and to a continuation of applicable welfare and health benefits entitlements. • Where the employment agreement is terminated by the employer for cause or by Mr. Bollman without good reason, then the employer shall have no further payment obligations other than for accrued entitlements (excluding any earned but unpaid performance bonus) and continuation of applicable welfare and health benefits entitlements. Restraint Mr. Bollman’s employment agreement contains a restraint of trade, which operates for a maximum period of 12 months following cessation of employment. Terry Scott, Senior Global Executive Mr. Scott ceased to be Global Chief Financial Officer on 5 December 2016. Mr. Scott continued with the Group in a full time Senior Executive role through to 30 June 2017. Term Notice Two years from 29 April 2016. Termination by the Company • Mr. Scott employment may be terminated without cause by the Company upon giving three months written notice; and • may also be terminated by the Company without notice in certain circumstances including serious misconduct. Termination by Terry Scott • Mr. Scott agreed not to give notice during the term of his employment agreement. Termination payments The Company had discretion to make a payment in lieu of part or all of the notice period. No such payment has been made. Restraint Mr. Scott’s employment agreement contains a restraint of trade, which operates for a maximum period of 12 months following cessation of employment. The Corporations Act restricts the termination benefits that can be provided to KMP on cessation of their employment, unless shareholder approval is obtained. The shareholders of the Company and of Reliance Worldwide Corporation, as applicable, have approved the giving of benefits to all current and future members of KMP in connection with that person ceasing to hold a managerial or executive office (as defined in section 200AA of the Corporations Act) in the Company or a related body corporate. Annual Report 2017 29 REMUNERATION REPORT IMPORTANT NOTICES For the year ended 30 June 2017 (audited) (h) Options granted to Senior Executives during FY2017 Details of the Options granted during the reporting period are set out below. Senior Executive Number granted Grant date Vesting date Grant price Aggregate Fair value fair value of per Option at Grant date1 Options at Grant date1 Exercise price per Option Expiry date Gerry Bollman 1,307,190 12 Dec 2016 5 Dec 2021 $nil $0.74 $967,321 $3.06 5 Dec 2024 1. Based on an independent valuation which used the Black Scholes model. (i) Movements in Options held by Senior Executives The following table sets out the movement during the reporting period of Options held by each Senior Executive (including their related parties). None of the Options vested or were forfeited during the reporting period and none of the Options are presently capable of being exercised Balance at 1 July 2016 Granted during the year number Granted during the year $ value1 Name Vested number Vested $ value Exercised number Exercised $ value Lapsed number Lapsed $ value Heath Sharp 4,000,000 – – Gerry Bollman Terry Scott – – 1,307,190 967,321 – – – – – – – – – – – – – – – – – – – – % Lapsed/ Forfeited – – – Balance at 30 June 2017 4,000,000 1,307,190 – 1. The value of Options granted is the fair value assessed using the Black Scholes model and prepared as at the relevant Grant date. (j) KMP shareholdings Movements in the number of shares held by Non-Executive Directors and Senior Executives directly, indirectly (through personally related entities) or nominally during the reporting period are set out below. Name Jonathan Munz Russell Chenu Stuart Crosby Ross Dobinson Heath Sharp Gerry Bollman3 Terry Scott Held at Received as Received on Held at 1 July 2016 remuneration exercise of Options Other net change1 30 June 2017 157,500,000 40,000 100,000 20,000 800,000 – 640,000 – – – – – – – – – – – – – – – 157,500,000 20,000 – – – – – 60,0002 100,0002 20,0002 800,000 – 640,000 1. Includes the purchase (sale) of shares during the reporting period. 2. Includes 20,000 shares received in April 2016 under specific arrangements for Non-Executive Directors in connection with the IPO, as stated in the Prospectus. 3. Mr. Bollman has been offered 680,272 restricted shares as detailed in section (f). (k) Other statutory disclosures Material contracts with Related Parties The Company and GSA Industries Pty Ltd, a wholly owned subsidiary of GSA Group and an entity associated with Jonathan Munz, have entered into a shared facilities and services agreement dated 3 March 2016 (“Shared Services Agreement”) under which the Company will share premises with GSA Group in Melbourne and be permitted to use certain facilities such as office space and car parking and will have signage rights. The initial term of the Shared Services Agreement is two years (which may be renewed by either party by giving six months notice to the other party). The Company pays an annual fee of $100,000 (plus GST) to GSA Industries Pty Ltd for the use of these facilities and services. The Shared Services Agreement came into effect from the date of the Company’s listing on the ASX. The Shared Services Agreement is on terms that are more favorable to the Company than arm’s length terms. There were no other material contracts between a KMP or a related party and the Company or any of its subsidiaries entered into during the reporting period. Loans with KMP No KMP has entered into a loan made, guaranteed or secured, directly or indirectly, with or by the Company or any of its subsidiaries during the reporting period. 30 Reliance Worldwide Corporation Limited (l) KMP remuneration Details of the remuneration of each member of KMP are set out below. The table includes the statutory disclosures required under the Corporations Act and is in accordance with Australian Accounting Standards. All figures are in Australian dollars and relate to the period of the year in which the person was a KMP. Short Term Post-employment Other long term statutory benefits Termination benefits Share based payments Total Super- annuation or pension plan benefits $ Other short term benefits $ Other Post employ- ment $ Long service leave $ Shares Options $ $ $ Cash salary & fees $ STI cash bonus $ Non-Executive Directors Jonathan Munz1 FY2017 FY20165 – – Russell Chenu FY2017 109,590 FY20165 18,265 Stuart Crosby FY2017 109,590 FY20165 18,265 Ross Dobinson FY2017 120,000 FY20165 20,000 Senior Executives – – – – – – – – Non- monetary benefits $ – – – – – – – – – – – – – – – – – – 10,410 1,735 10,410 1,735 – – Heath Sharp2 FY2017 1,472,944 2,500,000 148,877 13,433 14,329 FY20165 235,405 – 39,168 2,328 – Gerry Bollman3 FY2017 535,818 135,465 97,560 5,677 10,757 FY20165 – – Terry Scott4 FY2017 800,000 195,100 FY20165 145,122 – – – – – – 45,957 19,620 – 3,218 Total FY2017 3,147,942 2,830,565 246,437 65,067 65,526 FY20165 437,057 – 39,168 2,328 6,688 $ – – 120,000 20,000 120,000 20,000 120,000 20,000 – – – – – – – – – – – – – – – – – 390,168 4,539,751 – 65,027 341,928 266,667 110,774 1,162,718 – – – – – – 1,084,024 – 150,841 266,667 500,942 7,146,493 – 65,027 552,769 – – – – – – – – – – – – – – – – – – – – – – – – – – – – 23,347 2,501 23,347 2,501 – – – – – – – – – – – – – – – – 1. Mr. Munz has waived his entitlement to any Non-Executive Director or committee fees for the initial three years following the Company’s listing on the ASX. 2. Annual fixed remuneration of US$1,150,000 plus benefits, including pension plan contributions. 3. Annual fixed remuneration of US$700,000 plus benefits, including pension plan contributions. No comparative figures are shown for Gerry Bollman as he commenced his role on 5 December 2016. Mr. Bollman’s annual fixed remuneration will increase to US$800,000 plus benefits by no later than 1 July 2018 under the terms of his service agreement. 4. Annual fixed remuneration of $800,000, including superannuation and any approved benefits. 5. FY2016 comparative information covers the period from the Company’s listing on the Australian Securities Exchange on 29 April 2016 through to 30 June 2016. Annual Report 2017 31 IMPORTANT NOTICES Independent Auditor’s Report Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 Report on the audit of the Financial Report To the shareholders of Reliance Worldwide Corporation Limited To the Directors of Reliance Worldwide Corporation Limited Opinion I declare that, to the best of my knowledge and belief, in relation to the audit of Reliance Worldwide Corporation Limited for the financial year ended 30 June 2017 there have been: The Financial Report comprises: We have audited the Financial Report of Reliance Worldwide Corporation Limited (the Company). • Consolidated statement of financial position as at 30 no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and June 2017; In our opinion, the accompanying Financial Report of the Group is in accordance with the Corporations Act 2001, including: no contraventions of any applicable code of professional conduct in relation to the audit. giving a true and fair view of the Group’s financial position as at 30 June 2017 and of financial performance for the year ended on that date; and its • • • 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. complying with Australian Accounting Standards the Corporations and Regulations 2001. The Group consists of Reliance Worldwide Corporation Limited (the Company) and the entities it controlled at the year end and from time to time during the financial year. i. ii. KPMG Basis for opinion 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. Paul J McDonald Partner Melbourne 28 August 2017 KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 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 Profession Standards Legislation. 32 Reliance Worldwide Corporation Limited 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. IMPORTANT NOTICES CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For the year ended 30 June 2017 Revenue from sale of goods Cost of sales Gross profit Other income Product development expenses Selling, warehouse and marketing expenses Administration expenses Other expenses Operating profit Finance income Finance costs Net finance costs Profit before tax Income tax expense Profit / (Loss) for the period attributable to the Owners of the Company Other Comprehensive profit / (loss) Items that may be classified to profit or loss: Foreign currency translation differences Total comprehensive profit / (loss) for the period attributable to the Owners of the Company Earnings per share Basic earnings / (loss) per share attributable to ordinary equity holders Diluted earnings / (loss) per share attributable to ordinary equity holders Note 4 5 5 7 6 6 2017 $000 601,693 (349,471) 252,222 353 (11,428) (86,597) (52,103) (1,149) 101,298 50 (5,061) (5,011) 96,287 (30,675) 20161 $000 98,290 (59,411) 38,879 520 (1,990) (14,887) (8,189) (12,545) 1,788 39 (988) (949) 839 (2,437) 65,612 (1,598) (1,509) (3,269) 64,103 (4,867) cents 12.5 12.4 cents (0.30) (0.30) 1. Comparative figures shown in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and associated Notes to the Financial Statements are for the period from the date of incorporation of the Company (19 February 2016) to 30 June 2016. The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. Annual Report 2017 33 IMPORTANT NOTICES CONSOLIDATED STATEMENT OF FINANCIAL POSITION At 30 June 2017 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total Current Assets Non-Current Property, plant and equipment Deferred tax assets Goodwill and unidentified other intangible assets Other intangible assets Total Non-Current Assets Total Assets Liabilities Current liabilities Bank overdraft Trade and other payables Borrowings Current tax liabilities Employee benefits Total Current Liabilities Non-Current Liabilities Borrowings Deferred tax liabilities Employee benefits Total Non-Current Liabilities Total Liabilities Net Assets Equity Share capital Reserves Retained earnings / (accumulated losses) Total Equity Note 2017 $000 2016 $000 17 8 9 10 7 11 12 14 13 14 15 14 7 15 18 20 34,996 109,727 162,422 6,771 313,916 111,509 18,292 96,284 59,786 285,871 599,787 9,403 97,910 423 4,333 5,833 117,902 260,539 12,516 4,084 277,139 395,041 35,648 94,964 119,109 4,655 254,376 107,835 15,056 44,570 1,238 168,699 423,075 – 64,762 446 169 4,355 69,732 163,123 18,402 4,831 186,356 256,088 204,746 166,987 1,261,371 (1,104,889) 48,264 1,272,732 (1,104,147) (1,598) 204,746 166,987 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 34 Reliance Worldwide Corporation Limited CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 30 June 2017 Foreign Currency Share Translation Capital $000 Reserve $000 Merger Reserve $000 Share based Payment Reserve $000 (Accumulated Losses)/ Retained Profits $000 Note Balance at 19 February 2016 Profit / (loss) for the period Foreign currency translation Reserve 20 Total comprehensive income – – – – – – (3,269) (3,269) Transactions with owners of the Company Issue of ordinary shares Effect of Restructure Share based payments Capital raising costs incurred net of tax benefit Total transactions with owners of the Company 18 20 19 1,296,700 – – (23,968) 1,272,732 – – – – – – – – – – (1,100,943) – – (1,100,943) Balance at 30 June 2016 1,272,732 (3,269) (1,100,943) Balance at 30 June 2016 Profit / (loss) for the period Foreign currency translation Reserve 20 Total comprehensive income – – – – (1,509) (1,509) 1,272,732 (3,269) (1,100,943) Transactions with owners of the Company Purchase of treasury shares Share based payments Dividends paid Total transactions with owners of the Company 18 19 (11,361) – – (11,361) – – – – Balance at 30 June 2017 1,261,371 (4,778) (1,100,943) – – – – – – – – – – – – – 65 – 65 65 65 – – – – 767 – 767 832 Total Equity $000 – (1,598) (3,269) (4,867) – (1,598) – (1,598) – – – – – 1,296,700 (1,100,943) 65 (23,968) 171,854 (1,598) 166,987 (1,598) 65,612 – 65,612 166,987 65,612 (1,509) 64,103 – – (11,361) 767 (15,750) (15,750) (15,750) (26,344) 48,264 204,746 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes. Annual Report 2017 35 IMPORTANT NOTICES CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 30 June 2017 Cash flows from operating activities Receipts from customers Payments to suppliers and employees and customer rebates Income tax payments Other income Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment and development incentives received Purchase of intangibles Net cash outflow upon acquisition of business combinations Net cash used in investing activities Cash flows from financing activities Proceeds from issue of shares Purchase of treasury shares Proceeds from borrowings Repayment of borrowings Dividends paid Interest received Interest paid - other persons and corporations Capital raising costs paid Net cash from financing activities Net change in cash and cash equivalents Cash at the start of the year Effect of movements in exchange rates on cash held Cash and cash equivalents at the end of the year Represented by: Cash at bank Bank overdraft Cash and cash equivalents at the end of the year Note 10 12 3 14 17 2017 $000 596,599 (497,111) (27,563) – 71,925 2016 $000 107,461 (81,817) – 520 26,164 (21,706) (2,514) 464 (3,761) (122,273) (147,276) 992 (183) (1,025,880) (1,027,585) – (11,362) 127,417 (30,000) (15,750) 50 (5,061) – 65,294 (10,057) 35,648 2 25,593 34,996 (9,403) 25,593 918,750 – 160,000 (446) – 39 (988) (40,282) 1,037,073 35,652 – (4) 35,648 35,648 – 35,648 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. 36 Reliance Worldwide Corporation Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 1. Significant accounting policies (a) Reporting Entity Reliance Worldwide Corporation Limited (the “Company“ or “Reliance”) is a limited liability company which was incorporated on 19 February 2016 and is domiciled in Australia. The Company’s registered office is at Level 54, 525 Collins Street, Melbourne, Victoria. The principal activities of Reliance and its subsidiaries are the design, manufacture and supply of high quality, reliable and premium branded water flow and control products and solutions for the plumbing industry. (b) Statement of Compliance The consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The consolidated financial statements comply with International Financial Reporting Standards (IFRS) and interpretations adopted by the International Accounting Standards Board (IASB). The Company is a for-profit entity for the purpose of preparing the financial statements. The financial statements were authorised for issue by the Board of Directors on 28 August 2017. (c) Basis of preparation These consolidated financial statements: • comprise the Company and its subsidiaries, together referred to as the “Group”, for the reporting period ended 30 June 2017; • have been prepared on a going concern basis using historical cost conventions; • are presented in accordance with the Australian Securities and Investments Commission Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191 values are rounded to the nearest thousand dollars, unless otherwise stated. Where an amount is $500 or less the amount is rounded to zero, unless otherwise stated. • adopt all new and amended AASBs and Interpretations issued by the AASB that are relevant to the operations of the Group and effective for reporting periods beginning on or before 1 July 2016; and • do not early adopt any AASBs and Interpretations that have been issued or amended but are not yet effective. Financial statements of subsidiaries are prepared using consistent accounting policies. This note sets out details of accounting policies which aid the understanding of the financial statements as a whole. Accounting policies which are specific to a particular income, expense or account balance are described in the note to which that policy relates. Comparative figures shown in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows and associated Notes to the Financial Statements are for the period from the date of incorporation of the Company (19 February 2016) to 30 June 2016. (i) Principles of consolidation Subsidiaries are entities controlled by the Group. The Group 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 statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. (ii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. (d) Foreign Currency The individual financial statements of each entity comprising the Group are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purposes of these consolidated financial statements, Australian dollars is the presentation currency, which is also the functional currency of the Company. The functional currency of each subsidiary is provided in Note 21. (i) Foreign currency transactions In preparing the financial statements of each individual entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date of the transaction. (ii) Foreign Operations For the purpose of presenting these consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into Australian dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at average exchange rates. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in Net Investment within Foreign Currency Translation Reserve (“FCTR”). The FCTR comprises all foreign currency differences arising from the translation of the financial statements of the foreign operations. Annual Report 2017 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 1. Significant accounting policies (continued) (e) Use of estimates and judgements The preparation of consolidated financial statements in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and 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 judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Information about judgements and estimates made in applying accounting policies that may have a significant effect on amounts recognised in the consolidated financial statements is included in the following notes: • Recognition of deferred tax assets and availability of future taxable profits against which carry forward tax losses and timing differences can be used (Note 7); • Recoverability of trade and other receivables (Note 8): • Estimation of net realisable value and possible obsolescence of inventories (Note 9); • Recoverability of goodwill and unidentified other intangible assets (Note 11); • Recoverability of other intangible assets (Note 12); and • Fair values of assets and liabilities of acquired businesses (Note 3). (f) Revenue recognition (i) Sale of goods and services Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Revenue from the sale of goods is recognised when title has passed, at which time all the following conditions are satisfied: • • • • • the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. (g) Financial Instruments (i) Recognition, Initial Measurement and De-recognition Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. The Group’s activities expose it primarily to financial risks of changes in exchange rates and interest rates. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Subsequent to initial recognition, financial assets and liabilities are measured at fair value and changes therein are recognised in the profit or loss. Trade and other receivables are measured as described in Note 8. Financial assets are derecognised when the contractual rights to cash flows from the financial asset expire or when the financial asset and all the substantial risks and benefits are transferred. Financial liabilities are derecognised when they are extinguished, discharged, cancelled or they expire. (ii) Derivative financial instruments The Group may hold derivative financial instruments to hedge its foreign currency risk exposures. Derivative financial assets are classified as cash flow hedges. No derivative financial instruments were held at 30 June 2017. (iii) Non-derivative financial instruments Non-derivative financial assets are classified into the following categories: (a) cash and cash equivalents and (b) trade and other receivables. Cash and cash equivalents include cash on hand and in banks net of outstanding bank overdrafts. Non-derivative financial liabilities are classified into the following categories: (a) trade and other payables and (b) borrowings. (h) Operating leases Operating lease payments for leases of assets where substantially all of the risks and benefits of ownership remain with the lessor are recognised in the profit and loss account on a straight-line basis over the term of the lease. Assets that are subject of operating leases are not recognised in the Group’s Statement of Financial Position. 38 Reliance Worldwide Corporation Limited 1. Significant accounting policies (continued) (i) Goods and services tax - Australia Revenues, expenses and assets are recognised net of the amount of GST except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented on a gross basis. The GST components arising from investing and financing activities are presented as operating activities. Any commitments are disclosed net of GST. (j) New accounting standards and interpretations The following relevant Australian Accounting Standards and Interpretations have been issued or amended but are not yet effective and have not been early adopted by the Group: AASB 9: Financial Instruments. Application: Financial periods beginning on or after 1 January 2018. The standard proposes a revised framework for the classification and measurement of financial instruments. The Company is assessing the impact of this standard. Application of the standard is not expected to have a material impact. AASB 15: Revenue from Contracts with Customers and AASB 2014-5 Amendments to Australian Accounting Standards Arising from AASB 15. Application: Financial periods beginning on or after 1 January 2018. The standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The Company has reviewed the criteria of recognising revenue provided in the Standard against the Group’s current revenue recognition policies. No material differences in revenue recognition are expected. AASB 16: Leases. Application: Financial periods beginning on or after 1 January 2019. The standard removes the classification of leases as either operating leases or finance leases for the lessee, effectively treating all leases as finance leases. This will effectively move all off-balance sheet operating leases onto the balance sheet that is similar to current finance lease accounting. The Company has reviewed its current operating leases which are predominately for leases of property and equipment. Details of present operating lease commitments are disclosed in Note 22. On the application of the Standard the present value of lease commitments at that date will be included in Property, Plant and Equipment as a Right to Leased Asset which will be amortised as depreciation and interest over the term of the lease. The introduction of AASB 16 is not expected to have any material impacts on the Company complying with financial covenants contained in its financing facilities. 2. Segment reporting Segment information is presented in a manner which is consistent with the internal reporting to the Chief Executive Officer, who is the chief operating decision maker in the allocation of resources and assessing the performance of the operating segments of the Group. The Group’s regionally based segments are based on geographical operation of the business and comprise: • Asia Pacific, including Australia and New Zealand • Americas, including the United States of America and Canada • EMEA, including the United Kingdom and Spain Segment revenues, expenses, assets and liabilities are reported on a gross basis. The major products from which the aforementioned segments derive revenue are: • Fittings and Pipe - including plumbing fittings, piping and related products for the installation and repair of water reticulation systems for domestic and commercial applications, pipe support systems and firestop solutions; • Control Valves - including temperature and pressure relief valves for domestic and commercial storage hot water systems, non-return isolating valves, pressure regulation valves, backflow prevention devices and specialist water safety valves; • Thermostatic Products - including an extensive range of thermostatic mixing valves, tempering valves and thermostatic cartridges for domestic and commercial applications; and • Other Products - including underfloor heating components and kit systems, water meters, industrial pneumatic and hydraulic fittings, water mains connection fittings and repair sleeves and fire safety system products. Revenue by product group for the year ended 30 June 2017 is: Fittings and pipe Control valves Thermostatics Other Products 2017 $000 425,032 95,071 27,501 54,089 601,693 2016 $000 63,248 18,365 5,302 11,375 98,290 The Group had one significant customer representing greater than 10% of the Group’s revenue in the 2017 financial year. This customer is in the Americas segment and contributed $189.4 million of the Group’s revenue in the financial year. Annual Report 2017 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 l a t o T 6 1 0 2 0 0 0 $ 7 1 0 2 0 0 0 $ 6 1 0 2 0 0 0 $ 7 1 0 2 0 0 0 $ 6 1 0 2 0 0 0 $ 7 1 0 2 0 0 0 $ 6 1 0 2 0 0 0 $ 7 1 0 2 0 0 0 $ 6 1 0 2 0 0 0 $ 7 1 0 2 0 0 0 $ 6 1 0 2 0 0 0 $ 7 1 0 2 0 0 0 $ n o i t a n m i i l E r e h t O / e t a r o p r o C A E M E s a c i r e m A c i f i c a P a s A i ) d e u n i t n o c ( g n i t r o p e r t n e m g e S . 2 9 7 8 8 3 , , 2 2 2 2 5 2 0 2 5 3 5 3 ) 0 9 9 1 ( , ) 8 2 4 1 1 ( , ) 7 8 8 4 1 ( , ) 7 9 5 6 8 ( , ) 9 8 1 8 ( , ) 3 0 1 2 5 ( , ) 5 4 5 2 1 ( , ) 9 4 1 1 ( , 8 8 7 1 , 8 9 2 1 0 1 , – – – – – – – – – – – – – – 0 9 2 8 9 , 3 9 6 1 0 6 , – – – – ) 3 4 5 9 1 ( , ) 6 6 8 1 0 1 ( , 0 9 2 8 9 , 3 9 6 1 0 6 , ) 3 4 5 9 1 ( , ) 6 6 8 1 0 1 ( , ) 1 1 4 9 5 ( , ) 1 7 4 9 4 3 ( , 3 4 5 9 1 , 6 6 8 1 0 1 , – – – – – – – ) 5 2 3 ( – – – – – 3 1 – 9 1 2 1 , ) 5 1 9 3 ( , ) 4 8 0 2 1 ( , ) 9 0 1 ( 2 6 1 9 7 , 8 1 9 7 , ) 2 8 7 5 ( , 6 3 1 2 , 3 6 ) 2 2 3 ( ) 7 9 5 ( ) 4 0 1 ( ) 4 8 6 1 ( , 7 0 9 5 4 , 6 2 2 4 , 4 5 3 7 8 0 2 , 4 3 7 1 6 , 4 3 2 3 3 4 , 0 4 6 8 2 , 7 8 1 9 1 , 3 3 1 0 5 , 8 8 0 2 6 , 1 2 3 5 3 4 , 7 2 8 7 4 , 2 5 5 2 2 1 , 3 5 5 5 9 , 5 0 1 8 1 2 , ) 1 6 8 8 3 ( , ) 5 8 0 0 4 ( , ) 8 9 5 5 6 2 ( , ) 7 8 0 3 3 ( , ) 8 7 8 6 4 1 ( , 2 7 2 1 1 , 3 0 0 2 2 , 3 2 7 9 6 1 , 0 4 7 4 1 , 7 2 2 1 7 , 7 0 1 ) 7 9 4 1 ( , ) 5 0 6 6 ( , ) 3 5 3 4 ( , ) 1 3 ( 9 6 ) 8 6 5 ( ) 4 7 6 8 ( , ) 7 4 9 3 ( , ) 2 2 2 ( 1 1 2 ) 6 2 9 5 ( , ) 3 9 4 3 6 ( , ) 3 5 1 3 3 ( , ) 5 4 7 ( 8 8 3 ) 0 0 1 1 ( , ) 9 2 5 4 ( , ) 0 2 3 3 ( , ) 5 3 1 ( 2 2 ) 5 0 0 4 ( , ) 8 1 7 7 1 ( , ) 2 8 6 0 1 ( , ) 4 6 2 ( s r e m o t s u c l a n r e t x e m o r F s t n e m g e s t r e h o m o r F s e u n e v e r t n e m g e S e u n e v e R s e a s l f o t s o C t i f o r p s s o r G e m o c n i r e h O t s e s n e p x e t n e m p o e v e d l t c u d o P r s e s n e p x e g n i t e k r a m d n a g n i l l e S s e s n e p x e n o i t i a r t s n m d A i s e s n e p x e r e h O t ) 9 0 4 2 1 ( , ) 2 9 7 2 ( , ) 8 0 5 ( ) 7 0 1 1 ( , 1 6 6 8 , 7 1 6 6 6 , 4 4 0 6 , 0 8 5 8 3 , t i f o r p g n i t a r e p o t n e m g e S , 5 7 0 3 2 4 , 7 8 7 9 9 5 , ) 8 4 7 6 1 6 ( , ) 3 2 6 3 9 8 ( , 5 9 4 9 1 6 3 4 6 9 5 8 , 7 8 9 4 3 , , 8 8 0 6 5 2 1 4 0 5 9 3 , ) 8 4 7 6 1 6 ( , ) 3 2 6 3 9 8 ( , 1 3 3 4 7 1 , 7 3 9 6 2 4 , 0 2 2 0 2 , ) 9 0 4 2 1 ( , ) 6 3 8 1 ( , ) 7 1 3 ( 1 7 4 8 0 2 9 3 , 2 0 2 6 2 , 8 5 0 4 9 1 , 1 8 3 3 7 3 , 3 8 2 1 9 1 , 8 7 1 1 2 2 , 3 6 5 0 2 6 , 6 7 9 0 8 7 , 2 2 7 7 5 , 9 4 5 4 5 , 8 7 8 9 , 9 9 5 4 7 , 9 9 0 8 , 1 5 4 7 4 , d n a t n a p l , y t r e p o p r f o n o i t i a c e r p e D s m e t i t n a c i f i n g s i r e t f a A D T B E I s e i t i l i b a i l t n e m g e S s t e s s a t n e m g e S 1 5 2 5 , , 5 8 6 0 2 1 ) 3 1 3 3 ( , ) 5 4 2 8 1 ( , ) 0 5 1 ( ) 2 4 1 1 ( , ) 6 5 8 2 1 ( , ) 6 7 8 9 7 ( , 9 3 ) 8 8 9 ( 0 5 ) 1 6 0 5 ( , ) 7 3 4 2 ( , ) 5 7 6 0 3 ( , 4 1 5 2 , 6 0 7 1 2 , , 3 4 6 3 5 1 9 7 5 7 6 2 , – – – – – – – – – – – – – – – – – – – – – 6 3 ) 2 6 9 ( 2 7 2 6 , 2 2 ) 7 9 2 ( ) 8 5 6 ( – ) 1 9 1 ( – ) 7 7 5 1 ( , ) 5 0 1 ( ) 2 1 1 1 ( , ) 7 7 3 ( ) 5 0 6 7 ( , ) 5 4 ( ) 0 1 0 2 ( , ) 7 0 1 ( ) 6 6 7 8 ( , s t e s s a e b g n a n t i l i f o n o i t a s i t r o m A t n e m p u q e i ) 2 5 1 3 1 ( , ) 8 7 5 1 ( , ) 3 9 1 7 ( , ) 6 7 4 4 ( , ) 1 2 2 7 3 ( , ) 2 0 8 6 ( , ) 0 1 3 2 2 ( , e s n e p x e s t i f e n e b e e y o p m E l 3 4 ) 6 9 9 4 ( , ) 6 4 8 7 ( , 3 ) 6 2 ( 1 0 2 5 ) 2 6 ( 9 2 3 – – – ) 1 ( – – 2 ) 2 ( e m o c n i t s e r e n t I e s n e p x e t s e r e n t I ) 8 2 0 7 ( , ) 6 7 8 1 1 ( , ) 2 8 8 1 ( , ) 2 8 2 1 1 ( , e s n e p x e x a t e m o c n I d n a t n a p l , y t r e p o p o r t s n o i t i d d A 5 4 9 2 1 3 7 0 1 3 , 7 2 1 1 , 4 3 4 2 1 , 3 7 0 1 , 0 2 2 5 , t n e m p u q e i 1 2 6 1 , 0 8 4 9 , 0 0 8 0 1 , 6 0 0 5 5 , 5 3 5 8 6 1 , 5 5 1 9 8 , 3 2 6 6 8 , s t e s s a x a t f d e r r e e d d n a s t e s s a l i a c n a n i f i t r e h o g n d u c x e s t e s s a l t n e r r u c - n o N . 6 1 0 2 e n u J 0 3 o t ) 6 1 0 2 y r a u r b e F 9 1 ( y n a p m o C e h t f o n o i t a r o p o c n r i f t o e a d e h t m o r f d o i r e p e h t r o f e r a e o N t t n e m g e S e h t n i n w o h s s e r u g i f e v i t a r a p m o C 40 Reliance Worldwide Corporation Limited 3. Business Combinations The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value as there are identifiable net assets acquired. Identifiable assets acquired and liabilities and contingent liabilities assumed are, with limited exceptions, initially measured at their fair values at acquisition date. When the Group acquires a business, it assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions at acquisition date. Under the acquisition method, the Group has up to 12 months following the acquisition date to finalise the assessment of fair value of identifiable assets and liabilities. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in the profit or loss account immediately. Transaction costs are expensed as incurred except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in the profit or loss account. Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in the profit or loss account. Acquisition of Securus, Inc. (a) Summary of acquisition The Group completed the acquisition of all the issued shares in Securus Inc. (trading as HOLDRITE) (“Holdrite”) on 12 June 2017 for a base purchase price of US$92.5 million (subject to customary closing adjustments) ($A122.6 million). Holdrite is a market leader in providing innovative engineered product solutions to solve the everyday problems of plumbers and contractors and facilitate professional and time saving installations. Holdrite sells its products to the plumbing and mechanical contractor markets, mainly through wholesale distribution channels, for use in the residential and commercial new construction markets and the re-model market. More than 98% of Holdrite’s product sales occur in the United States and Canada. The acquisition of Holdrite is consistent with the Group’s strategy of acquiring businesses which deliver products complementary to our existing product range that will benefit from our extensive distribution channels or provide access for our product portfolio to new distribution channels. The acquisition also helps accelerate our penetration of the residential and commercial new construction markets which we believe represents attractive longer term growth opportunities for the Group. (b) Purchase consideration and summary of cash movement Base purchase price Provisional closing adjustments Total purchase consideration Reconciliation of cash movement Cash consideration paid Less net cash acquired, net of payables settled immediately after acquisition 2017 $000 122,602 4,093 126,695 126,695 (4,422) 122,273 No direct costs associated with the transaction were capitalised. Direct costs attributable to the acquisition totalling approximately $1.7 million were expensed directly to the profit or loss account. These expenses were mainly for legal, due diligence and advisory costs. Annual Report 2017 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 3. Business Combinations (continued) (c) Fair value of net assets acquired Identifiable assets Cash and cash equivalents Trade and other receivables2 Inventories Prepayments Property plant and equipment Intangible assets Total identifiable assets acquired Identifiable liabilities Trade and other payables Employee entitlements Total liabilities assumed Net identifiable assets acquired Purchase consideration Fair value of net identifiable assets acquired Goodwill on acquisition and unidentified other intangible assets 1. Fair values are provisionally accounted for at 30 June 2017. 2. Trade and other receivables are net of provision for doubtful debts. Note 10 12 Acquiree’s carrying amount $000 Fair value Adjustments $000 Fair value1 $000 9,222 9,462 6,230 956 4.481 130 30,481 9,589 346 9,935 – – – – – 53,462 53,462 – – – 9,222 9,462 6,230 956 4,481 53,592 83,943 9,589 346 9,935 74,008 126,695 74,008 52,687 Goodwill on acquisition is attributable mainly to the skills and technical talent of Holdrite executives and employees, growth opportunities expected from combining the Holdrite products and distribution channels with those of the Group and the expected benefits of integrating the Holdrite business into the Group’s operations. The Group is still in the process of assessing if any other intangible assets can be identified. Holdrite contributed operating revenue of $2.9 million for the period from acquisition to 30 June 2017. The net profit before tax contributed for this period was $0.4 million. If the Group controlled Holdrite for the entire financial year, the consolidated pro forma revenue is calculated to be $656.5 million. The consolidated pro forma profit before tax is calculated to be $108.3 million. 4. Other expenses IPO capital raising costs booked to profit or loss Loss on sale of assets Foreign exchange loss 5. Finance income and finance costs The Group’s finance income and finance costs include: • • Interest income Interest expense 2017 $000 – 245 904 1,149 2016 $000 12,084 – 461 12,545 The Group accrues interest income and interest expense for amounts receivable and payable at reporting date. Interest income is recognised in the income statement on an accruals basis, using the effective interest method. Interest income from cash and cash equivalents Interest and borrowing expenses 2017 $000 50 (5,061) 2016 $000 39 (988) 42 Reliance Worldwide Corporation Limited 6. Earnings per share (a) Basic earnings per share The calculation of basic earnings per share has been based on the following profit / (loss) attributable to ordinary shareholders and weighted average number of shares. Profit / (loss) attributable to ordinary shareholders Weighted average number of ordinary shares at 30 June 2017 (basic) – – Issued ordinary shares Treasury shares (weighted average) Basic earnings / (loss) per share (b) Diluted earnings per share 2017 $000 65,612 2016 $000 (1,598) Number of shares Number of shares 525,000,000 525,000,000 (254,486) – 524,745,514 525,000,000 cents 12.5 cents (0.30) The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted average number of shares after adjustment for the effects of all dilutive potential ordinary shares. Profit / (loss) attributable to ordinary shareholders Changes in earnings arising from dilutive potential ordinary shares Weighted average number of ordinary shares at 30 June (diluted) – – – Issued ordinary shares Effect of share options on issue Treasury shares (weighted average) Diluted earnings/(loss) per share 2017 $000 65,612 – 65,612 2016 $000 (1,598) – (1,598) Number of shares Number of shares 525,000,000 525,000,000 5,307,190 (254,486) 4,000,000 – 530,052,704 529,000,000 Cents 12.4 Cents (0.30) Income tax expense 7. Income tax expense comprises current and deferred tax. It is recognised in the consolidated Statement of Profit or Loss and Other Comprehensive Income except to the extent that it relates to a business combination or items recognised directly in equity. (i) Current tax The tax currently payable is based on taxable profit for the reporting period. Taxable profit differs from profit before tax as reported in the Consolidated Statement of Profit or Loss and Other Comprehensive Income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period. (ii) Deferred tax Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated Financial Statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Annual Report 2017 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 Income tax expense (continued) 7. (ii) Deferred tax (continued) Deferred tax assets are recognised for unused tax losses, unused 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 used. 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. 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 period. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and tax liabilities on a net basis. (iii) Australian tax consolidated group The Company and its Australian incorporated wholly owned subsidiaries have formed a tax consolidated group with effect from 3 May 2016 whereby the members of that group are taxed as a single entity. The head entity of the tax consolidated group is Reliance Worldwide Corporation Limited. The head entity and each subsidiary member of the tax consolidated group is party to a Tax Sharing Agreement and a Tax Funding Agreement whereby each member of that group is only liable for its contribution amount calculated in accordance with the Agreement rather than being jointly and severally liable for group tax liabilities. At 30 June 2017, the Australian Tax Consolidated Group has $5.1 million franking credits available for subsequent reporting periods. (a) Reconciliation of prima facie tax expense to income tax expense recognised in the consolidated income statement The major components that reconcile the expected income tax expense based on the Australian statutory rate of tax of the Group at 30% to the reported actual income tax expense in the profit and loss are as follows: Profit before income tax Prima facie income tax expense at 30% Tax effect of items which increase / (decrease) tax expense: Effect of tax rates in foreign jurisdictions Tax effect of amounts which are not deductible / (assessable) in calculating taxable income: Non–deductible expenses IPO costs Other non–deductible expenses Assessable step down amounts on tax consolidation Non assessable income Adjustments for prior years Employee share incentive scheme Other 2017 $000 96,287 (28,886) 1,535 – 1,008 – – (24) (669) (61) Actual income tax expense reported in the consolidated statement of profit or loss (30,675) (b) Components of income tax: Current tax Deferred tax Average rate of tax 1. Average rate of tax for the 2016 comparative period is not meaningful. 2017 $000 (21,553) (9,122) (30,675) 31.9% 2016 $000 839 (251) 295 (1,813) (63) (232) 103 29 – (505) (2,437) 2016 $000 (1,331) (1,106) (2,437) n/m1 44 Reliance Worldwide Corporation Limited Income tax expense (continued) 7. (c) Deferred tax balances 2017 Deferred tax assets Employee benefits Other provisions and accruals IPO costs deductible in future periods Other items giving rise to deferred tax assets Total Deferred tax liabilities Property plant and equipment Unrealised foreign exchange movements Difference between State and Federal written down values (USA) Other items giving rise to a deferred tax liability Total 2016 Deferred tax assets Employee benefits Other provisions IPO costs deductible in future periods Other items giving rise to deferred tax assets Total Deferred tax liabilities Property plant and equipment Unrealised foreign exchange movements Difference between State and Federal written down values (USA) Other items giving rise to a deferred tax liability Total Opening Balance $000 Acquired in Restructure $000 Recognised in Profit and loss $000 Closing Balance $000 2,821 5,249 6,042 944 15,056 (12,026) (6,018) (41) (317) (18,402) – – – – – – – – – – Opening Balance $000 Acquired in Restructure $000 – – – – – – – – – – 2,533 4,642 – 847 8,022 (8,703) (74) (1,273) (212) 86 1,806 (2,417) 3,761 3,236 461 5,654 119 (348) 2,907 7,055 3,625 4,705 18,292 (11,565) (364) 78 (665) 5,886 (12,516) Recognised in Profit and loss $000 288 607 6,042 97 7,034 (3,323) (5,944) 1,232 (105) Closing Balance $000 2,821 5,249 6,042 944 15,056 (12,026) (6,018) (41) (317) (10,262) (8,140) (18,402) 8. Trade and other receivables Trade and other receivables are initially recognised at fair value and subsequently at amortised cost less any provision for doubtful debts. Credit terms are generally between 0 and 30 days depending on the nature of the transaction. Collectability of trade receivables is reviewed on an ongoing basis. The carrying amount of trade receivables is reduced through the use of an allowance account and the amount of the loss is recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Trade debtors Less: provision for doubtful debts Other debtors Information about the Group’s exposure to credit and market risks for trade and other receivables is included in Note 24. Annual Report 2017 2017 $000 107,659 (191) 107,468 2,259 109,727 2016 $000 87,389 (45) 87,344 7,620 94,964 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 Inventories 9. Inventories are measured at the lower of cost and net realisable value. Cost includes all expenses directly attributable to the manufacturing process as well as an appropriate portion of related fixed and variable production overheads, based on normal operating capacity. Costs are assigned on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs of completion and any applicable selling expenses. At cost Raw materials and stores Consumables Work in progress Finished goods Less: provision for diminution 2017 $000 66,688 166 15,741 85,033 167,628 (5,206) 162,422 2016 $000 56,349 192 12,643 55,895 125,079 (5,970) 119,109 10. Property, plant and equipment (i) Recognition and measurement Each class of property, plant and equipment is measured at cost less, where applicable, accumulated depreciation and impairment losses. Any gain or loss on disposal of an item of property, plant and equipment is included in the Statement of Profit or Loss and Other Comprehensive Income. (ii) Subsequent expenditure Subsequent expenditure is only capitalised when it is probable that the future economic benefits associated with the expenditure will flow to the Group. (iii) Depreciation Depreciation is recognised so as to write off the cost of property, plant and equipment (other than freehold land and properties under construction) less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The estimated useful lives of property, plant and equipment are as follows: • Buildings • Leasehold improvements • Plant and equipment 25 - 40 years 5 - 40 years 3 - 20 years Property, plant and equipment are tested for impairment. Any impairment losses are recognised in the statement of profit or loss and other comprehensive income. Carrying amounts of: Freehold land Buildings Leasehold improvements Plant and equipment 2017 $000 197 18,362 3,052 89,898 2016 $000 203 16,310 2,465 88,857 111,509 107,835 46 Reliance Worldwide Corporation Limited 10. Property, plant and equipment (continued) Freehold Land 2016 $000 Leasehold Consolidated Buildings Improvement Plant & Equipment1 2017 $000 2016 $000 2017 $000 2016 $000 2017 $000 2016 $000 2017 $000 Total 2016 $000 – – 198 – – 5 19,256 442 – – – 18,317 3,420 – 493 – 4,784 (442) 908 495 (74) – – 179,357 (7,195) – – 203,600 (7,195) – – 4,826 3,573 178,927 4,481 202,268 2 – 17,791 2,019 21,706 2,514 (8,568) (2,744) (8,642) (2,744) (889) 446 (102) (44) 182 1,155 (815) 1,562 203 22,229 19,256 5,569 4,784 185,140 179,357 213,135 203,600 – – – – – – – (2,946) (442) – – (2,319) 442 – – (90,500) 3,712 – – (95,765) 3,712 – – – (2,788) – (2,264) – (89,481) – (94,533) (600) – (90) – 121 (68) (711) (81) (16,934) (3,142) (18,245) (3,313) 43 28 – 7,703 2,509 7,746 2,509 26 777 (386) 926 (428) (3,867) (2,946) (2,517) (2,319) (95,242) (90,500) (101,626) (95,765) 2017 $000 203 – – – – (6) 197 – – – – – – – Cost Opening balance Transfers Acquired Additions1 Disposals Net effect of change in exchange rates Closing balance at 30 June Accumulated depreciation Opening balance Transfers Acquired Depreciation expense Disposals Net effect of change in exchange rates Closing balance at 30 June Net carrying value at 30 June 197 203 18,362 16,310 3,052 2,465 89,898 88,857 111,509 107,835 1. The asset category includes capitalised amounts for assets which are under construction or not installed ready for use and are not depreciated. At 30 June 2017, this amount is $11.8 million (2016: $8.7 million). 11. Goodwill and unidentified other intangible assets Goodwill and unidentified other intangible assets represent the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired entity at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill is not amortised. Instead, it is tested annually for impairment or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. The carrying value of goodwill and unidentified other intangible assets at balance date is $96.3 million. Of this amount, $44.6 million relates to goodwill attributable to business acquisitions within the Asia Pacific segment prior to the Restructure in April 2016. The remaining $52.7 million is goodwill and unidentified other intangible assets recorded on acquisition of Holdrite in the Americas segment in June 2017. Refer Note 3. The Group is still in the process of assessing if any other intangible assets arising from the Holdrite acquisition can be identified. Goodwill in respect of the Asia Pacific region has been tested for impairment. The Company has assessed this goodwill and determined it is recoverable. The recoverable amount of this goodwill has been assessed utilising value in use methodologies. The value in use assessment at 30 June 2017 was established using a discounted cash flow model which included the following key assumptions: • A 5 year forecast period with cash flow projections based on approved operating budgets. • After tax discount rates ranging from 7.5% to 9.75%, based on cost of capital and business risk assessments • Assumed average growth rate of 3.0% revenue based on business assessments. • Terminal period growth rate of 3.0% based on business assessments. The value in use calculations are sensitive to changes in the above assumptions. The value in use will vary depending on the assumptions and forecast data used in the impairment testing. Management performed sensitivity analysis to examine the effect of a change in assumptions on the goodwill attributed to the Asia Pacific segment. Based on current economic conditions and CGU performances there are no reasonably possible changes to key assumptions used in determination of CGU recoverable amounts that would result in a material impairment to the Group. Annual Report 2017 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 11. Goodwill and unidentified other intangible assets (continued) Testing for impairment of the goodwill and unidentified other intangible assets attributable to the Holdrite acquisition was not undertaken at balance date as the transaction completed in June 2017. Opening balance Acquired – Note 3 Foreign currency exchange differences Carrying value 2017 $000 44,570 52,687 (973) 96,284 2016 $000 – 44,348 222 44,570 12. Other intangible assets Reliance has intellectual property protection worldwide with over 700 trademark registrations, industrial designs and patents and actively manages its intellectual property rights. (i) Intellectual property and licence fees Intellectual property consists of technical drawings and certifications and is recorded at cost less accumulated amortisation and any accumulated impairment losses. License fees relate to the accounting and reporting platform being implemented throughout the Group. Intellectual property and license fees are amortised on a straight-line basis over a period of ten years. (ii) Trade Names and trademarks Trade names and trademarks are registered names, symbols, words or other devices used in trade to indicate the source of a product and distinguish it from other products. Trade names and trademarks do not have finite useful lives and are not amortised. (iii) Product Technology Technology based intangible assets relate to innovations or technological advances, such as patented technology. Technology based intangible assets are amortised on a straight line basis over a period of up to twenty years. (iv) Research and development Research costs are charged to the profit or loss account as incurred. Development expenditure is only capitalised if it can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognised in the profit and loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. The amortisation of development expenditure is allocated to other expenses as inventory is sold. The intangible assets shown below do not include any unidentified other intangible assets. 48 Reliance Worldwide Corporation Limited 12. Other intangible assets (continued) Intellectual Property, Product Technology, Trade Names and Trademarks Cost Opening balance Acquired – Note 3 Transfers Additions Disposals Foreign exchange Closing balance Accumulated Amortisation Opening balance Acquired Transfers Additions Amortisation Disposals Foreign exchange Closing balance Carrying Value 2017 $000 393 53,592 7,195 2,125 – (1,083) 62,222 (24) (72) (3,712) – (378) – 10 (4,176) 58,046 2016 $000 – 2,586 – – (2,307) 114 393 – (2,124) – – (105) 2,307 (102) (24) 369 13. Trade and other payables Current: Trade payables Other creditors, accruals and provision for employee bonuses Licence Fees 2016 $000 – 1,367 – 183 – – 1,550 – – – (636) (45) – – (681) 869 2017 $000 1,550 – – 1,636 (1,293) – 1,893 (681) – – – (764) 1,292 – (153) 1,740 14. Borrowings Secured: Bank Overdraft Borrowings Total secured borrowings 2017 $’000 9,403 423 9,826 Current 2016 $’000 – 446 446 2017 $’000 – 260,539 260,539 Non-current 2016 $’000 – 163,123 163,123 2017 $000 1,943 53,592 7,195 3,761 (1,293) (1,083) 64,115 (705) (72) (3,712) – (1,142) 1,292 10 (4,329) 59,786 2017 $000 50,584 47,326 97,910 2017 $’000 9,403 260,962 270,365 Total 2016 $000 – 3,953 – 183 (2,307) 114 1,943 – (2,124) – (636) (150) 2,307 (102) (705) 1,238 2016 $000 36,176 28,586 64,762 Total 2016 $’000 – 163,569 163,569 The Company has banking facilities of $350 million (30 June 2016 - $250 million) which are available for drawing by way of cash advances, bank guarantees and overdrafts (“Facilities”). Separate sub-limits apply to drawings by way of bank guarantees and overdrafts. The Facilities will mature on 30 September 2020. The Facilities contain financial covenants that the Company is in compliance with. Annual Report 2017 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 14. Borrowings (continued) The security provided to support the Facilities is: • Unlimited cross guarantees from each entity that comprises the Group, other than Reliance Worldwide Corporation (Europe) S.L.U. and Reliance’s non- operating entities (Reliance Manufacturing Company (NZ) Limited, Titon Limited (both of which are incorporated under the laws of New Zealand) and Reliance Water Controls Limited (an entity incorporated under the laws of England and Wales) (“Guarantors”); • General security over all assets (or a specified list of assets) from each of the Guarantors, other than Reliance Worldwide Corporation (UK) Limited and certain of the intermediate holding companies; • Specific share security from Reliance Worldwide Holdings (USA) Corporation over its shares in Reliance Worldwide Corporation (which carries on Reliance’s operations in the USA); and • A real property mortgage from Reliance Worldwide Corporation over a property in Cullman, Alabama, USA. These Facilities have a variable interest rate which is based on the Bank Bill Swap Rate plus a margin. The Group also has secured facilities in the United Kingdom (“UK”) totalling £4.0 million including: • Term loan facility of £2.0 million, with a maturity date of 31 August 2018. The term loan facility was drawn on 19 August 2015 and is repayable in three annual instalments (first two instalments of £0.25 million with the final instalment being for the outstanding balance); and • Revolving credit facility of £2.0 million, with a maturity date of 31 August 2018. The UK Facilities have a variable interest rate which is based on LIBOR plus a margin. The UK Facilities contain a number of covenants provided by Reliance Worldwide Corporation (UK) Limited (which carries on the Group’s operations in the UK) that are tested annually which Reliance Worldwide Corporation (UK) Limited has complied with. Security provided to support the UK Facilities includes an unlimited debenture from Reliance Worldwide Corporation (UK) Limited. 15. Employee benefits Short and long term employee benefits A liability is recognised for benefits accruing to employees in respect of leave entitlements in the period the related service is rendered. Liabilities recognised in respect of short-term employee benefits are measured at their nominal values using the remuneration rate expected to apply at the time of settlement. Liabilities recognised in respect of long term employee benefits are measured as the present value of the estimated future cash outflows to be made by the Group in respect of services provided by employees up to reporting date. Current: Current employee entitlements include benefits for wages, salaries and annual leave that are expected to be settled within twelve months of the reporting date. The amounts represent present obligations resulting from employees’ services provided to reporting date and are calculated at undiscounted rates based on current remuneration and wage rates including related on-costs such as workers compensation, insurance and payroll tax. Non-Current: Non-current employee entitlements include leave benefits that employees have earned in return for their continued service, pursuant to the Legislation and Regulations in the relevant jurisdictions. The entitlement is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates and is discounted back to present value. Employee entitlements Opening balance Acquired Charged to profit or loss Paid during the period Foreign currency exchange differences Reclassification Closing balance 2017 $’000 4,355 346 4,030 (3,614) (52) 768 Current 2016 $’000 – 3,178 1,038 (369) 16 492 5,833 4,355 Non-current 2016 $’000 – 5,076 323 (79) 3 (492) 2017 $’000 9,186 346 4,051 (3,614) (52) – Total 2016 $’000 – 8,254 1,361 (448) 19 – 4,831 9,917 9,186 2017 $’000 4,831 – 21 – – (768) 4,084 50 Reliance Worldwide Corporation Limited 16. Employee benefits expense (i) Retirement benefits costs Payments to defined contribution retirement benefit plans are recognised as an expense when employees render the service entitling them to the contributions. (ii) Termination benefits A liability for a termination benefit is recognised at the earlier of when the Group can no longer withdraw the offer of the termination benefit and when the entity recognises any related restructuring costs. (iii) Share based payments The fair value of equity settled share based payment awards granted to employees is recognised as an expense with a corresponding increase in equity over the vesting period of the grant. Employee benefits expenses recognised in the profit or loss account are: Wages and salaries Employee leave entitlements Workers compensation premiums Superannuation contributions Payroll related taxes Contract labour Share based payment expense Other payroll related expenses Recovered in costs of goods sold 2017 $000 81,701 4,453 661 4,786 4,509 6,452 768 164 103,494 (23,618) 79.876 2016 $000 12,030 1,612 164 717 742 1,570 65 343 17,243 (4,387) 12,856 17. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with financial institutions and other investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Bank overdrafts are repayable on demand and any bank overdraft is included as a component of cash and cash equivalents in the balance sheet. (a) Reconciliation of cash For the purposes of the Consolidated Statement of Cash Flows, cash and cash equivalents include cash on hand and in banks, net of outstanding bank overdrafts. Cash and cash equivalents at the end of the reporting period as shown in the Consolidated Statement of Cash Flows can be reconciled to the related items in the Statement of Financial Position as follows: Cash on hand and at bank comprises: AUD USD GBP Euro NZD CAD Less: bank overdrafts – AUD Cash and cash equivalents in the Consolidated Statement of Cash Flows Annual Report 2017 2017 $000 8,441 19,511 2,544 1,179 97 3,224 34,996 (9,403) 25,593 2016 $000 15,956 15,722 2,288 203 339 1,140 35,648 – 35,648 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 17. Cash and cash equivalents (continued) (b) Reconciliation of cash flow from operations with profit from operations after income tax Profit / (loss) from operations after income tax Depreciation expense Amortisation expense (Profit) / loss on disposal of non-current assets Share based payments Provision for impairment – trade debtors Provision for obsolescence – inventory Capital raising costs accounted for as financing cash flows Interest expense accounted for as financing cash flows Interest income accounted for as financing cash flows Changes in operating assets and liabilities: Trade and other receivables Inventories Prepayments Trade and other payables Tax balances Employee entitlements Net cash from operating activities 18. Share Capital Share capital Ordinary shares Opening balance Issued during the year Capital raising costs incurred net of recognised tax benefit Treasury shares (Note 19) Total Redeemable preference shares Issued on incorporation (a) Ordinary shares 2017 $000 65,612 18,245 1,142 (49) 767 146 (764) – 5,061 (50) (5,447) (36,319) (1,158) 29,311 (4,957) 385 71,925 2017 $ Number of shares 2017 Number 2016 Number 525,000,000 – 1,272,732,768 2016 $000 (1,598) 3,313 150 26 65 (13) 532 12,084 988 (39) 4,231 2,559 711 (196) (2,437) 914 26,164 Company 2016 $ – – – – 525,000,000 – – 1,296,700,277 – (23,967,509) (11,361,779) – 525,000,000 525,000,000 1,261,370,989 1,272,732,768 2 2 2 2 Holders of ordinary shares are entitled to dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. (b) Redeemable preference shares Redeemable preference shares were issued to incorporate the Company. The shares are non-voting and do not entitle the holder to dividends. 52 Reliance Worldwide Corporation Limited 19. Share based payments The Company has established an Equity Incentive Plan (“Plan”) to assist in the motivation, retention and reward of eligible executives. The Plan is designed to align the interests of employees with the interests of shareholders by providing an opportunity for eligible employees to receive an equity interest in the Company. The Plan provides flexibility for the Company to grant rights, options and/or restricted shares as incentives, subject to the terms of individual offers and the satisfaction of performance conditions determined by the Board from time to time. Options The Company has granted 5,307,190 (30 June 2016 – 4,000,000) options under the Plan. Further details on the terms and conditions of the options granted are provided in the Remuneration Report. Each option provides an entitlement to acquire an ordinary share in Reliance Worldwide Corporation Limited upon payment of the exercise price and meeting certain vesting criteria. These options are equity settled. The Company has not granted any other options. Rights to Shares The Board has approved that nominated, eligible executives and employees be invited to participate in the Plan as a means of attracting, retaining and motivating key employees in the Group. Participants will be granted rights to be awarded fully paid ordinary shares in the Company (“Rights”) in accordance with the rules of the Plan and subject to the offer terms (“Offer”). An Offer will constitute a long term incentive component of the participant’s remuneration from the grant date until the end of the vesting period. At the date of this report, the Company had granted 2,849,730 Rights of which 235,730 Rights vest on 12 June 2022 and 2,614,000 Rights vest on 1 July 2022. Vesting conditions include a continuous service period. No Rights vested during the reporting period or have subsequently vested. The Company has established a subsidiary, Reliance Employee Share Investments Pty Ltd (“Trustee”) to act as trustee of the Reliance Employee Share Investments Trust. The Trustee will acquire Reliance shares on-market on behalf of the Trust to meet any obligations to deliver shares to a participant who satisfies the vesting conditions. During the reporting period the Trustee, on behalf of the Trust, acquired 3,321,402 shares at an average price of $3.42 per share. Under the Plan rules, the Company is also able to satisfy any obligation to deliver shares to a participant by way of an issue of shares or a payment of cash in lieu. The cost of the shares acquired is accounted for as Treasury Shares and debited against Share Capital (Note 18). Restricted Shares The Company offered 680,272 restricted shares to Gerry Bollman, Global Chief Financial Officer, upon commencement of his employment with the Group. Further details on the terms and conditions of the restricted shares are provided in the Remuneration Report. Share based payment expense recognised in the profit or loss account: 2017 $000 767 2016 $000 65 Annual Report 2017 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 20. Reserves Reserves Foreign currency translation reserve: Opening balance Movement resulting from translation of financial statements of foreign subsidiaries net of tax impacts Merger reserve: Opening balance Movement as a result of restructure Share based payments reserve: Opening balance Share based payments expense Total reserves 2017 $000 (3,269) (1,509) (4,778) 2016 $000 – (3,269) (3,269) (1,100,943) – (1,100,943) – (1,100,943) (1,100,943) 65 767 832 – 65 65 (1,104,889) (1,104,147) (a) Foreign currency translation reserve The foreign currency translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations. (b) Merger reserve The Company, through a wholly owned subsidiary, acquired the entities that carry on the operations of Reliance Worldwide Corporation in April and May 2016 (“Restructure”). The Directors elected to account for the effect of the Restructure as a common control transaction in accordance with the provisions of AASB 3: Business Combinations. Consequently, the net assets acquired were recorded at the carrying values that existed at the time of the transaction. The excess consideration over book value at acquisition date is recorded in the Merger reserve. (c) Share based payments reserve The share based payments reserve is used to record the value of share based payments provided to employees, including Key Management Personnel, as part of their remuneration. 54 Reliance Worldwide Corporation Limited 21. Group entities Reliance Worldwide Corporation Limited was incorporated on 19 February 2016 and is the parent, and ultimate controlling entity of the Group. The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policies described in Note 1. Name of Entity Reliance Worldwide Group Holdings Pty Ltd Reliance Worldwide Corporation (Aust.) Pty Ltd Reliance Worldwide Pty Ltd Reliance Employee Share Investments Pty Ltd1 Reliance Worldwide Holdings (NZ) Limited Reliance Worldwide Corporation (NZ) Limited Reliance Manufacturing Company (NZ) Limited Titon Limited Reliance Worldwide Corporation (Canada) Inc Reliance Worldwide Holdings (USA) Corporation Reliance Worldwide Corporation Securus, Inc.2 Reliance Worldwide Corporation (Europe) S.L.U. Reliance Worldwide Holdings (UK) Limited Reliance Worldwide Corporation (UK) Limited Reliance Water Controls Limited 1. Incorporated on 29 September 2016. 2. Acquired on 12 June 2017. 22. Expenditure commitments Country of Incorporation Class of Shares Australia Australia Australia Australia New Zealand New Zealand New Zealand New Zealand Canada America America America Spain United Kingdom United Kingdom United Kingdom Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Equity Holding Equity Holding Functional 2017 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2016 100% 100% 100% – 100% 100% 100% 100% 100% 100% 100% – 100% 100% 100% 100% Currency AUD AUD AUD AUD NZD NZD NZD NZD CAD USD USD USD Euro GBP GBP GBP (a) Non-cancellable operating lease commitments contracted for at balance date but not recognised as liabilities in the financial statements: Payable not later than one year Payable later than one year and not later than five years Payable later than five years 2017 $000 7,608 30,048 41,433 79,089 2016 $000 8,095 26,374 18,959 53,428 (b) Capital expenditure commitments contracted for at balance date but not provided for in respect of plant and equipment: Payable not later than one year Payable later than one year and not later than five years 2017 $000 9,474 146 9,620 2016 $000 8,220 – 8,220 Annual Report 2017 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 23. Contingent liabilities The Company has agreed to provide guarantees for certain commitments made or entered into by subsidiary entities in the ordinary course of business. The Company does not consider these guarantees to be material in the context of the Group’s business. The Group has provided bank guarantees totalling $366,400. Reliance Worldwide Corporation (“RWC USA”), a member of the Group, has been joined as one of the defendants in a claim for damage and loss alleged to have been incurred in connection with leakages from modifications to an existing copper pipe plumbing system. The modified system was supplied and installed by a third party, which is the principal defendant. At this stage, it is not possible to provide a reasonable or accurate assessment of RWC USA’s potential exposure. In any event, RWC USA denies any liability and believes the claim is without merit. The Directors are not aware of any other material contingent liabilities at balance date or arising since the end of the financial period which have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial periods. 24. Financial risk management The Group is exposed to a range of financial risks, including market risk (including foreign currency risk, interest rate risk and commodity price risk), liquidity risk and credit risk arising from its operating activities. The carrying amounts and estimated fair values of the Group’s financial instruments recognised in the financial statements are materially the same. The Audit and Risk Committee has the primary responsibility of overseeing and reporting to the Board on the Group’s risk management systems and strategies. Various strategies and methods are used to manage different types of market risks that the Group is exposed to, including: Market risk Group financial performance is largely dependent on activity in the residential and commercial repair and renovation and new construction end-markets. Activities in these end-markets are impacted by changes in general economic conditions such as movements in inflation and interest rates, the level of business spending and consumer confidence and changes to fiscal or monetary policies, legislation and regulation (including plumbing codes). Activities in the repair end-market are also impacted by extreme weather events. The Group operates in different global regions which diversifies these risks. Foreign exchange risk Foreign exchange risk relates to the risk that the fair value of future cash flows of a financial instrument or a highly probable transaction will fluctuate because of changes in foreign exchange rates. The Group is exposed to foreign exchange risk through operating activities (sales and purchases made or derived in currencies other than the functional currency), intercompany financing activities and investment in foreign subsidiaries (which transact in the local currency). The Group does not typically hedge its foreign exchange exposures, but may selectively utilise foreign exchange forward contracts to mitigate fluctuations in foreign exchange rates. The Group’s balance sheet exposure of external receivables and payables balances for the major currency exposures at 30 June are set out below in Australian dollar equivalents. USD 2016 $000 CAD 2016 $000 2017 $000 NZ 2016 $000 2017 $000 GBP 2016 $000 2017 $000 2017 $000 EUR 2016 $000 2017 $000 Spot exchange rate 0.7676 0.7449 0.9965 0.9641 1.0482 1.0444 0.5907 0.5604 0.6726 0.6708 Cash Trade and other receivables 13,700 2,209 7,534 1,905 Trade and other payables (5,672) (229) Interest bearing liabilities Net external exposure – – 10,237 9,210 – – (3) – (3) – – – – – – – – – – – – – – – – – (43) – (43) – – – – – 703 843 142 528 (3,873) (1,647) – – (2,327) (977) The table below shows the effect on profit after income tax expense and total equity from major currency exposures, had the exchange rates been 5% higher or lower than the year end rate. At relevant 30 June 2017 rates If foreign exchange rate - 5% If foreign exchange rate + 5% Increase / (decrease) in profit after income tax 2017 414 (374) $000 2016 433 (392) Increase / (decrease) in equity $000 2016 433 (392) 2017 414 (374) 56 Reliance Worldwide Corporation Limited 24. Financial risk management (continued) Interest rate risk The Group is exposed to interest rate risk as it borrows funds at floating rates and interest is received on cash deposits at floating rates. Interest rate risk is the risk that the Group will be adversely affected by movements in floating interest rates that will increase the cost of floating rate debt. If the current interest rate was 1% higher the interest expense for the year would have increased by $1.5 million. The Group’s exposure to interest rate risk on the cash and cash equivalents listed in the Consolidated Statement of Financial Position and the interest bearing borrowings is disclosed in Note 17 and Note 14. The Group has determined that if interest rates were to increase or decrease by 5 percent it would have an immaterial impact on the Group’s finance costs on borrowed funds or interest income on cash deposits. Commodity price risk Commodity price risk is the risk the cost of some key raw material inputs required for the Group’s products are correlated with the underlying commodity price, (with the most material exposure being to the market price of copper, which is used in the production of brass) and, as such, fluctuates over time. The Group seeks to manage changing input prices through price negotiations with customers following changes in the underlying commodity. Liquidity risk Liquidity risk arises from the ability of the Group to meet its financial liabilities and obligations as and when they fall due. The Group monitors future financial commitments and intends to maintain sufficient cash reserves and headroom in its banking facilities to meet these objectives on an on-going basis. The Group prepares regular cash flow forecasts and monitors its liquidity to ensure it will always have sufficient cash to allow it to meet liabilities as they fall due. In addition to its operating cash at bank the Group has undrawn debt facilities available. Details of the loan facilities in place and their terms are disclosed at Note 14. Total facility available Amount drawn at 30 June Available undrawn facility 2017 $000 352,962 260,962 92,000 2016 $000 257,138 163,569 93,569 The contractual maturity of the Group’s financial liabilities based on the financing arrangements in place at period end date are shown in the table below: 2017 Financial liabilities Trade and other payables Bank borrowings Bank overdraft Total 2016 Financial liabilities Trade and other payables Bank borrowings Total Credit risk Carrying Less than 1 amount $000 97,910 260,962 9,403 368,275 year $000 97,910 423 9,403 107,736 1 to 2 years 2 to 5 years $000 – 2,539 – 2,539 $000 – 258,000 – 258,000 Carrying Less than 1 amount $000 64,762 163,569 228,331 year $000 64,762 446 65,208 1 to 2 years 2 to 5 years $000 – 446 446 $000 – 162,677 162,677 Total $000 97,910 260,962 9,403 368,275 Total $000 64,762 163,569 228,331 Credit risk relates to the potential failure of the Group’s counterparties (such as customers or financial institutions) to meet their obligations at the appropriate time. The maximum exposure at any time is equal to the carrying value of the financial assets. The business seeks to monitor and manage counterparty risk through internal controls and protocols, including customer credit policies and performing banking and financial activities with financial institutions. As such the Group does not seek collateral in respect of its trade and other receivables. Annual Report 2017 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 24. Financial risk management (continued) At 30 June, the maximum exposure to credit risk for trade and other receivables by geographic region is as follows: 2017 2016 Carrying amount Carrying amount Americas Asia Pacific EMEA Total $000 66,187 33,837 9,703 109,727 At 30 June 2017, the Group’s most significant customer accounted for $19.2 million of the trade debtors and receivables amount. At 30 June, the ageing of trade and other receivables that were not impaired is as follows: Neither past due nor impaired Past due 1 to 30 days Past due 31 to 90 days Over 90 days Total 2017 $000 100,803 8,448 410 66 109,727 $000 49,130 35,188 10,646 94,964 2016 $000 77,919 16,611 434 – 94,964 25. Key Management Personnel and Related Party Transactions Under Australian Accounting Standards, the term Key Management Personnel refers to directors (both non-executive directors and executive directors) and those persons having the authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly. The Key Management Personnel of the Group during the reporting period until the date of this report are set out below. All Key Management Personnel held their positions for the entire reporting period unless otherwise noted. Jonathan Munz Non-executive Chairman Russell Chenu Stuart Crosby Independent Non-Executive Director Independent Non-Executive Director Ross Dobinson Independent Non-Executive Director Heath Sharp Gerry Bollman Terry Scott Managing Director and Chief Executive Officer Global Chief Financial Officer (from 5 December 2016) Global Chief Financial Officer (until 5 December 2016); Global Finance Executive (from 5 December 2016) (a) Key Management Personnel compensation Details of the total remuneration of Key Management Personnel of the Group during the reporting period are: Short term employee benefits Post-employment benefits Other long-term statutory benefits Share based payments Total 2017 $ 6,290,011 65,526 23,347 767,609 7,146,493 2016 $ 478,553 6,688 2,501 65,027 552,769 58 Reliance Worldwide Corporation Limited 25. Key Management Personnel and Related Party Transactions (continued) (b) Key Management Personnel transactions in shares and options The total direct and indirect interests of Key Management Personnel, including their related parties, in the share capital and options of the Company at 30 June 2017 are: Jonathan Munz Russell Chenu Stuart Crosby Ross Dobinson Heath Sharp Terry Scott Gerry Bollman2 Total Shares 2017 Number 2016 Number 157,500,000 157,500,000 60,000 100,000 20,000 800,000 640,000 – 40,000 100,000 20,000 800,000 640,000 – 159,120,000 159,100,000 Options1 2017 Number 2016 Number – – – – – – – – 4,000,000 4,000,000 – 1,307,190 5,307,190 – – 4,000,000 1. Details of Options granted to Key Management Personnel are disclosed in the Remuneration Report. 2. Mr. Bollman has been offered 680,272 restricted shares as detailed in the Remuneration Report. No Key Management Personnel have been offered or hold any rights to be awarded shares. Details of movements in holdings during the period are disclosed in the Remuneration Report. (c) Transactions with other related parties The Company and GSA Industries Pty Ltd, a wholly owned subsidiary of GSA Group and an entity associated with Jonathan Munz, have entered into a shared facilities and services agreement dated 3 March 2016 (“Shared Services Agreement”) under which the Company will share premises with GSA Group in Melbourne and be permitted to use certain facilities such as office space and car parking and will have signage rights. The initial term of the Shared Services Agreement is two years (which may be renewed by either party by giving six months’ notice to the other party). The Company pays an annual fee of $100,000 (plus GST) to GSA Industries Pty Ltd for the use of these facilities and services. The Shared Services Agreement came into effect from the date of the Company’s listing on the ASX. The Shared Services Agreement is on terms that are more favourable to the Company than arm’s length terms. Amounts recognised as an expense during the period Rent and shared services expense 2017 $000 100 26. Audit Services KPMG are the auditors of the Company. The total remuneration received, or due and receivable by auditors of the Company is as follows 2017 $ 2016 $000 16 2016 $ KPMG Australia Audit services Other assurance and non-audit services • Due diligence • Tax compliance • Other assurance services • Other services Total remuneration paid to KPMG Australia Overseas KPMG offices • Due diligence • Other services Total remuneration paid to KPMG overseas Total remuneration to KPMG Annual Report 2017 177,000 120,000 22,500 79,500 25,000 15,000 319,000 313,159 22,722 335,881 654,881 – 65,000 – – 185,000 – – – 185,000 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 27. Deed of cross guarantee The wholly-owned subsidiaries listed below are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports and Directors’ reports following the execution of a Deed of Cross Guarantee (“Deed”) on 29 June 2016. The Deed complies with the relevant ASIC instrument/class order. 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 the Company is wound up. The holding entity for the purpose of the Deed is Reliance Worldwide Corporation Limited. The subsidiaries who are parties to the Deed are: • Reliance Worldwide Group Holdings Pty Ltd; and • Reliance Worldwide Corporation (Aust.) Pty Ltd. A consolidated statement of comprehensive income, comprising the Company and controlled entities which are party to the Deed and after eliminating all transactions between those entities, for the year ended 30 June 2017 and a Statement of Financial Position for the same group for entities at balance date are set out below. Statement of profit or loss and other comprehensive income Revenue from sale of goods Cost of sales Gross profit Other income Product development expenses Selling, warehouse and marketing expense Administration expense Other expenses Operating profit / (loss) Finance income Finance costs Net finance costs Profit / (Loss) before tax Income tax expense Profit / (Loss) for the period 2017 $000 212,811 (143,875) 68,936 968 (4,005) (15,367) (13,478) (388) 36,666 36,227 (4,996) 31,231 67,897 (19,414) 48,483 2016 $000 46,934 (33,843) 13,091 451 (1,100) (4,401) (3,450) (12,219) (7,628) 5,837 (962) 4,875 (2,753) (1,381) (4,134) 60 Reliance Worldwide Corporation Limited 27. Deed of cross guarantee (continued) Statement of financial position at 30 June 2017 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total Current Assets Non-Current Property, plant and equipment Loans receivable Deferred tax assets Goodwill Investment in subsidiaries Other intangible assets Total Non-Current Assets Total Assets Liabilities Current liabilities Bank overdraft Trade and other payables Current tax liabilities Employee benefits Total Current Liabilities Non-Current Liabilities Borrowings Deferred tax liabilities Employee benefits Total Non-Current Liabilities Total Liabilities Net Assets Equity Share capital Reserves Retained profits/ (Accumulated losses) Total Equity 2017 $000 15,585 47,172 52,763 2,145 2016 $000 23,378 33,559 44,164 1,652 117,665 102,753 41,563 725,665 7,912 39,825 515,654 1,429 1,332,048 1,449,713 9,400 40,484 4,104 3,809 57,797 258,000 3,239 4,084 265,323 323,120 43,056 603,900 10,264 39,825 508,067 868 1,205,980 1,308,733 – 32,068 1,429 2,773 36,270 160,000 3,179 4,831 168,010 204,280 1,126,593 1,104,453 1,261,371 (163,377) 28,599 1,272,732 (164,145) (4,134) 1,126,593 1,104,453 Annual Report 2017 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS IMPORTANT NOTICES For the year ended 30 June 2017 28. Parent entity disclosure As at, and throughout, the financial year to 30 June 2017 the parent entity of the Group was Reliance Worldwide Corporation Limited. (a) Result of the parent entity Profit /(Loss) for the period Other comprehensive income Total comprehensive profit / (loss) for the period (b) Statement of financial position of the parent entity at 30 June Assets Current Assets Non-Current Assets Total Assets Liabilities Current Liabilities Non-Current Liabilities Total Liabilities Net Assets Equity Share capital Reserves Accumulated losses Total Equity 2017 $000 (4,372) – (4,372) 2017 $000 1,979 1,530,641 1,532,620 2,628 297,844 300,472 2016 $000 (11,537) – (11,537) 2016 $000 13,230 1,422,472 1,435,702 13,071 161,371 174,442 1,232,148 1,261,260 1,261,371 1,272,732 833 (30,056) 65 (11,537) 1,232,148 1,261,260 (c) Parent entity contingent liabilities The Company has agreed to provide guarantees for certain commitments made or entered into by subsidiary entities in the ordinary course of business. The Company does not consider these guarantees to be material in the context of the Group’s business. (d) Parent entity capital commitments for acquisition of property plant and equipment The Company did not enter into any material contracts to purchase plant and equipment during the year. (e) Parent entity guarantees in respect of the debts to its subsidiaries The Company has entered into a Deed of Cross Guarantee with the effect that it guarantees liabilities and obligations in respect of some Australian subsidiaries in certain circumstances. Refer to Note 27. 29. Subsequent events On 28 August 2017, the Directors resolved to declare a final dividend for the 2017 financial year of 3.0 cents per share. The dividend is fully franked. The aggregate dividend payment amount is $15.75 million. The dividend will be paid to eligible shareholders on 10 October 2017. The Company does not have a dividend reinvestment plan. The Directors are not aware of any other matters or circumstances that have occurred since the end of the financial year that have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial periods. 62 Reliance Worldwide Corporation Limited DIRECTORS’ DECLARATION IMPORTANT NOTICES For the year ended to 30 June 2017 In the opinion of the Directors of Reliance Worldwide Corporation Limited (“the Company”): (1) the consolidated financial statements and notes set out on pages 33 to 62, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its performance for the financial year ended on that date; and (ii) complying with Australian Accounting Standards, other mandatory professional reporting requirements and the Corporations Regulations 2001. (2) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. (3) there are reasonable grounds to believe that the Company and the Group entities identified in Note 27 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 described in Note 27. The Directors draw attention to Note 1 to the consolidated financial statements which includes a statement of compliance with International Financial Reporting Standards. The Directors have been given the declarations by the Chief Executive Officer and Chief Financial Officer as required by Section 295A of the Corporations Act 2001. Signed in accordance with a resolution of the Directors. Jonathan Munz Chairman Melbourne 28 August 2017 Heath Sharp Chief Executive Officer and Managing Director Annual Report 2017 63 Independent Auditor’s Report To the shareholders of Reliance Worldwide Corporation Limited Report on the audit of the Financial Report Opinion We have audited the Financial Report of Reliance Worldwide Corporation Limited (the Company). In our opinion, the accompanying Financial Report of the Group 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 2017 and of financial performance for the year ended on that date; and its • • The Financial Report comprises: • Consolidated statement of financial position as at 30 June 2017; • 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. complying with Australian Accounting Standards the Corporations Regulations 2001. and The Group consists of Reliance Worldwide Corporation Limited (the Company) and the entities it controlled at the year end and from time to time during the financial year. Basis for opinion 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. 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 Profession Standards Legislation. 64 Reliance Worldwide Corporation Limited Key Audit Matters The Key Audit Matters we identified are: • • acquisition of the Holdrite business; and valuation of inventory. Key Audit Matters are those matters that, in our professional judgment, 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. Acquisition of the Holdrite business Refer to Note 3 Business Combinations of the Financial Report. The key audit matter How the matter was addressed in our audit and measurement Identification of intangible assets acquired as part of the Holdrite business acquisition is a Key Audit matter due to: • • the size of the acquisition (base purchase consideration of US$92.5 million); and the level of judgement required in evaluating price purchase allocation (PPA) against accounting standards. the the The Group engaged an independent expert to advise on identification and measurement of intangible assets which form the PPA. As part of the measurement intangible assets, process of judgement was required significant in assessing the valuation methodology applied, forecasted revenues and discount rates. these In assessing this key audit matter, we involved senior audit team members, specialists, who including collectively understand the Group’s business and the economic environment it operates in. valuation Our audit procedures included: • reading the sale and purchase agreement to understand the key terms and conditions of the transaction identification and measurement of assets and liabilities; relating the to • working together with our valuation specialists, we and challenged assumptions used in the provisional PPA to value the identifiable intangible assets. This included: valuation methodology the o assessing the methodology for consistency with industry practices and criteria in the accounting standards; applied o comparing the inputs used by the independent expert to underlying documentation sourced from the Group; o assessing the discount rate applied by the Group using our knowledge of the Group, its industry and comparable entities; o evaluating forecast revenues based on accessing historical results of the Holdrite business for comparison, and published industry trends in which the Holdrite business operates in; o assessing the competence, experience and the scope of the independent expert. • assessing the Group’s disclosures in respect of the acquisition in accordance with accounting standards. Annual Report 2017 65 Valuation of inventory Refer to Note 9 Inventories of 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 a result of: • • • to additional audit effort applied address inventory the Group’s volumes held across multiple product categories in multiple manufacturing of high sites. manufactured product across multiple regions leads to greater audit effort, as inventory is tested at a regional level. volume The certain products where there are readily available competitor product in the market, increasing the risk of inventory net realisable values falling below cost due to market demand / pricing pressures. We focus our audit effort on assessing products at risk of these conditions, those already identified as slow moving or obsolete, and the documentation available for the value ascribed by the Group. including the inherent complexities for applying a standard cost of production / manufacturing to inventories, requires additional audit effort. Our audit procedures included: • • • • • • • testing of standard costing methodology and computations, by significant product category, in key regions. This includes checking inputs into the standard costing computation, on a sample basis, to external documentation, such as supplier invoices; challenging the Group's approach for allocation of overheads within the standard costing computation on a sample basis by 1. examining the construct of the standard cost, 2. evaluating the underlying documentation of the Group’s methodology and discussing with finance and operational personnel in the Group about the allocation methodology applied and 3. comparing the allocation methodology to our understanding of the business and the criteria in the accounting standards; understanding the processes the Group undertakes to assess the slow moving and obsolete inventory, including understanding the Group’s consideration of changes in market conditions, and its implications to valuation of inventory; comparison of a sample of previously identified slow moving inventories, across various product and site categories, to sales amounts achieved subsequently, to evaluate the historical accuracy of the Group’s into expected future sales prices inventory valuation; incorporated challenging the Group’s identification of inventory at risk of net realisable value less than standard cost. We observed the condition of a sample of inventory at physical the identification of ‘at risk’ inventory categories using our understanding of the implications of the changing market conditions from our industry experience and comparison against recent sales trends; inventory counts, challenged testing the Group’s value ascribed to inventory, across various product and site categories, where net realisable value is lower than standard cost. This was performed by comparing the cost per unit in the general ledger with the latest selling price per unit obtained from the approved pricing list or recent selling prices from transactions subsequent to year end, on a sample basis; testing a sample of the Group’s value ascribed to 66 Reliance Worldwide Corporation Limited inventory, across all remaining inventory categories, by comparing the cost per unit in the general ledger to recent selling prices for consistency; and • the Group’s valuation assessing to methodologies and disclosures inventory valuation, based on the requirements of relevant accounting standards. inventory respect in Other Information Other Information is financial and non-financial information in Reliance Worldwide Corporation Limited’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. The Other Information we obtained prior to the date of the Auditor’s Report was the Directors Report, Operating and Financial Review and Chairman’s Report. The CEO Report is expected to be made available to us after the date of the of the Auditor’s Report Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report. 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’s ability to continue as a going concern. 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 or to cease operations, or have no realistic alternative but to do so. Annual Report 2017 67 Auditor’s responsibilities for the audit of the Financial Report Our objective is: • • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report. A further description of our responsibilities for the Audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_files/ar2.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 Reliance Worldwide Corporation Limited for the year ended 30 June 2017, complies with Section 300A of the Corporations Act 2001. The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in the Directors’ report for the year ended 30 June 2017. Our responsibility is to express an opinion on the Remuneration Report, based on our Audit conducted in accordance with Australian Auditing Standards. KPMG Paul J McDonald Partner Melbourne 28 August 2017 68 Reliance Worldwide Corporation Limited SHAREHOLDER INFORMATION IMPORTANT NOTICES Shareholder Information The information set out below was applicable at 28 August 2017. Distribution of Equities – Ordinary Shares Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Total The number of shareholders holding less than a marketable parcel of shares was 35. Largest Shareholders The names of the 20 largest registered holders of ordinary shares are listed below. Name Jayburn Pty Ltd HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Limited BNP Paribas Nominees Pty Ltd National Nominees Limited Citicorp Nominees Pty Limited GSA International Pty Ltd BNP Paribas Noms Pty Ltd Bond Street Custodians Limited Citicorp Nominees Pty Limited Reliance Employee Share Investments Pty Limited Australian Foundation Investment Company Limited AMP Life Limited RBC Investor Services Australia Nominees Pty Ltd Gurravembi Investments Pty Ltd Bond Street Custodians Ltd Nabe Pty Ltd RBC Investor Services Australia Nominees Pty Ltd Bond Street Custodians Limited BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd Total holders Number of shares issued shares % of 2,832 1,400 1,207 47 18 7,033,310 10,676,873 27,883,021 13,005,064 466,401,732 5,504 525,000,000 1.34 2.03 5.31 2.48 88.84 100.00 Number of shares % of held Issued Shares 131,664,360 102,821,721 61,790,198 35,662,829 34,962,183 33,512,326 25,835,640 10,405,379 9,482,491 5,373,095 3,321,402 2,400,000 1,825,982 1,624,120 1,500,000 1,459,088 1,400,000 1,360,918 996,655 983,243 25.08 19.59 11.77 6.79 6.66 6.38 4.92 1.98 1.81 1.02 0.63 0.46 0.35 0.31 0.29 0.28 0.27 0.26 0.19 0.19 Annual Report 2017 69 SHAREHOLDER INFORMATION IMPORTANT NOTICES Substantial Shareholders The number of shares held by substantial shareholders at 31 August 2017 as disclosed in substantial shareholder notices received by the Company was: Name Macquarie Group Limited Reliance Worldwide Corporation Limited1 Bennelong Funds Management Group Pty Ltd Jayburn Pty Ltd Challenger Limited BNP Paribas Nominees Pty Ltd (as custodian for UniSuper Limited) Commonwealth Bank of Australia AMP Limited Number of shares held 100,227,804 53,940,000 53,928,889 52,500,000 48,242,391 31,501,438 26,460,341 26,375,027 % 19.09 10.27 10.27 10.00 9.19 6.00 5.04 5.02 1 The Company has a technical “relevant interest” in its own shares under S608(1) of the Corporations Act 2001 resulting from restrictions on disposal of shares under various voluntary escrow arrangements. The Company has no rights to acquire these shares or control the voting rights attaching to these shares. Buy-Back The Company does not have a current on-market buy-back. Voting rights Every shareholder present at a general meeting has one vote on a show of hands and one vote for every fully paid share held if a poll is conducted. Shareholders entitled to cast two or more votes may appoint up to two proxies. Where more than one proxy is appointed, each proxy may be appointed to represent a specific number or proportion of the shareholder’s votes. If the appointment does not specify the proportion or number of votes that each proxy may exercise, each proxy may exercise half of the shareholder’s votes. Shareholder enquiries Shareholders with enquiries about their shareholding should contact the Company’s share registry: Computershare Investor Services Pty Limited Yarra Falls 452 Johnson Street Abbotsford Vic 3067 T: 1300 850 505 (within Australia) T: +61 3 9415 4000 (international) Please mail all share registry correspondence to: Computershare Investor Services Pty Ltd GPO Box 2975 Melbourne VIC 3001 Please include your Shareholder Reference Number (SRN) or Holder Identification Number (HIN) in all correspondence to the share registry. Change of address It is important for shareholders to notify the share registry in writing promptly of any change of address. As an added security measure, please quote your Shareholder Reference Number and your old address. Investor information The Company maintains a website at www.rwc.com where company information is available and a service for any queries is provided. For further queries, please contact the Company on +61 3 9099 8299. Stock Exchange listing Reliance Worldwide Corporation Limited’s ordinary shares are quoted on the Australian Securities Exchange under the code “RWC”. Annual General Meeting Details of the Annual General Meeting of Reliance Worldwide Corporation Limited will be advised in the Notice of Meeting which will be despatched to shareholders. 70 Reliance Worldwide Corporation Limited Annual Report 2017 71 CORPORATE DIRECTORY IMPORTANT NOTICES Board of Directors Mr. Jonathan Munz (Chairman) Mr. Heath Sharp Mr. Russell Chenu Mr. Stuart Crosby Mr. Ross Dobinson Company Secretary Mr. David Neufeld Registered Office Level 54, 525 Collins Street Melbourne VIC 3000 T: +61 3 9099 8299 F: +61 3 9099 8277 Auditor KPMG Tower Two Collins Square 727 Collins Street Melbourne Vic 3008 Share Registry Computershare Investor Services Pty Limited Yarra Falls 452 Johnson Street Abbotsford Vic 3067 T: 1300 850 505 (within Australia) T: +61 3 9415 4000 (international) Please mail all share registry correspondence to: Computershare Investor Services Pty Ltd GPO Box 2975 Melbourne VIC 3001 Stock Exchange Listing Reliance Worldwide Corporation Limited’s shares are quoted on the Australian Securities Exchange. Website address www.rwc.com 72 Reliance Worldwide Corporation Limited RELIANCE WORLDWIDE CORPORATION LIMITED ACN 610 855 877 www.rwc.com