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RELIANCE WORLDWIDE CORPORATION LIMITEDACN 610 855 877ANNUAL REPORT 2018RWC_AnnualReport_2018Cover_FINAL.indd 19/18/18 2:23 PM
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 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
11
17
17
23
36
37
38
39
40
41
71
72
77
80
Annual Report 2018
Annual Report 2018
1
1
Financial HigHligHts
Delivered double digit revenue and earnings growth for
FY2018
Net sales
$769.4m
+28% growth1
Adjusted EBITDA2
$150.9m
+25% growth1
Adjusted NPAT2
$78.6m
+20% growth1
Total dividends for FY2018
$42.1m
NPAT ratio of 63%
Free cash flow conversion
82.7%
of Adjusted EBITDA3
continued strong sales
growth from americas
+29% growth1
strong balance sheet
at 30 June 2018
Leverage ratio at 1.57x4
1. Growth rates expressed as change over comparative twelve month period ended 30 June 2017.
2.
Before contribution from John Guest and transaction costs expensed; after one-time charge for reclassification of tariff categories for products imported to the USA; NPAT also
before effect of financing costs.
3. Operating cash flow before tax paid to Adjusted EBITDA of $150.9 million.
4. Net Debt/pro forma EBITDA assuming John Guest included based on historical data for a full 12 month period ended 30 June 2018 and excluding $20.5 million of John Guest
acquisition transaction costs.
2
Reliance Worldwide Corporation Limited
cHairman’s report
important notices
Dear fellow shareholders,
On behalf of the Board, I am pleased to present
The following report from our Chief Executive
to you the 2018 Annual Report of Reliance
Officer, Heath Sharp, and the accompanying
Worldwide Corporation Limited.
review of operations provide commentary on
RWC is a global market leader and manufacturer
performance and business outlook.
of water delivery, control and optimisation
The balance sheet remains strong and continues
systems for the modern built environment.
to support business growth. In June 2018,
RWC continues to pioneer and innovate
we successfully completed a $1.1 billion equity
plumbing products for residential, commercial
raising by way of a 1 for 1.98 pro rata Entitlement
and industrial plumbing applications. Our unique
Offer. We also entered into a new $750 million
end-to-end meter to fixture and floor to ceiling
syndicated debt facility which expanded available
plumbing solutions target the repair, renovation,
service, re-model and new construction markets.
facilities by $400 million and extended maturity
periods by 3 to 5 years. Proceeds from the equity
The acquisition of the John Guest group for
raising and drawings on the debt facility were
$1.2 billion, completed in June of 2018, has
used to fund the John Guest acquisition. On a
created a single global leader in the manufacture
net debt basis, $364.7 million was available to
and distribution of both brass and plastic
be drawn under the syndicated debt facility at
Push-to-Connect (“PTC”) technology and
30 June 2018. Dividends declared for FY2018
related products.
The acquisition of John Guest strongly aligns
total $42.1 million and represent 63% of net profit
after tax, ahead of the targeted payout range.
with RWC’s growth strategy by combining
RWC now has a global workforce of over 2,300
RWC’s strong positions in North America and
people following the John Guest acquisition.
Asia Pacific with John Guest’s strength in the UK
On behalf of the Board, I would like to recognise
and continental Europe. The Board is pleased
and thank our management team and
with progress to date in integrating the two
employees for their efforts and dedication which
businesses and the growth opportunities which
continue to deliver strong outcomes.
have been identified by management as they
further build their understanding of the John
Guest business through working closely with its
people.
The financial results for FY2018 continued
RWC’s track record of delivering strong
sales and earnings growth with net sales up 28%
and earnings before interest, tax, depreciation
and amortisation up 25%1 on the prior year.
Net profit after tax increased by 20% on the
prior year.1 Sales growth was led by double
digit growth in the core SharkBite PTC fittings
and accessories, first full year contribution from
Holdrite and the inclusion of one month of John
Guest sales.
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 2018.
Jonathan munz
Chairman
1. Before John Guest contribution of $5.0 million and one-off John Guest acquisition transaction costs
of $20.5 million expensed. Net profit after tax also before the effect of financing costs.
Annual Report 2018
3
cHieF eXecUtiVe oFFicer’s report
important notices
Dear Shareholders,
I am pleased to present my report on RWC’s
financial and operational performance for the year
ended 30 June 2018 which continued our track
record of revenue and earnings growth1.
Strong financial and operating results are the
direct result of our continual effort to deliver
innovative quality products to our customers and
end users. RWC’s success is underpinned by
its people. We have a team who work together
across all geographic segments and operating
divisions. We continue to invest in and develop a
diverse pool of talented people at all levels of the
organisation. I sincerely thank our entire global
RWC team for their efforts and commitment
to delivering long-term value for shareholders,
customers and end users.
I would also like to thank the Board for its
continuing support and guidance.
Business strategy focus
Throughout the year we maintained our focus on
being a global market leader and manufacturer
of water delivery, control and optimisation
systems for the modern built environment by
pioneering and innovating plumbing products
for residential, commercial and industrial
applications. RWC’s unique end-to-end meter
to fixture and floor to ceiling plumbing solutions
target the repair, renovation, service, remodel
and new construction markets. We manufacture
and distribute high quality products that disrupt
and transform traditional plumbing methods by
aiming to make the contractor’s job quicker and
easier.
Following the acquisition of John Guest, RWC
now operates 15 manufacturing facilities,
24 distribution centres and 5 research &
development locations across our Americas,
Asia Pacific and EMEA operating segments. Our
global team now has over 2,300 people working
in the combined business.
Together, this expanded footprint and
manufacturing capability will drive our future
growth across multiple product categories,
channels and countries.
SharkBite brass PTC products are now available
in over 23,000 outlets in North America. Over
1.5 million PTC connections are made using
SharkBite fittings every week. With the acquisition
of John Guest, we are now a global leader in
both brass PTC and plastic PTC technology.
We are the largest manufacturer of water
pressure and temperature control valves in the
world making over 150,000 water heater and
temperature relief valves a week across all our
manufacturing plants . The Streamlabs smart
home water monitoring and leakage detection /
shutoff devices blend core PTC technology with
modern non-plumbing solutions. RWC is driving
business growth across our product categories
and market segments.
FY2018 financial review1
Net sales2 grew by 28% compared with FY2017.
On a constant currency basis, net sales2
increased by 30% with local currency growth
in all operating segments. A number of factors
contributed to this growth including continued
expansion of the SharkBite PTC business in the
Americas, the addition of new multi-functional
PTC products, the first full year inclusion of
Holdrite, strong external sales growth in the
APAC and EMEA segments and the inclusion
of one month of John Guest sales. We also
benefited from the rollout to Lowe’s stores and
an extremely cold winter in North America. The
Compound Annual Growth Rate (CAGR) in net
sales2 over the last 10 financial years continues
to be around 12%. Importantly, supporting these
benefits, we continue to see low double digit
underlying sales growth.
1. This report should be read in conjunction with the Operating and Financial Review which follows.
2. Net sales after eliminating intercompany sales.
4
Reliance Worldwide Corporation Limited
Thank you for your continued support. I look
forward to reporting further updates on our
progress in products and performance at the
upcoming Annual General Meeting.
Heath sharp
Chief Executive Officer
Holdrite fully integrated
We completed the integration of Holdrite into
RWC during FY2018. The combined business
synergies and complementary product ranges
continue to meet expectations. Holdrite’s
innovative culture and product range, including
engineered pipe support, fire stop and water
accessories systems, are well accepted in the
residential and commercial new construction
segments in the Americas.
product innovation
A key to unlocking future growth is to remain
focused on delivering innovative products that
address and solve real-world needs. We remain
committed to investing in R&D capabilities
globally, including new technologies, processes,
training and engineering talent critical to
developing new products and solutions that
create demand in end user markets.
Introduction of new non-traditional plumbing
technologies in existing categories and the
conversion of make-shift methods to engineered
solutions to create entirely new categories are
at the core of our product development and
innovation process. We successfully introduced
over 100 new multi-category products this past
year by leveraging PTC technology to expand
market penetration of SharkBite PTC fittings,
Cash Acme valves, Holdrite engineered pipe
support systems and water heater solutions
as well as complementary accessories across
residential and commercial market segments.
These solutions improve efficiency for users while
creating value for distributors.
EBITDA of $150.9 million3 and NPAT of
$78.6 million3 showed double digit growth
compared with FY2017. These results reflect
the strong growth in net sales, margin benefits
from the inclusion of higher margin Holdrite
products, scale and efficiency improvements in
manufacturing activities and procurement and
operational efficiency improvements across
business segments. Partially offsetting these
benefits were the effect of increased materials
input costs, including copper, and increased
selling, general and administrative expenses
to support growth activities expected to yield
benefits in future years. We also recognised a
one-time charge of $6.0 million resulting from
a reclassification of product categories for
products imported to the USA in FY2018 and
prior years.
acquisition of John guest
In June of 2018, we completed the acquisition of
the John Guest group. This is a transformational
acquisition which is consistent with our strategy
to strengthen RWC’s global presence by
acquiring businesses which add clever, high-
quality engineered products to the existing range
and expand our distribution capabilities. The
acquisition of John Guest has expanded our
international footprint, particularly in the UK and
continental Europe. RWC is now a global leader
in the manufacture and distribution of brass and
plastic PTC technology and related products.
The John Guest acquisition provides
diversification of our geographic, product and
channel exposure as well as enhancing and
accelerating organic growth opportunities.
Following completion, our teams have been
collaborating to integrate the businesses and
align processes. Importantly, we are seeing
alignment of culture and strategy and remain
pleased with the way in which the people from
both organisations are working together. The
financial and operating results we have seen
to date are encouraging and support our
investment thesis.
3. Before contribution from John Guest and acquisition transaction costs of $20.5 million expensed. NPAT also
before the effect of associated financing costs.
Annual Report 2018
5
operatIng and FInancIal revIew
Important notIces
This Operating and Financial Review forms part of, and should be read in conjunction with, the statutory Directors’ Report for the year ended 30 June 2018.
results for the financial year
net sales ($m)
reported eBItda1 ($m)
Adjusted for:
John Guest transaction costs expensed
John Guest post acquisition EBITDA contribution ($7.8m) net of fair value inventory unwind ($2.8m)
eBItda before contribution from John guest and transaction costs expensed ($m)
Reported EBIT1 ($m)
reported net profit after tax ($m)
net profit after tax before contribution from John guest, transaction costs expensed and
associated financing costs ($m)
Reported earnings per share (cents)
Adjusted earnings per share (cents)
review of Financial results
actual
FY2018
769.4
135.4
actual
FY2017
601.7
120.7
20.5
(5.0)
150.9
111.1
66.0
78.6
12.3
14.6
–
–
120.7
101.3
65.6
65.6
12.5
12.5
Variance
28%
12%
n/m
n/m
25%
10%
1%
20%
Net sales for FY2018 of $769.4 million were 28% higher than the prior year (30% higher on a constant currency basis). The increase was driven principally
through:
• continued expansion of SharkBite PTC business in the Americas operating segment as well as the introduction of additional PTC products, including at
The Home Depot, and sales through all the Lowe’s stores in the USA;
• one-time benefits from completing the product rollout to Lowe’s stores in the USA in the first half and an uplift in sales during January and February
reflecting the impact of the North American winter. Even excluding these one-time benefits, the SharkBite PTC business continued to deliver strong double
digit sales growth in the Americas during FY2018;
• growth of sales into new construction markets, led in the USA by the addition of Holdrite products and EvoPEX;
• strong sales performance in the Asia Pacific and EMEA segments; and
•
inclusion of post-acquisition net sales from John Guest. Net sales excluding any contribution from John Guest were $744.9 million, up 24% on the prior year.
Partly offsetting these results were lower net sales of PEX pipe and crimp fittings to The Home Depot following its decision to destock these products from all
but a small number of its stores which took effect from mid-2017.
EBITDA (before John Guest contribution and transaction costs expensed) was $150.9 million, an increase of 25% on the prior year.
The EBITDA result of $150.9 million primarily reflects:
• growth in net sales as described above;
• margin benefits from inclusion of higher margin Holdrite products;
•
increased scale and efficiencies within manufacturing activities; and
• ongoing procurement and operational efficiency initiatives across the business.
These benefits were partially offset by:
•
increased copper and other input costs during FY2018;
• SG&A investment to support RWC’s growth activities which is expected to yield benefits in future periods. In particular, RWC invested in additional selling
and marketing resources and capabilities; in expanding and enhancing distribution channel access, particularly in the Americas; and in other corporate
development and growth initiatives, including spend on key R&D activities; and
• a one-time charge of $6.0 million resulting from a reclassification of categories for products imported to the USA in FY2018 and prior years.
Reported net profit after tax (“NPAT”) was $66.0 million, an increase of 1% on the prior year. This result reflects:
•
the impacts on EBITDA as described above (including contribution from John Guest and one-off transaction costs expensed of $20.5 million);
• a higher net interest expense as a result of increased external borrowings which funded the acquisition of Holdrite in June 2017 and the acquisition of John
Guest in June 2018;
6
Reliance Worldwide Corporation Limited
•
the effect of expensing a portion of the borrowing costs associated with the new syndicated debt facility entered into in June 2018; and
• a reduction in income tax expense of US$3.4 million resulting from changes to the federal corporate tax rate contained in the Tax Cuts and Jobs Act
passed by the USA Government in December 2017. Of this amount, US$2.6 million relates to a lower current income tax expense resulting from using a
blended federal corporate tax rate of 28% on US earnings for the period and US$0.8 million relates to the restatement of deferred tax balances.
NPAT was $78.6 million excluding any contribution from John Guest and associated transaction and financing costs, an increase of 19.8% on the prior year.
segment review
Americas
Net sales2
Segment EBITDA
Margin
Segment EBIT
actual
FY2018
actual
FY2017
($m)
559.7
95.4
17.0%
83.7
($m)
435.3
74.6
17.1%
66.6
Variance
29%
28%
26%
The Americas segment continued to deliver robust growth in net sales and EBITDA. Net sales for FY2018 were $559.7 million, an increase of 29% on the
prior year (32% increase on a constant currency basis). EBITDA contribution was $95.4 million, net of a $6.0 million one-time charge for the reclassification of
categories for products imported to the USA, an increase of 28% over the comparative period. Excluding this one-time charge, EBITDA was $101.4 million, an
increase of 36%.
The Americas performance was driven by:
• continued market penetration of SharkBite PTC fittings and accessories in the repair and renovation market. This reflects our continuing investment in
building brand awareness and educating end users about the speed and efficiency of SharkBite PTC products;
• execution of a strategy to expand our product availability. RWC products are now available in over 23,000 outlets across the Americas, creating a
powerful distribution network to help build both the PTC category and the SharkBite brand. Continued growth will be achieved through innovative product
development and efforts focused on increasing product demand from plumbers, contractors and end users;
• expansion into the residential and commercial new construction markets through the Holdrite and EvoPEX product ranges. The results reflect that the first
full year contribution from Holdrite was in line with expectations;
• a one-time uplift in sales from the final phase of the rollout to Lowe’s stores; and, in January and February, as a result of the unseasonably cold winter
temperatures; and
• scale and efficiency benefits from investment in manufacturing capacity in the USA, partially offset by increased copper costs and higher SG&A to support
growth and expansion of the business.
The final stage of the rollout of product to Lowe’s 1,700+ home improvement centers was completed in the first quarter of FY2018. From the middle of 2017,
RWC ceased supplying PEX pipe and crimp fittings to all but a small number of The Home Depot outlets as part of their previously announced decision to
destock these products. These activities were completed in line with the expectations announced by the Company in February 2017. Throughout FY2018 we
have been pleased with the overall sales growth to end users achieved through the outlets of both Lowe’s and The Home Depot. SharkBite PTC fittings and
accessories, including an expansive range of new products, continue to be supplied to all but a small number of The Home Depot outlets.
Asia Pacific
Net sales2
Segment EBITDA
Margin
Segment EBIT
actual
FY2018
actual
FY2017
($m)
232.0
52.4
22.6%
43.1
($m)
218.1
47.5
21.8%
38.6
Variance
6%
10%
12%
Asia Pacific delivered net sales of $232.0 million, an increase of 6% on the prior year. Growth occurred across all major product categories. In particular, the
business experienced double digit growth in external sales, primarily driven by growth in our PEX piping systems and PTC fittings. Inter-segment sales to the
Americas only grew 1% as a result of increased manufacturing capacity in the USA.
Annual Report 2018
7
operatIng and FInancIal revIew
Important notIces
Segment EBITDA for the year was $52.4 million, an increase of 10% on the prior year. Growth in EBITDA was driven primarily by growth in sales. Margins were
slightly up on the prior year supported by strong manufacturing volumes. This was partially offset by higher raw material costs, including copper, and an
increase in SG&A driven by modest inflationary rises and ongoing investment to support growth.
EMEA
Net sales2
Segment EBITDA
Margin
Segment EBIT
actual
FY2018
actual
FY2017
($m)
81.1
8.3
10.2%
5.4
($m)
50.1
0.5
1.0%
(1.1)
Variance
n/m
n/m
n/m
Net sales in EMEA were $81.1 million, an increase of 62% on the prior year. Net sales before John Guest were $61.2 million3, an increase of 22% on the prior
year. Organic growth was driven by a double digit increase in the UK across market sectors and product groups, particularly underfloor heating, thermal
interface units and control valves in wholesale and OEM. Sales by the Spanish business nearly doubled with all of that growth coming from expansion of
external sales in Europe.
EBITDA was $8.3 million. Before the John Guest contribution, EBITDA was $2.5 million, a significant increase over $0.5 million on the prior year and a
turnaround from the loss in the first half of FY2018. The improved result in the second half reflects continuing growth in sales volume, the absence of one-off
business development costs incurred in the first half and lower SG&A costs relative to the first half.
dividend
A final dividend for FY2018 of 3.0 cents per share has been declared. The number of issued shares increased by 265,094,765 to 790,094,765 following the
pro rata Entitlement Offer completed in June 2018. The new issued shares are eligible to receive the dividend. Total dividends declared for the year ended
30 June 2018 are $42.1 million which represents 63% of NPAT, slightly above the targeted dividend payout range of 40% to 60% of annual NPAT.
Interim
Final dividend
Total dividends paid or payable
Year ended
Year ended
30 June
30 June
2018
3.5cps4
3.0cps4
$42.1m
2017
3.0cps4
3.0cps4
$31.5m
Year ended
Year ended
30 June
30 June
2018
Franked
amount
100%
100%
100%
2017
Franked
amount
40%
100%
70%
The record date for dividend entitlement is 11 September 2018. The payment date is 11 October 2018.
The target payout ratio for FY2019 dividends remains 40% to 60% of annual NPAT. Future dividends may not be fully franked given the change in the
geographic mix of earnings following acquisitions.
capital expenditure
Capital expenditure during FY2018 totalled $38.4 million which compares with guidance of $35 million. This includes $1.3 million of capital spending at John
Guest in June. Expenditure was split between maintenance expenditure ($11.8 million) and growth capital expenditure ($26.6 million).
Growth expenditure was mainly incurred to complete previously announced expansion plans to meet forecast growth in demand for SharkBite PTC, EvoPEX
fittings and PEX pipe.
cash Flow
Cash flow from Operations for FY2018 was $80.1 million ($71.9 million in the prior year). The increase in cash flow from operations is consistent with the growth
in EBITDA. Net working capital increased principally to support growth in the business.
Balance sheet
The balance sheet at 30 June 2018 continued to be in a strong position.
Net debt at 30 June 2018 was $388.0 million (30 June 2017 - $235.4 million). The dollar increase over 30 June 2017 mainly reflects additional borrowings
to fund the John Guest acquisition partially offset by net cash generated from operations during the year. On a net debt basis, liquidity of $364.7 million was
available at balance date under the syndicated debt facility.
Net debt, including the effect of the funding drawn for the John Guest acquisition, to EBITDA (before John Guest transaction costs) was 2.49 times at 30 June
2018, but would be 1.57 times after taking into account pro-forma EBITDA for John Guest based on historical data for a 12 month period ended 30 June 2018.
8
Reliance Worldwide Corporation Limited
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.
Safety performance is regularly reviewed by management and the Board. While we have always monitored safety performance at all facilities, we implemented
uniform reporting across all operations from July 2016. For the year ended June 2018, we had a Reportable Incident rate of 2.4 per 100 employees, an
improvement from 2.7 in the prior year. Moving forward we will bring John Guest onto the same enhanced reporting platform to monitor safety performance
across the group.
strategy and Business development activities
overview
RWC continues to capitalise on its leadership position in Push-to-Connect (“PTC”) fittings and associated accessories. The Company’s core SharkBite brass
PTC fittings business continues to grow at double digits driven by steady demand among professional plumbers, contractors and end users, particularly in the
Americas. Demand for SharkBite PTC solutions was further advanced by the launch of the EvoPEX end-to-end rough plumbing system into the new residential
construction market in the USA. With the acquisition of John Guest, RWC extends its leadership position in the PTC category to include plastic PTC fittings,
accessories and related systems with a market leading position in the UK and a strong platform for growth in continental Europe. The John Guest and Speedfit
brands are two of the most widely recognised PTC brands in Europe.
RWC regularly explores other commercially viable growth opportunities that fit the Company’s core vision of manufacturing and distributing products and
solutions that deliver, control and optimise water from boundary to wall and from floor to ceiling. The acquisition of Holdrite with its culture of innovation and
wide range of true-and-tested original products, including engineered pipe support, fire stop and water accessories systems is an example. It has facilitated
RWC’s successful expansion in new construction and commercial markets such as large multi-family developments as well as office, retail, education,
hospitality and health care facilities in the USA.
RWC also continues to develop and invest in unique products and technologies that will enable growth opportunities beyond traditional plumbing products
and systems. These types of solutions combine traditional plumbing and modern technologies to create smart plumbing systems, falling within the smart
home automation, remote water monitoring and leak detection areas. These smart plumbing systems continue RWC’s mission to positively disrupt the industry
to provide the plumbing trade and end users with efficiency, reliability and convenience.
Beyond product and system solutions, RWC continues to explore and evaluate opportunities to expand sales and distribution into new geographic markets.
The focus remains on key markets in 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.
new product development and innovation
RWC remains committed to investing in its R&D and innovation capabilities globally, including engineering talent and new technologies critical to developing
new products and solutions that create demand in the end user markets.
Introduction of new non-traditional plumbing technologies in existing categories and the conversion of make-shift methods to engineered solutions to
create entirely new categories are at the core of RWC’s product development and innovation process. The Company successfully introduced over 100 new
multi-category products this past year by leveraging its PTC technology to expand market penetration of its SharkBite PTC fittings, Cash Acme valves, Holdrite
engineered pipe support systems and water heater solutions and complementary accessories across residential and commercial market segments. These
solutions are easy to install, dependable, and effective, making the trade more efficient and profitable, while creating value for distributors.
An example of the strategy described above is Holdrite’s HydroFlame Pro. This is a range of fire stopping devices intended to prevent the spreading of flames,
smoke and water between floors of multi-story buildings. These devices are required where there is a penetration to allow for pipes to be installed. The use of
fire-stopping is mandated by modern building codes. The Holdrite products provide an innovative solution which reduces the time taken for installation and
provides a more comprehensive and true-and-tested solution than traditional methods. The HydroFlame Pro devices have unique features that make them
stand-out from competing products and certainly from traditional make-shift methods. These products support the installation of pipe and fittings and clearly
sit within RWC’s delivery category. This range is a clear example of our approach to make the contractor’s life easier while creating value for our distribution
partners. The range also represents a genuine global product offering. RWC is very positive about the long-term potential for this range, even more so now in
the UK and Europe with the added strength of the John Guest salesforce and market relationships.
The R&D team has been developing new generation smart water flow monitoring and leakage detection/water-shutoff devices that blend the core PTC
technology with modern non-plumbing solutions. At the beginning of the year, RWC successfully introduced and launched its first generation of smart water
flow monitoring sensors. Capitalising on initial commercial success, RWC has continued to innovate in the advanced water monitoring and controlled shut-off
area in order to design new products that push the boundaries of what such smart plumbing devices can do, giving contractors and consumers even more
choice.
Annual Report 2018
9
operatIng and FInancIal revIew
Important notIces
These innovations are projected to generate a number of original water flow and conservation monitoring products which are planned for launch in 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.
The acquisition of John Guest continues to enhance RWC’s innovation and product development capabilities. We have been particularly impressed by
the capabilities of the John Guest team generally and their technical capability, specifically in the area of plastic injection moulding. RWC and John Guest
are already seeing synergies arise between their combined businesses by connecting their respective development teams, with a projected boost to the
combined product offerings in the coming years.
FY2019 outlook
RWC currently expects FY2019 EBITDA to be in the range of $280 million to $290 million, including $10 million of actual synergies expected to be realised in
FY2019 and excluding $10 million of one-off integration costs expected to be incurred to achieve the synergies.
Realised synergies to be achieved following the John Guest acquisition are expected to be $20 million per annum on a run rate basis (excluding one-off
integration costs) by the end of FY2019, ahead of the original FY2019 run rate guidance. As integration activities have progressed, additional synergy
opportunities have been identified. Management currently expects annual synergy realisation to exceed $30 million on a run rate basis by the end of FY2020,
an increase of 50% on the synergies guidance provided when the acquisition was announced.
The result will be driven by continued strong top line growth expected in all regions, including ongoing expansion in the core business and strong growth in
new products; continued focus on margin and overhead cost control; a full year contribution from the John Guest group; and realisation of synergies from the
John Guest acquisition. The forecast assumes, among other things, that current general economic conditions are maintained, specifically in the geographies
where RWC operates; the US experiences a modest winter freeze event; and no significant changes to foreign currency exchange rates assumed in our
budget, particularly USD/AUD, GBP/AUD and USD/Yuan5,6. The forecast also assumes a copper price of US$6,500 per tonne and that other input costs remain
similar to current levels.
The new import duties in the USA are not expected to have a significant impact on annual results. While we have determined that the announced tariffs would
impact products RWC currently imports to the USA if left in place, management is considering options to minimise the impact. For example, through alternate
supply arrangements with manufacturers in countries not impacted by the tariffs. Where this is not possible, management currently expects to be able to
recover the additional tariffs through price increases. Management will continue to monitor implementation of new import duties and take appropriate actions to
mitigate any impact.
Capital expenditure in FY2019 is expected to be in the range of $65 million to $75 million, including capital spending for John Guest of about $25 million. Key
projects for the year include various projects to expand RWC’s product range and manufacturing capacity and efficiency for PEX pipe, Hydroflame Pro and
EvoPEX fittings; planned expansion of facilities, machinery and tooling at John Guest; and continuation of the staged rollout of IT system upgrades.
EBITDA means Earnings before interest, tax, depreciation and amortisation; EBIT means Earnings before interest and tax.
John Guest net sales in the EMEA segment were $19.9 million with further sales recorded in the Americas and Asia Pacific segments.
1.
2. Prior to elimination of inter-segment sales.
3.
4. FY2018 final dividend based on 790,094,765 issued shares; FY2018 interim dividend and FY2017 dividends based on 525,000,000 issued shares.
5.
6.
7.
RWC traditionally does not hedge foreign currency exposures. Unfavourable rate movements may erode the translated value of results in the Americas and EMEA segments.
Foreign exchange rate assumptions: AUD/USD: 0.7525; AUD/GBP: 0.56; AUD/Yuan: 6.34
n/m = not meaningful
10
Reliance Worldwide Corporation Limited
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 appropriately 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 27 September 2018.
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 are are 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
Sharon McCrohan, Independent, Non-executive Director (appointed 27 February 2018)
Annual Report 2018
11
CORPORATE GOVERNANCE STATEmENT
ImPORTANT NOTICES
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, Ross Dobinson and Sharon McCrohan 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 July 2018 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 four 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;
• Sharon McCrohan; and
• Jonathan Munz.
12
Reliance Worldwide Corporation Limited
Nomination and Remuneration Committee
• Stuart Crosby (chair);
• Ross Dobinson;
• Sharon McCrohan; 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 . This includes a process of active assessment and recruitment of female representation on the Board which was achieved in 2018 with the
appointment of Sharon McCrohan as an independent, non-executive director.
Annual Report 2018
13
CORPORATE GOVERNANCE STATEmENT
ImPORTANT NOTICES
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 2018 was 2,330 of which 788 (34%)
were women. Women are represented in professional and support roles across all departments.
Measurable Diversity Objectives
The following table sets out approved diversity objectives for 2018, 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 2019 financial year.
Objectives
Plans
Progress to date
Promote a culture of diversity, inclusion
• Continuing focus on increasing female
• Sharon McCrohan appointed to the Board on 27
and opportunity
representation at Board and senior management
February 2018.
level.
• Continuing active assessment and recruitment
•
Introduce an annual engagement survey to
of female representation in senior management
give all employees the opportunity to provide
roles.
feedback on issues and potential barriers to
diversity.
• Pay equity review is continuing.
• 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.
• Diversity council established. The diversity council
will meet periodically to discuss diversity matters
with oversight by the Global CEO.
• Engagement survey initially being undertaken in
the Americas segment.
Recruitment and selection processes
• Promote RWC as a diverse employer with an
• Review of recruiting practices remains ongoing
to seek out candidates from diverse
inclusive culture.
and will be a focus of the diversity council.
backgrounds
• Develop inclusive recruiting practices.
• No major changes in recruitment practices
identified as being required.
Provide flexible work practices
• Review the paid parental leave policies for each
• Policies continuing to be reviewed for consistency
country.
factoring in differences in legislative requirements
• Track the percentage of females taking parental
across countries.
leave that return to work.
• Since May 2016, 93% of employees completing
• Continue developing policies supporting
and implementing defined flexible working
arrangements.
parental leave returned to work at RWC.
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.
14
Reliance Worldwide Corporation Limited
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 granted 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.
Annual Report 2018
15
CORPORATE GOVERNANCE STATEmENT
ImPORTANT NOTICES
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 2018.
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, the UK 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 reduce water consumption and attenuate noise from 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 2018 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. Hedging
of equity received by senior executives under the long term incentive plan is not permitted prior to vesting. A copy of the policy is available on the Company’s
website.
16
Reliance Worldwide Corporation Limited
Directors’ report
For the year ended 30 June 2018
The Directors present their report together with the Financial Report comprising Reliance Worldwide Corporation Limited (“the Company”) and its controlled
entities (together “RWC” or “the Group”) for the financial year ended 30 June 2018 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 reporting period were:
Jonathan Munz (Chairman)
Heath Sharp (Chief Executive Officer and Managing Director)
Russell Chenu
Stuart Crosby
Ross Dobinson
Sharon McCrohan
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
27 February 2018
Mr. Munz has had an involvement with RWC for over 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 RWC’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 acquisitions that have been completed by RWC
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 the Company.
Other listed company directorships in the past 3 years: None
Heath sharp
chief executive officer and Managing Director
Mr. Sharp joined RWC 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 by RWC in 2002. He returned to lead the Australian division in late 2004, the
largest 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 RWC’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 last executive 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 11 June 2014)
James Hardie Industries plc (since 15 August 2014)
Metro Performance Glass Limited (since 5 July 2014)
Annual Report 2018
17
Directors’ report
For the year ended 30 June 2018
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)
sharon Mccrohan
independent Non-executive Director
Member of Audit and risk committee
Member of Nomination and remuneration committee
Ms. McCrohan is an experienced media and strategic communications consultant with a career spanning almost 30 years. Ms. McCrohan has been an
advisor to Federal and State government leaders and cabinets, private sector boards, sporting bodies, statutory authorities, charities and government
agencies. Ms. McCrohan has extensive experience in media and communications, policy development, government and stakeholder relations and executive
team leadership.
Ms. McCrohan is a non-executive director of Racing Victoria Limited and the Ovarian Cancer Research Foundation Board.
Other listed company directorships in the past 3 years: None
Company Secretary
David Neufeld
Mr. Neufeld has been Company Secretary since 1 April 2016. He has worked in chartered accounting and corporate organisations for over 35 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. Mr. Neufeld 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
Sharon McCrohan2
Jonathan Munz
Heath Sharp
Audit and risk committee
remuneration committee
Nomination and
Board Meetings
Meetings
Meetings
Held1
Attended1
Held1
Attended1
Held1
Attended1
8
8
8
3
8
8
8
8
8
3
8
8
7
-
7
-
7
-
7
-
7
-
7
-
-
5
5
-
5
-
-
5
5
-
5
-
1. Number of meetings held and attended during the period the Director was a member of the Board or Committee.
2. Appointed as an additional member of the Audit and Risk Committee and the Nomination and Remuneration Committee from 1 July 2018.
18
Reliance Worldwide Corporation Limited
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
RWC’s manufacturing operations have to date not been adversely affected by environmental laws and regulations. Environmental and social sustainability are
core to RWC’s operations and important to its strategy. RWC seeks to minimise the impact of its operations on the environment through initiatives such as
minimising waste by recycling production materials. 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 RWC believes it meets current environmental
standards in all material respects.
principal Activities
The principal activities of RWC 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
RWC acquired all of the issued shares of John Guest Holdings Limited for a purchase consideration of GBP706.9 million including customary completion
adjustments ($1,236.8 million) with completion occurring on 13 June 2018. Further details are provided in the Operating and Financial Review. The acquisition
was funded by:
• a pro rata accelerated non-renounceable entitlement offer which raised $1,100.1 million of new equity. The Company issued 265,094,765 ordinary shares
following completion of the entitlement offer; and
• partly drawing down on a new $750 million syndicated debt facility which increased available facility limits by $400 million.
There were no other significant changes in the affairs of RWC during the financial period.
Material Business risks
Set out in the table below are:
• a summary of specific material business risks which could impact upon RWC’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
RWC is exposed to changes in
• RWC’s financial performance is largely dependent
• Processes in place to be able to respond to
general economic conditions,
on activity in the residential and commercial repair
changes in conditions and adjust production,
legislation and regulation which
and renovation and new construction end-markets
delivery and raw materials purchasing requirements
may impact activity in RWC’s
in the North American, Asia Pacific and European
as well as manage operating and overhead costs as
end-markets.
regions. Activities in these end-markets are impacted
considered necessary and appropriate.
by changes in general 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 RWC operates may, therefore, impact
demand for plumbing services in RWC’s end-
markets, thereby decreasing demand for RWC’s
products and services.
• Any such downturn may have a material adverse
impact on RWC’s operations and financial results.
Annual Report 2018
19
Directors’ report
For the year ended 30 June 2018
risk
Description
Management plans
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
solutions as well as customer service.
of RWC’s products as they have historically.
Competition, including the price of competing
•
Investment in research and development to provide
innovative products and remain the supplier of
products relative to RWC’s products, could impact
choice.
upon demand for RWC’s products.
• The loss of any of RWC’s key customers or a
significant reduction in the volume of products
purchased by one or more key customers may
adversely impact RWC’s financial performance.
• Continue business expansion and sales activity to
diversify the customer base.
Foreign currency risk
• RWC’s results are impacted by exchange rate
• RWC does not typically hedge its foreign exchange
movements, particularly exposure to USD, GBP, Euro
exposures. RWC currently benefits from a partial
and Yuan.
• Furthermore, as RWC expands globally, it becomes
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.
“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.
• Consideration is being given to alternative strategies
to manage foreign exchange risk as the business
expands and exposure to other currencies increases.
Events affecting manufacturing or
• The equipment and management systems
• Manufacturing facilities are at various locations thereby
delivery capability
necessary for the operation of RWC’s manufacturing
reducing the impact on total production output if an
facilities may break down, perform poorly, fail or be
adverse event occurs at another of the sites.
impacted by a fire or major weather 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 RWC’s
ability to ship and deliver product from its facilities in
a timely manner.
• Any significant or sustained interruption to RWC’s
manufacturing or delivery processes, may adversely
impact RWC’s net sales and profitability.
• RWC has established long term machine
maintenance support programs with key suppliers.
• RWC carries stores of key maintenance spare parts
to support timely repairs and maintenance.
•
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 RWC’s ability to procure
• RWC aims to have appropriate agreements in place
raw materials, a material increase in the cost of
with major suppliers.
raw materials or any increase in indirect production
input costs of such raw materials, would result in an
increase in RWC’s overall costs. RWC’s profitability
could be adversely impacted if it is unable to pass
on such cost increases to its customers.
• Active management of procurement processes.
• Continuing program to “dual source” key materials
and components to enable price verification and
reduce risk of supplier concentration.
• RWC periodically benchmarks prices for key
material/product supply.
Impact of product recalls, product
• RWC 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
RWC where a product has not
sold or supplied by RWC 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.
• RWC maintains rigorous quality assurance
accreditation in all of its manufacturing/distribution
locations. These quality systems are regularly
• RWC may suffer loss as a result of claims for which
audited by external third parties.
it is not insured or if cover is denied or exceeds
available limits.
•
Investment in training of professional contractors on
correct installation and use of products.
• Appropriate insurance policies.
20
Reliance Worldwide Corporation Limited
risk
Description
Management plans
Key personnel risk
• RWC’s success depends on the continued active
• RWC seeks to employ high quality personnel
participation of its key personnel.
who are remunerated by market competitive
•
If RWC were to lose any of its key personnel or if it
arrangements.
were unable to employ additional or replacement
• Historically, there is a good record of retaining key
personnel, its operations and financial results could
staff.
be adversely affected.
Cyber security
• Technological advancements and risks of cyber-
•
IT security policies and recovery plans in place.
crime can impact the integrity of RWC’s IT systems
and make them vulnerable to attack if appropriate
security measures are not in place.
• Ongoing system monitoring and testing, including
review of security protocols.
• Appropriate insurance policies.
• Alerts and reminders sent to employees.
Dividends
A fully franked final dividend for the 2017 financial year of 3.0 cents per share was paid to eligible shareholders on 10 October 2017 (based on 525,000,000
shares).
A fully franked interim dividend for the 2018 financial year of 3.5 cents per share was paid to eligible shareholders on 29 March 2018 (based on 525,000,000
shares).
Since the end of the financial year, the Directors have resolved to declare a final dividend for the 2018 financial year of 3.0 cents per share (based on
790,094,765 issued shares). The dividend will be franked to 100%. The record date for entitlement to the dividend is 11 September 2018. The dividend is
payable to eligible shareholders on 11 October 2018.
The aggregate dividends paid or payable for the year ended 30 June 2018 total $42.1 million (2017 - $31.5 million).
The Company does not have a dividend reinvestment plan.
events subsequent to reporting date
Subsequent to 30 June 2018, the Board approved granting up to a further 2,601,000 Rights to nominated eligible executives and employees, including the
Global Chief Executive Officer (“CEO”), under the Equity Incentive Plan. The CEO’s grant is subject to shareholder approval which will be sought at the next
Annual General Meeting.
The Directors are not aware of any matter or circumstance that has occurred since the end of the financial period that has significantly affected or may
significantly affect the operations of RWC, the results of those operations or the state of affairs of RWC 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 RWC 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.
Annual Report 2018
21
Directors’ report
For the year ended 30 June 2018
Audit and Non-Audit services
Fees paid or payable by RWC for services provided by KPMG, the Company’s auditor, during the financial year were:
KpMG Australia
Audit services
Other assurance and non-audit services
• Tax compliance
• Other services
Total remuneration paid to KPMG Australia
overseas KpMG offices
Audit services
Other assurance and non-audit services
• Tax compliance
Total remuneration paid to overseas KPMG offices
total remuneration to KpMG
2018
$
485,000
184,007
103,519
772,526
20,291
64,999
85,290
857,816
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 36 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
27 August 2018
Heath Sharp
Chief Executive Officer and Managing Director
22
Reliance Worldwide Corporation Limited
remuneratIon report
Important notIces
For the year ended 30 June 2018 (audited)
(a) Introduction
The Directors present the Remuneration Report of the Reliance Worldwide Corporation Limited group (“RWC” or “the Group”) for the financial year ended
30 June 2018 (“FY2018” or “the reporting period”). 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 RWC 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 RWC, 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 2018 were:
name
Non-Executive Directors
Jonathan Munz, Chairman
Russell Chenu
Stuart Crosby
Ross Dobinson
Sharon McCrohan1
Senior Executives
Heath Sharp
Gerry Bollman
1. From 27 February 2018.
executive position
Managing Director and Chief Executive Officer (“CEO”)
Global Chief Financial Officer (“CFO”)
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.
This year, key focus of the Nomination and Remuneration Committee has been addressing the concerns of shareholders and other stakeholders following the
first strike received on the Company’s Remuneration Report at the 2017 Annual General Meeting. The Company has actively sought to consider the concerns
raised by shareholders. The Company, led by the Chairman of the Nomination and Remuneration Committee, engaged in discussions with shareholders with
respect to the Group’s remuneration structures for Senior Executives. Key concerns raised by shareholders included:
•
the amount of the short term incentive award made to the CEO for FY2017 and the inconsistency of the award with previous disclosure made by RWC;
and
• a lack of explanation in the Company’s Remuneration Report regarding the performance conditions applicable to the short term incentive awards made to
Senior Executives.
Following this engagement, the Company, through the Nomination and Remuneration Committee, undertook a comprehensive review of the overall
remuneration arrangements for Senior Executives. The review has resulted in the following key actions being taken to address the concerns raised by
shareholders:
• engagement of an independent remuneration consultant to conduct benchmarking analysis of the Company’s proposed FY2018 remuneration
arrangements for Senior Executives. As the Group’s global operational headquarters are located in, and Senior Executives are based in, the USA,
benchmarking was conducted using a peer group of similar sized USA companies in comparable sectors. The following are the Nomination and
Remuneration Committee’s key observations following the benchmarking exercise:
–
for the CEO, total on-target remuneration under the proposed FY2018 structure was below median for the identified peer group, but with higher base
salary and lower LTI levels than was typical across the peer group.
–
for the CFO, total on-target remuneration under the proposed FY2018 structure was above the median for the identified peer group, again with
higher base salary and lower LTI levels than typical. In making these observations about the CFO’s remuneration, the Nomination and Remuneration
Committee noted that the CFO had recently been recruited and that the total remuneration arrangements agreed in that process had been based on
advice from recruitment professionals at that time in order to attract and retain skilled candidates;
•
formalising and documenting both financial and non-financial performance conditions for Senior Executives’ short term incentive awards. These
performance conditions are outlined below at section (f); and
•
the Nomination and Remuneration Committee undertook a review and considered the performance conditions attaching to long term incentive awards
and determined that the structure of awards under the Company’s equity incentive plan remains appropriate. Consideration of the performance conditions
attaching to future LTI awards will be determined when any further grants are made.
Following this comprehensive review of the overall remuneration arrangements for Senior Executives and amendments made to these arrangements, the
Nomination and Remuneration Committee and the Board believe that the remuneration framework adequately balances the need to attract and retain the best
people to run our business while ensuring that remuneration is linked clearly to shareholder returns and remains comparable with an appropriate peer group.
Annual Report 2018
23
remuneratIon report
Important notIces
For the year ended 30 June 2018 (audited)
(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 the Company, shareholders and employees.
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;
• attract and retain skilled executives, especially in the main markets where RWC operates (eg North America); 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 Company’s Corporate Governance
Statement.
remuneration consultants and other advisors
The Nomination and Remuneration Committee may seek independent advice from remuneration consultants and other advisors on various remuneration
related matters to assist it in performing its duties and in making recommendations to the Board. 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. During FY2018, consultants were engaged
to provide benchmarking analysis and commentary on the structure and quantum of remuneration arrangements for Senior Executives. No remuneration
recommendations were received from remuneration consultants or other advisors during the reporting period.
review of remuneration strategy
During the 2018 financial year, the Nomination and Remuneration Committee focused on:
•
•
reviewing the mix of fixed and variable components applicable to remuneration arrangements for Senior Executives;
reviewing and setting parameters for short term and long term incentive arrangements for Senior Executives; and
• determining appropriate equity based compensation arrangements with a view to expanding participation by Senior Executives and other employees in
the Plan.
In the 2019 financial year, the Nomination and Remuneration Committee intends to continue:
•
reviewing remuneration arrangements of executives, including Senior Executives, with a focus on the balance of fixed and variable components, with the
aim of providing competitive remuneration packages to attract and retain high calibre executives; and
• maintaining a focus on ‘at risk’ variable remuneration arrangements being appropriately aligned with business strategies and outcomes.
(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 currently comprised
solely of cash fees (including applicable superannuation). This allows the Board to focus on governance and both short and long-term strategy.
The Nomination and Remuneration Committee is considering a proposal to implement a Non-Executive Director equity plan under which Non-Executive
Directors can increase their RWC shareholdings. This plan would encourage greater levels of share ownership and enhance the alignment of interests
between Non-Executive Directors and shareholders. To ensure that the independence of Directors is maintained, any shares granted would not be subject to
performance conditions. Shareholder approval will be sought before any proposal is implemented.
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 RWC’s multi-national operations; and
the responsibilities and work requirements of Board members.
24
Reliance Worldwide Corporation Limited
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 Group’s operations and achieving its business objectives. Remuneration arrangements are 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;
• eligibility for short term incentive (“STI”) awards subject to approved criteria being met with the Board retaining a negative discretion in approving the
award; and
•
‘at risk’ long term incentives (“LTI”).
Refer section (f) for further details.
(d) company performance
The following table shows the financial performance of the Group during the financial periods ended 30 June 2016 to 30 June 2018. 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.
Key performance indicators
Sales revenue ($m)
Reported EBITDA ($m)
EBITDA before John Guest contribution and transaction costs expensed ($m)
Net profit before tax ($m)
Net profit (loss) after tax ($m)
Net profit (loss) after tax before John Guest contribution, transaction costs expensed
and associated financing costs ($m)
Share price at beginning of year ($)
Share price at end of year ($)
Financial year interim and final dividends declared ($)
Total dividends declared/NPAT ratio (%)
Basic earnings (loss) per share (cents)5
Diluted earnings (loss) per share (cents)5
FY2018
FY2017
FY20161
769.4
135.4
150.9
99.3
66.0
78.6
3.342
5.364
42.1
63.8
12.3
12.1
601.7
120.7
120.7
96.3
65.6
65.6
3.092
3.342
31.5
48.0
12.5
12.4
98.3
17.3
17.3
0.8
(1.6)
(1.6)
2.872,3
3.092
–
–
(0.30)
(0.30)
1. FY2016 information covers the period from the Company’s IPO on 29 April 2016 through to 30 June 2016.
2. 525,000,000 issued ordinary shares.
3. The share price disclosed as being at the beginning of the year in FY2016 was the share price on listing (29 April 2016).
4. 790,094,765 issued shares following the 1 for 1.98 pro rata Entitlement Offer completed in June 2018.
5. Based on weighted average number of shares for the reporting period.
RWC experienced strong operating performance during FY2018 which is reflected in the financial results and positive shareholder returns. Additionally, RWC:
• successfully completed the acquisition of John Guest Holdings Limited in June 2018 for $1,236.8 million;
• completed a 1 for 1.98 pro rata Entitlement Offer raising $1,100.1 million;
• entered into a new $750 million financing facility;
• completed the integration of the Holdrite business acquired in June 2017; and
• continued to expand its business activities into new markets.
Total dividends declared for FY2018 represent 64% of NPAT which is slightly above the intended payout ratio of 40% to 60% of NPAT.
Senior Executives received a short term incentive award in recognition of this strong performance and delivering returns to shareholders. Further details are set
out in section (f) below.
Annual Report 2018
25
remuneratIon report
Important notIces
For the year ended 30 June 2018 (audited)
(e) 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 at a general meeting of shareholders. This maximum aggregate amount is presently fixed at $1.0 million which was set in
2016 prior to the IPO. The Nomination and Remuneration Committee is conducting a review of the appropriateness of this limit having regard to the substantial
increase in the size and scale of RWC’s business since the IPO. Any proposed changes will be subject to shareholder approval.
The annual base Non-Executive Directors’ fees agreed to be paid by the Company to each Non-Executive Director, other than the Chairman, in FY2018 was
$120,000 (including applicable superannuation and committee fees).
Fees payable to Non-Executive Directors were reviewed by the Nomination and Remuneration Committee in June 2018. The review took into account that the
size and scale of RWC’s business has increased substantially since the IPO in 2016. This has resulted in an increased time commitment from non-executive
directors, particularly Committee chairs.
The Committee has approved the following fees to apply from 1 July 2018:
Base Fee – $130,000
Chair of Audit and Risk Committee – additional $50,000
Chair of Nomination and Remuneration Committee – additional $25,000
The following provides a comparison of the fees for FY2018 with FY2019 (excluding Chairman’s fees which are discussed below).
Base Non-Executive Director Fee
Chair of Audit and Risk Committee
Chair of Nomination and Remuneration Committee
FY2018 ($)
FY2019 ($)
120,000
120,000
120,000
130,000
180,000
155,000
All fees include applicable superannuation. No additional fees are payable to committee members other than to the Chair of those committees as set out
above.
Mr. Munz, Chairman, waived his entitlement to any Non-Executive Director and committee fees for the initial three years following the Company’s listing on the
ASX. The Nomination and Remuneration Committee is reviewing the appropriate fee that should be paid to the Chairman of the Company. Payment of these
fees is intended to commence from 1 July 2019.
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 FY2018. 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.
(f) 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 or vehicle allowances, mobile phone, travel allowances and health cover).
Senior Executives are offered competitive fixed remuneration which seeks to ensure that RWC can both attract and retain a leadership team capable of
managing the complex issues facing the Group, whilst still ensuring parity with market levels. As the Group’s global headquarters are in the USA and Senior
Executives are based there, the Board considers the USA to be the most comparable market for benchmarking remuneration arrangements for Senior
Executives. Consideration is also given to the multi-national nature of RWC’s operations, the industry in which RWC operates and the size of the business.
short term incentive
The STI is designed to be delivered based on the achievement of agreed key performance conditions by Senior Executives. The key performance conditions
are outlined below and relate to the overall performance of the Group and relevant individual performance. Following the end of the financial year, the
Nomination and Remuneration Committee reviews and makes recommendations to the Board as to whether or not STI awards should be made to eligible
Senior Executives. The following criteria were applied by the Nomination and Remuneration Committee for FY2018.
26
Reliance Worldwide Corporation Limited
objective
nature
STI awards are determined by the Board following satisfaction of specific performance conditions.
Payable in cash for FY2018. From FY2019 50% payable in cash after release of the audited annual results and 50%
deferred into shares in the Company. The shares will be acquired on-market after release of the audited annual
results and will be subject to a holding lock for 12 months, with dividends accruing to the employee.
on target entitlement
CEO: 50% of base fixed remuneration (35.0% measured against RWC financial performance and 15.0% measured
against personal Key Performance Indicators (“KPIs”), both as described below)
CFO: 25% of base fixed remuneration (17.5% measured against RWC financial performance and 7.5% measured
against personal KPIs, both as described below)
maximum entitlement
CEO: 100% of base fixed remuneration (70.0% measured against RWC financial performance and 30.0% measured
against personal KPIs, both as described below)
CFO: 50% of base fixed remuneration (35.0% measured against RWC financial performance and 15.0% measured
against personal KPIs, both as described below)
performance criteria
Budgeted eBItDa
The relevant portion of the STI award subject to financial performance will be measured by reference to constant
dollar performance against budgeted EBITDA (adjusted to exclude non-budgeted material changes (eg,
acquisitions) (“Budget”). The following vesting scale applies:
% of Budget achieved
% of stI to be granted
0-95% of Budget
Nil
Between 95% and 100% of Budget
Straight line pro-rating from Nil to On Target Entitlement
100% of Budget
100% of On Target entitlement
Between 100% and 120% of Budget
Straight line pro-rating from On Target Entitlement to Maximum
120% of Budget
100% of Maximum Entitlement
Entitlement
The Board considers the disclosure of the Budget set for the STI grant to be commercially sensitive information and
that disclosure of this Budget would not be in the Company’s and shareholders’ best interests. EBITDA was chosen
as the financial performance condition as it is monitored by the Board to measure the operating performance of the
business as well as being clearly defined and measurable.
personal KpIs
The relevant portion of the STI award subject to personal KPIs will be measured by scorecard performance
against role specific objectives to be settled with each Senior Executive annually. Non-financial objectives are set
to measure Senior Executive performance against RWC’s business strategies and core values. Examples of role
specific objectives which may apply are team development, business development, product development, risk
management, cost control, culture, safety and diversity.
Non-financial KPIs are chosen to encourage the achievement of personal business goals consistent with the
Group’s overall objectives including succession planning and management bench strength, ensuring a safe
working environment with a diverse workforce, strategic growth and the expansion of RWC’s business activities and
product development.
A combination of financial and non-financial performance criteria are chosen because the Board believes that there
should be a balance between short term financial measures and more strategic non-financial measures which, in
the medium to longer term, will ultimately drive future growth and returns for shareholders.
assessment of performance
Following the end of the financial year end, performance against the budgeted EBITDA measure is assessed by the
Nomination and Remuneration Committee based on the Company’s audited financial results.
Performance against personal KPIs is assessed annually as part of the broader performance review process for the
CEO and CFO. These KPIs are assessed quantitatively against pre-determined benchmarks, where appropriate.
These methods of assessing performance are chosen as they are, as far as practicable, objective, measurable and
capable of being independently audited.
clawback
Defined criteria are in place to prevent inappropriate benefits being paid. In such circumstances, the Board may
determine that allocated shares may be forfeited and/or require the Senior Executive to pay as a debt any part of the
net proceeds of a sale of awarded shares, cash payment or dividends provided in respect of an STI award.
Annual Report 2018
27
remuneratIon report
Important notIces
For the year ended 30 June 2018 (audited)
Details of the amount of STI awarded to Senior Executives for FY2018 are set out in the remuneration table in section (l). The STI awards to Senior Executives
for FY2018 recognise their performance in leading RWC. Details of key financial and operating achievements during FY2018 are set out in section (d). The
CEO’s FY2018 STI award represents 55.5% of the maximum entitlement. The CFO’s FY2018 STI award represents 48.9% of the maximum entitlement.
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 approved by the Board from time to time.
No Senior Executives received LTI grants in FY2018. A summary of the terms of the grants made to Senior Executives in prior years are set out below for
Options and in section (g) for Restricted Shares and Share Rights.
LtI options Grants made to the following senior executives:
Heath sharp, Global chief executive officer (“ceo”) in FY2016
Gerry Bollman, Global chief Financial officer (“cFo”) in FY2017
type of award
CEO: 4,000,000 options (“CEO Options”).
CFO: 1,307,190 options (“CFO Options”)
Each of the CEO Options and CFO Options entitles the holder to acquire an ordinary share in the Company subject
to meeting specific vesting conditions and payment of the exercise price. The CEO Options and CFO Options were
granted for nil consideration as they form part of the Senior Executive’s remuneration.
performance period
CEO Options: From the date of the listing (29 April 2016) until 30 June 2022.
Vesting conditions
CEO Options: The CEO Options will vest and become exercisable subject to the satisfaction of a gateway hurdle
CFO Options: Five years from the date of commencement of employment (5 December 2016).
and two performance conditions.
CFO Options: The CFO 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 the Group’s performance and reflecting shareholder interests; and as a mechanism which assists in the
retention of the Senior Executives.
1. Gateway hurdle (ceo) and service hurdle (cFo)
None of the CEO Options will vest unless the CEO remains employed by the Group until 30 June 2022.
None of the CFO 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 conditions
CEO Options: In addition to the gateway hurdle, the CEO Options are subject to two performance conditions as
follows:
• 30% of the CEO Options (“NPAT Options”) were subject to a net profit after tax (“NPAT”) performance condition,
which was 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 (“NPAT Hurdle”). This condition has
been satisfied; and
• 70% of the CEO Options (“CEO TSR Options”) will be 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 a comparator group over the period from 29 April 2016 to 30 June 2021
(“TSR Hurdle”).
CFO Options: In addition to the service period hurdle, the CFO Options are subject to a relative TSR performance
condition, which compares the TSR performance of the Company since listing with the TSR Hurdle.
28
Reliance Worldwide Corporation Limited
Vesting conditions (continued)
The percentage of CEO TSR Options and CFO 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 CEO TSR Options and CFO 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.
NPAT was chosen as a performance condition for the NPAT Options as it measures the net profit of the business
and is used to determine the earnings per share achieved for the relevant reporting period.
TSR measures the growth in the Company’s share price together with the value of dividends over the period from
the date of listing to 30 June 2021 (assuming that all those dividends are reinvested into new shares) against
the Company’s chosen comparator group, being companies comprising the ASX200 index, excluding mining
and energy companies. The comparator group may be adjusted by the Board or Nomination and Remuneration
Committee in their reasonable discretion to take into account corporate actions, including but not limited to
takeovers, mergers, de-mergers or de-listings.
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 for the IPO in 2016.
process for assessing the
Calculation of NPAT and achievement against the NPAT Hurdle was determined based on the audited FY2017
vesting conditions
financial results.
Relative TSR performance will be independently assessed against a peer group comprising constituents of the S&P
ASX 200 Index (excluding mining and energy companies) in accordance with pre-determined TSR methodology.
No retesting is permitted.
The gateway hurdle and the service condition, as applicable, will be satisfied if the Senior Executive remains
employed by the Group at the relevant date.
exercise of options
Options will vest and become exercisable if the relevant vesting conditions have been met.
CEO Options: The CEO may exercise any vested CEO Options by 30 June 2031. After 30 June 2031, any
unexercised CEO Options will lapse.
CFO Options: The CFO may exercise any vested CFO Options until 5 December 2024. After 5 December 2024,
any unexercised CFO Options will lapse.
Voting and dividend rights
Options do not carry any voting or dividend rights prior to vesting and exercise.
Annual Report 2018
29
remuneratIon report
Important notIces
For the year ended 30 June 2018 (audited)
cessation of employment
CEO:
If the CEO ceases to be employed by the Group, any unvested CEO Options will lapse unless the Board
determines otherwise in its absolute discretion.
If CEO Options have vested but are unexercised:
• Where the CEO is terminated for cause, the vested CEO Options will lapse unless the Board determines
otherwise; and
• Where the CEO ceases employment for any other reason, the vested CEO Options will remain on foot for the
original exercise period.
CFO:
If the CFO ceased employment within the first twelve months of his employment (or was under notice), all CFO
Options would have lapsed unless the Board determined 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 CFO 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 CFO Options unless the Board determines otherwise.
If employment ceases by reason of death or disability then the Board shall at its discretion vest the CFO 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 CEO Options and CFO Options. If a 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.
clawback
Defined criteria are in place to prevent inappropriate benefits being paid. In such circumstances, the Board may
determine that unvested, and/or vested but unexercised, options will lapse; shares allocated upon exercise of
options will be forfeited; and/or require the Senior Executive to pay as a debt any part of the net proceeds of a sale
of awarded shares, cash payment or dividends provided in respect of an award made under the Plan.
exercise price for options Granted
The Company completed a 1 for 1.98 pro rata Entitlement Offer in June 2018. Option holders did not have a right to participate in the pro rata Entitlement Offer
because they do not hold shares in the Company until vesting and exercise of the Options. In accordance with the rules of the Plan, the Company may make
an adjustment to the exercise price of these Options in accordance with Listing Rule 6.22.2 in order to ensure that executives remain “whole”.
ASX Listing Rule 6.22.2 sets out the manner in which the adjustment to the exercise price is to be determined. The exercise price of Options granted by RWC
has been adjusted in accordance with the formula set out in ASX Listing Rule 6.22.2 and the terms of issue of the Options. The changes to exercise prices are
set out below. The calculations have been independently verified.
option holder
Heath Sharp
Gerry Bollman
original exercise price per option
adjusted exercise price per option1
$2.50
$3.06
$2.32
$2.88
1. Exercise price adjusted in accordance with ASX Listing Rule 6.22 following completion of the pro rata Entitlement Offer in June 2018.
30
Reliance Worldwide Corporation Limited
Further details of the number of Options held by Senior Executives are set out in section (i).
During FY2018, the remuneration mix for Senior Executives was:
senior executive
Heath Sharp
Gerry Bollman
Fixed remuneration (%)
58.3
56.6
stI (%)
28.3
12.7
LtI (%)
13.4
30.7
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.
senior executive remuneration structure for FY2019
Following completion of the acquisition of John Guest Holdings Limited in June 2018, the Nomination and Remuneration Committee refreshed the
remuneration benchmarking exercise undertaken earlier in the financial year and referred to in section (a) above. On the basis of this exercise, the Nomination
and Remuneration Committee has reviewed the overall remuneration structure for the CEO and recommended to the Board that for FY2019:
•
•
fixed remuneration (which had remained the same since listing) be increased from US$1,150,000 to US$1,300,000 plus benefits;
the STI On Target Entitlement increase from 50% to 60% and the Maximum entitlement be set at 120%; and
• a further LTI grant be made, subject to shareholder approval.
After these adjustments, the CEO’s total remuneration arrangements will remain well below the mean and median of the benchmark peer group and there will
have been a significant increase in the proportion that is performance related. The Board has approved this recommendation.
The Nomination and Remuneration Committee has also reviewed the overall remuneration structure for the CFO and recommended to the Board that for
FY2019:
•
•
fixed remuneration be increased from US$721,000 to US$800,000 plus benefits, as provided in the CFO’s employment contract;
the STI On Target Entitlement remain at 25% and the Maximum entitlement remain at 50%; and
• a further LTI grant be made.
After these adjustments, the CFO’s total remuneration arrangements will be below median of the benchmark peer group in the refreshed benchmarking
exercise and there will be a significant increase in the proportion that is performance related. The Board has approved this recommendation.
(g) restricted shares and share rights
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. There are no voting or dividend rights attaching to these shares prior to vesting. The restricted shares will be awarded at no cost to Mr. Bollman if
the vesting conditions are met.
The Restricted Shares would have been forfeited if the CFO had ceased employment within the first twelve months of his employment (or was under notice).
That condition ceased to apply on 5 December 2017. Following the expiration of this condition, if the CFO ceases 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 FY2018, 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 at the calculation date (1 November 2016) was $2.0 million based on a price of $2.94 per share, being the closing share
price for the Company’s shares on that date. The price for the Company’s shares at the vesting date will determine the value of the grant at that time.
Annual Report 2018
31
remuneratIon report
Important notIces
For the year ended 30 June 2018 (audited)
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 are 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 constitutes a long term incentive component of the participant’s remuneration from the
grant date until the end of the vesting period.
At 30 June 2018, the Company had granted 3,295,730 Rights (30 June 2017 - 2,849,730) with the following vesting dates:
Vesting Date
12 June 2022
1 July 2022
7 August 2022
5 February 2023
3 April 2023
number of rights
235,730
2,719,000
95,000
84,000
162,000
3,295,730
Vesting conditions include a continuous service period. No Rights vested during the reporting period or have subsequently vested.
No KMP had been granted Rights at 30 June 2018.
Unless the Board determines otherwise, if a participant ceases employment after the first twelve months of Rights being granted and any of the following has
occurred, then a pro rata portion of unvested Rights will remain on foot and vest in the ordinary course, as though the participant had not ceased employment:
•
•
the participant’s employment is terminated by RWC without cause; or
the participant terminates employment for good reason.
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. The Trustee is also entitled to participate on behalf of the Trust in certain equity raisings undertaken by the Company. During
the reporting period the Trustee, on behalf of the Trust, acquired 2,068,432 shares at an average price of $4.15 per share. The shares were acquired under the
terms of the pro rata Entitlement Offer undertaken by the Company during May and June 2018. The total number of shares held in the Trust at 30 June 2018
was 5,389,834.
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.
32
Reliance Worldwide Corporation Limited
(h) 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, excluding remuneration
arrangements which are presented in other sections of this report. Remuneration arrangements were set after having regard to arrangements for comparable
companies considered by size, industry and geography.
Heath Sharp, Managing Director and Global 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 payments1
• 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) which was set taking into account his nearly 30 years continuous
service with RWC, 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’s 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
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.
Annual Report 2018
33
remuneratIon report
Important notIces
For the year ended 30 June 2018 (audited)
termination payments1
• Where Mr. Bollman’s employment is terminated by the employer without cause or by him for good reason, he is
entitled to:
• 6 months severance pay where notice is given after the first year of employment and before
commencement of 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.
1.
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.
(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). No options
were granted to Senior Executives during FY2018. No Options vested or were forfeited during the reporting period and none of the Options are presently
capable of being exercised.
Balance
at 1 July
2017
Granted
during
the year
number
Granted
during
the year
$ value
name
Vested
number
Vested
$ value
exercised
number
exercised
$ value
Lapsed
number
Lapsed
$ value
%
Lapsed/
Forfeited
Balance
at
30 June
2018
Heath Sharp
4,000,000
Gerry Bollman
1,307,190
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,000,000
1,307,190
(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 FY2018 are set out below.
name
Jonathan Munz
Russell Chenu
Stuart Crosby
Ross Dobinson
Sharon McCrohan
Heath Sharp
Gerry Bollman3
participation in pro
Held at
rata entitlement
Held at 30 June
1 July 2017
157,500,000
60,000
100,000
20,000
–
800,000
–
offer
other net change1
2018
26,515,152
(105,000,000)
79,015,152
55,217
50,506
12,457
–
404,041
–
40,000
–
–
–
–
–
155,2172
150,5062
32,4572
–
1,204,041
–
Includes the purchase (sale) of shares during the reporting period and transfers in (out) upon becoming or ceasing to be a member of KMP.
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.
1.
2.
3. Mr. Bollman has been offered 680,272 restricted shares as detailed in section (g).
Mr. Terry Scott ceased to be a member of KMP on 1 July 2017. His holdings are no longer required to be shown in this table.
34
Reliance Worldwide Corporation Limited
(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 which came into effect on 29 April 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 have signage rights. 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 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.
(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
share based
payments
total
cash
salary &
fees
$
stI cash
bonus
$
non-
monetary
benefits
$
other
short
term
benefits
$
non-executive
Directors
Jonathan Munz1
FY2018
FY2017
–
–
Russell Chenu
FY2018
109,590
FY2017
109,590
Stuart Crosby
FY2018
109,590
FY2017
109,590
Ross Dobinson
FY2018
120,000
FY2017
120,000
Sharon McCrohan2
FY2018
37,373
FY2017
–
senior
executives
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
super-
annuation
or
pension
plan
benefits
$
–
–
10,410
10,410
10,410
10,410
–
–
3,550
–
Heath Sharp3
FY2018 1,483,488
822,819
167,017
12,214
31,605
FY2017 1,472,944
2,500,000
148,877
13,433
14,329
Gerry Bollman4
FY2018
930,083
226,932
46,972
6,659
30,960
FY2017
535,818
135,465
97,560
5,677
10,757
Terry Scott5
FY2018
–
–
FY2017
800,000
195,100
–
–
–
–
45,957
19,620
total
FY2018 2,790,124 1,049,751
213,989
18,873
86,935
FY2017 3,147,942
2,830,565
246,437
65,067
65,526
other
post
employ-
ment $
Long
service
leave
$
shares
options
$
–
–
–
–
–
–
–
–
–
–
–
–
$
–
–
–
–
–
–
–
–
–
–
$
–
–
120,000
120,000
120,000
120,000
120,000
120,000
40,923
–
390,168
2,907,311
390,168
4,539,751
356,916
193,464
1,791,986
266,667
110,774
1,162,718
–
–
–
–
–
1,084,024
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23,347
–
356,916
583,632
5,100,220
23,347
266,667
500,942
7,146,493
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1. Mr. Munz waived his entitlement to any Non-Executive Director or committee fees for the initial three years following the Company’s listing on the ASX on 29 April 2016.
2. Appointed 27 February 2018.
3.
Annual fixed remuneration of US$1,150,000 plus benefits, including pension plan contributions. The Board has approved that Mr. Sharp’s annual fixed remuneration be
increased to US$1,300,000 plus benefits from 1 July 2019.
Annual fixed remuneration of US$721,000 plus benefits, including pension plan contributions. Mr. Bollman’s annual fixed remuneration increased to US$800,000 plus benefits
from 1 July 2018 under the terms of his service agreement.
4.
5. Mr. Scott ceased to be a member of KMP on 1 July 2017.
Annual Report 2018
35
36
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 ProfessionalStandards Legislation.Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of Reliance Worldwide Corporation Limited 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 2018 there have been: i.no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii.no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Paul J McDonald Partner Melbourne 27 August 2018 Important notIces
consolIdated statement of profIt or loss and other comprehensIve Income
For the year ended 30 June 2018
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 for the period attributable to the owners of the company
other comprehensive profit
Items that may be classified to profit or loss:
Foreign currency translation differences
Cash flow hedges – effective portion of changes in fair value
total comprehensive profit for the period attributable to the owners
of the company
earnings per share
Basic earnings per share attributable to ordinary equity holders
Diluted earnings per share attributable to ordinary equity holders
note
4
5
5
7
6
6
2018
$000
769,380
(452,413)
316,967
10,882
(17,721)
(111,239)
(84,122)
(3,667)
111,100
117
(11,911)
(11,794)
99,306
(33,315)
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)
65,991
65,612
19,877
(10,767)
(1,509)
–
75,101
64,103
cents
12.3
12.1
cents
12.5
12.4
The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.
Annual Report 2018
37
Important notIces
consolIdated statement of fInancIal posItIon
At 30 June 2018
note
2018
$000
20171
$000
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
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
17
8
9
10
7
11
12
14
13
14
15
14
7
15
18
20
Retained earnings / (accumulated losses)
total equity
1.
Comparative balances have been restated to reflect the final purchase price accounting for the Holdrite acquisition. Refer to Note 21.
The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.
38
Reliance Worldwide Corporation Limited
274,331
204,916
202,640
20,707
702,594
245,326
18,010
911,383
308,631
1,483,350
2,185,944
–
167,678
2,675
3,656
6,657
34,996
109,727
161,243
6,771
312,737
111,509
18,292
86,857
70,392
287,050
599,787
9,403
97,910
423
4,333
5,833
180,666
117,902
659,670
16,610
4,979
681,259
861,925
260,539
12,516
4,084
277,139
395,041
1,324,019
204,746
2,336,618
(1,092,945)
80,346
1,261,371
(1,104,889)
48,264
1,324,019
204,746
consolIdated statement of chanGes In equIty
For the year ended 30 June 2018
foreign
currency
share based
share
translation
merger
payment
hedging
note
capital
$000
reserve
reserve
reserve
reserve
$000
$000
$000
$000
Balance at 30 June 2016
1,272,732
(3,269)
(1,100,943)
Profit for the period
Foreign currency translation Reserve
20
total comprehensive income
–
–
–
–
(1,509)
(1,509)
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)
Balance at 30 June 2017
1,261,371
(4,778)
(1,100,943)
Profit for the period
Foreign currency translation Reserve
Hedged transaction
total comprehensive income
transactions with owners of the
company
Purchase of treasury shares
Share based payments
Issue of ordinary shares
Capital raising costs
Dividends paid
total transactions with owners of
the company
20
20
18
19
18
18
–
–
–
–
–
19,877
–
19,877
(8,584)
–
1,100,143
(16,312)
–
1,075,247
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
65
–
–
–
–
767
–
767
832
832
–
–
–
–
–
2,834
–
–
–
2,834
–
–
–
–
–
–
–
–
–
–
–
–
(10,767)
(10,767)
–
–
–
–
–
–
(accumulated
losses)/
retained
profits
$000
total
equity
$000
(1,598)
166,987
65,612
65,612
–
(1,509)
65,612
64,103
–
–
(11,361)
767
(15,750)
(15,750)
(15,750)
(26,344)
48,264
204,746
48,264
204,746
65,991
–
–
65,991
19,877
(10,767)
65,991
75,101
–
–
–
–
(8,584)
2,834
1,100,143
(16,312)
(33,909)
(33,909)
(33,909) 1,044,172
Balance at 30 June 2018
2,336,618
15,099 (1,100,943)
3,666
(10,767)
80,346
1,324,019
The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.
Annual Report 2018
39
Important notIces
consolIdated statement of cash flows
For the year ended 30 June 2018
cash flows from operating activities
Receipts from customers
Payments to suppliers and employees and for customer rebates
Income tax payments
net cash from operating activities
cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangibles
Transaction costs paid on acquisition of John Guest
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
Debt raising costs paid
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
2018
$000
746,318
(621,479)
(44,753)
80,086
(37,401)
1,202
(998)
(17,501)
(1,157,343)
(1,212,041)
1,100,143
(8,584)
705,670
(353,173)
(33,909)
117
(11,911)
(3,675)
(16,313)
1,378,365
246,410
25,593
2,328
274,331
274,331
–
274,331
2017
$000
596,599
(497,111)
(27,563)
71,925
(21,706)
464
(3,761)
–
(122,273)
(147,276)
–
(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
The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.
40
Reliance Worldwide Corporation Limited
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
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 consolidated financial statements comprise the Company and its subsidiaries (together referred to as the “Group”). 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 Group is a for-profit entity. The financial statements were authorised for issue by the Board of Directors on 27 August 2018.
(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 2018;
• 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;
• 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 2017; 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.
(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 22.
(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 2018
41
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
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) non-derivative financial instruments: recognition, Initial measurement and de-recognition
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.
The Group initially recognises loans and receivables and debt securities issues on the date when they are originated. All other financial assets and financial
liabilities are initially recognised on the trade date when the entity becomes a party to the contractual provisions of the instrument. The Group’s activities expose
it primarily to financial risks of changes in exchange rates and interest rates.
The Group’s non-derivative financial assets and financial liabilities are initially measured at fair value including any directly attributable transaction costs.
Subsequent to intial recognition, they are measured at amortised cost using the effective interest rate method.
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 instruments to hedge its foreign currency risk exposures. Derivatives are initially measured at fair value; any directly attributable
transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, any changes therein are
generally recognised in profit or loss.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in other
comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately
in profit or loss. The amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods
during which the hedged forecast cash flows affect profit or loss or the hedged item affects profit or loss.
42
Reliance Worldwide Corporation Limited
1. significant accounting policies (continued)
(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.
(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. The Company has reviewed its
trade receivables and there are no expected losses which have not already been provided for.
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. There are no
material differences in revenue recognition due to the Company currently recognising revenue only when the five revenue recognition criteria as set out in the
Standard are met.
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 leases of property and equipment. Details of present operating lease
commitments are disclosed in Note 23. Many of the property leases have options to extend beyond the current commitments. 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. Capitalising the present value of the lease commitments will significantly increase the value of
total assets by the present value of the Right to leased assets with a corresponding total lease liability.
Annual Report 2018
43
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
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, Korea and China
• Americas, including the United States of America and Canada
• EMEA, including the United Kingdom, Spain, Italy, Germany, France, Czech Republic and Poland
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 2018 is:
Fittings and pipe
Control valves
Thermostatics
Other Products
2018
$000
518,866
106,825
29,987
113,702
769,380
2017
$000
425,032
95,071
27,501
54,089
601,693
The Group had two significant customers each representing greater than 10% of the Group’s revenue in the 2018 financial year. Both customers are in the
Americas segment and contributed a combined $278.6 million of the Group’s revenue in the financial year.
revenue by geography
Australia
United States of America
Canada
United Kingdom
Other
non-current assets excluding financial assets and deferred tax balances by geography
Australia
United States of America
Canada
United Kingdom
Other
2018
$000
126,802
526,923
30,674
71,147
13,834
769,380
2018
$000
127,308
352,674
261
961,167
23,930
1,465,340
2017
$000
115,209
395,637
26,741
46,575
17,531
601,693
2017
$000
82,818
168,239
295
2,948
13,279
267,579
44
Reliance Worldwide Corporation Limited
2
2
2
2
5
2
,
,
7
6
9
6
1
3
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2
8
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–
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Annual Report 2018
45
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
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 of the 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 John Guest holdings limited
(a) summary of acquisition
The Group completed the acquisition of all the issued shares in John Guest Holdings Limited (“John Guest”) on 13 June 2018 for GBP706.9 million (including
customary closing adjustments) ($1,237 million). The acquisition date for accounting purposes is taken to be 23 May 2018. John Guest is headquartered
in the UK and is a global leader in plastic PTC fittings with products and operations that are highly complementary with Reliance’s. The acquisition delivers
a strategic fit and alignment with Reliance’s strategy to add complementary products and expand its market presence, particularly in Europe. Both Reliance
and John Guest are recognised as innovators and market leaders and share many things in common, including strong research and development capability,
high quality automated manufacturing facilities and customer relationships. John Guest’s products are used in plumbing and heating, water quality and fluid
dispense and other PTC applications. John Guest is a clear market leader in the UK and has a strong European distribution platform together with operations in
the USA and Asia Pacific.
(b) purchase consideration and summary of cash movement
Base purchase price
Closing adjustments
total purchase consideration
reconciliation of cash movement
Cash consideration paid
Hedge loss from forward purchase contracts
Less cash acquired
2018
$000
1,202,850
33,956
1,236,806
1,236,806
10,767
(90,230)
1,157,343
No acquisition related costs associated with the transaction were capitalised. Costs attributable to the acquisition of approximately $20.5 million were
expensed and are reported in “administration expenses” in the profit or loss account. These expenses were mainly for legal, due diligence and advisory costs.
46
Reliance Worldwide Corporation Limited
3. Business combinations (continued)
(c) Fair value of net assets acquired
Identifiable assets
Cash and cash equivalents
Trade and other receivables2
Inventories
Property plant and equipment
Intangible assets
– Brand names
– Customer relationships
total identifiable assets acquired
Identifiable liabilities
Trade and other payables
Borrowings3
Employee entitlements
Tax liabilities
total liabilities assumed
net identifiable assets acquired
Purchase consideration
Hedge loss from forward purchase contracts recognised in
the Goodwill calculation
Goodwill on acquisition and unidentified other intangible assets
1. Fair values are provisionally accounted for at 30 June 2018.
2. Trade and other receivables are net of provision for doubtful debts.
3. Borrowings were settled on the day of completion using cash acquired.
Goodwill on acquisition is attributable mainly to:
note
10
12
acquiree’s
carrying
amount
$000
90,230
60,107
26,006
111,716
–
–
288,059
63,553
32,127
1,749
1,570
98,999
189,060
Fair value
adjustments
$000
–
–
5,214
5,622
214,687
17,217
242,740
1,318
–
–
–
1,318
Fair value1
$000
90,230
60,107
31,220
117,338
214,687
17,217
530,799
64,871
32,127
1,749
1,570
100,317
430,482
1,236,806
10,767
817,091
• expected growth opportunities from combining the Group’s strong positions in North America and Asia Pacific with John Guest’s strength in the UK and
continental Europe which will broaden product and distribution channels;
• expected benefits from integrating the John Guest business into the existing operations; and
•
the skills and technical talent of John Guest executives and employees.
The Group is still in the process of assessing if any other intangible assets can be identified.
John Guest contributed operating revenue of $24.8 million for the period from acquisition to 30 June 2018. The net profit before tax contributed for this period
was $3.8 million after the impact of fair value adjustments. If the Group controlled John Guest for the entire financial year, the consolidated pro forma revenue is
estimated to be $1,041.0 million. The consolidated pro forma profit before tax is estimated to be $176.7 million.
(d) measurement of fair values
Property plant and equipment is provisionally valued considering market prices for similar items when they are available and depreciated replacement cost
when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.
Intangible assets are provisionally valued using the relief from royalty and multi-period excess earnings methods. The relief from royalty method considers the
discounted estimated royalty payments that are expected to be avoided as a result of the patents or trademarks owned. The multi-period excess earnings
method considers the present value of net cash flows expected to be generated by the customer relationships by excluding any cashflows related to
contributory assets.
Inventories are provisionally valued using a market comparison technique. The fair value is determined based on the estimated selling price in the ordinary
course of business of a market participant less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to
complete and sell the inventories.
Annual Report 2018
47
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
4. other income
Other income includes insurance recoveries of $5,270,000 associated with storm damage at manufacturing facilities in Cullman, Alabama (30 June 2017 – nil).
Costs and impairment charges associated with the insurance claim have been expensed.
5. Finance income and finance costs
The Group’s finance income and finance costs include:
•
•
Interest income
Interest expense
The Group records interest income and accrues 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
6. earnings per share
(a) Basic earnings per share
2018
$000
117
(11,911)
2017
$000
50
(5,061)
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 attributable to ordinary shareholders
Weighted average number of ordinary shares at 30 June (basic)
–
–
Issued ordinary shares (weighted average)
Treasury shares (weighted average)
Basic earnings per share
2018
$000
65,991
2017
$000
65,512
number of shares
number of shares
2018
2017
541,437,841
525,000,000
(3,366,737)
(254,486)
538,071,104
524,745,514
cents
12.3
cents
12.5
48
Reliance Worldwide Corporation Limited
6. earnings per share (continued)
(b) diluted earnings per share
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 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 (weighted average)
Effect of share options on issue
Treasury shares (weighted average)
diluted earnings per share
2018
$000
65,991
–
65,991
2017
$000
65,612
–
65,612
number of shares
number of shares
2018
2017
541,437,841
525,000,000
5,307,190
(3,366,737)
5,307,190
(254,486)
543,378,294
530,052,704
cents
12.1
cents
12.4
In June 2018 the Company completed a 1 for 1.98 pro rata Entitlement Offer providing eligible shareholders an entitlement to subscribe for new shares at an
issue price of $4.15 per share. The Company issued 265,094,765 new ordinary shares. Refer Note 18.
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.
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.
(ii) 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 2018, the Australian Tax Consolidated Group has $15.5 million (2017: $5.1 million) franking credits available for subsequent reporting periods.
Annual Report 2018
49
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
Income tax expense (continued)
7.
(iii) estimates and judgements
The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the
worldwide provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate
tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will
impact the current and deferred tax provisions in the period in which such determination is made. In particular, the impact on global taxes from the acquisition
of the John Guest group has yet to be determined comprehensively.
(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:
Other non-deductible expenses
Re-measurement of deferred tax balances from US tax reforms
Adjustments for prior years
Employee share incentive scheme
Other
actual income tax expense reported in the consolidated statement of profit or loss
(b) components of income tax:
Current tax
Deferred tax
(c) deferred tax balances
2018
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
Other items giving rise to a deferred tax liability
total
50
Reliance Worldwide Corporation Limited
2018
$000
99,306
(29,792)
2017
$000
96,287
(28,886)
(1,555)
(1,535)
(1,473)
1,553
(1,208)
(850)
10
(33,315)
2018
$000
(28,939)
(4,376)
(33,315)
(1,008)
–
(24)
(669)
1,447
(30,675)
2017
$000
(21,553)
(9,122)
(30,675)
opening
Balance
$000
recognised in
profit and loss
$000
closing
Balance
$000
2,907
7,055
3,625
4,705
18,292
(11,565)
(364)
(587)
(12,516)
(19)
(1,494)
(1,209)
2,440
(282)
1,473
(5,549)
(18)
2,888
5,561
2,416
7,145
18,010
(10,092)
(5,913)
(605)
(4,094)
(16,610)
7.
Income tax expense (continued)
2017
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
recognised in
profit or loss
$000
closing
Balance
$000
2,821
5,249
6,042
944
15,056
(12,026)
(6,018)
(41)
(317)
(18,402)
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)
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
2018
$000
195,652
(92)
195,560
9,356
204,916
2017
$000
107,659
(191)
107,468
2,259
109,727
Information about the Group’s exposure to credit and market risks for trade and other receivables is included in Note 25.
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
1. Comparative balances have been restated to reflect the final purchase price accounting for the Holdrite acquisition. Refer to Note 21.
2018
$000
84,267
186
29,165
96,508
210,126
(7,486)
202,640
20171
$000
66,688
166
15,741
83,854
166,449
(5,206)
161,243
Annual Report 2018
51
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
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
2018
$000
2017
$000
204
91,761
4,274
149,087
245,326
197
18,362
3,052
89,898
111,509
52
Reliance Worldwide Corporation Limited
10. property, plant and equipment (continued)
Freehold
land
2017
$000
2018
$000
Buildings
Improvements
leasehold
plant and
equipment1
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
2017
$000
2018
$000
total
2017
$000
197
203
22,229
19,256
5,569
4,784
185,140
179,357
213,135
203,600
–
–
–
–
7
–
–
–
–
–
442
–
(442)
–
(7,195)
–
(7,195)
73,555
–
1,419
86
–
3,420
–
334
(35)
908
495
42,364
3,573
117,338
4,481
36,981
17,791
37,401
21,706
(74)
(4,473)
(8,568)
(4,509)
(8,642)
(6)
3,853
(889)
413
(102)
1,170
182
5,443
(815)
Cost
Opening balance
Transfers
Acquired as part of business
combinations – Note 3
Additions1
Disposals
Net effect of change in
exchange rates
Closing balance at 30 June
204
197
99,723
22,229
7,700
5,569
261,182
185,140
368,809
213,135
Accumulated depreciation and
impairment
Opening balance
Transfers
Depreciation expense
Impairment
Disposals
Net effect of change in
exchange rates
Closing balance at 30 June
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3,867)
(2,946)
(2,517)
(2,319)
(95,242)
(90,500)
(101,626)
(95,765)
–
(812)
(4,308)
1,163
(442)
(600)
–
–
–
442
–
3,712
–
3,712
(875)
(711)
(18,990)
(16,934)
(20,677)
(18,245)
–
32
–
43
–
–
(4,308)
–
3,314
7,703
4,509
7,746
(138)
121
(66)
28
(1,177)
777
(1,381)
926
(7,962)
(3,867)
(3,426)
(2,517)
(112,095)
(95,242)
(123,483)
(101,626)
net carrying value at 30 June
204
197
91,761
18,362
4,274
3,052
149,087
89,898
245,326
111,509
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 2018, this amount is
$24.6 million (2017: $11.8 million).
11. Goodwill
Goodwill represents 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 at balance sheet date is $911.4 million. Of this amount, $817.1 million is a provisional amount relating to goodwill recorded on
acquisition of John Guest Holdings Limited in June 2018 (refer Note 3), $44.4m relates to goodwill attributable to businesses within the Asia Pacific segment
prior to the Restructure in April 2016 and $52.7 million is goodwill assets recorded on acquisition of Holdrite in the Americas segment in June 2017.
Goodwill in respect of the Asia Pacific and Americas regions 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 2018
was established using a discounted cash flow model which included the following key assumptions:
• A 4 year forecast period with cash flow projections based on approved operating budgets.
• After tax discount rates ranging from 8.75% to 9.75%, based on cost of capital and business risk assessments.
• Average revenue growth rate of 4.0% in Americas and 5.0% in Asia Pacific 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 Cash Generating Unit (“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 2018
53
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
11. Goodwill (continued)
Goodwill attributable to the John Guest acquisition was booked in June 2018. There were no indicators of impairment between the date the goodwill was
booked and balance date. The goodwill attributable to the John Guest acquisition has been allocated across the Group’s operating segments as follows:
• EMEA
• Americas
• Asia Pacific
$612.8m
$163.4m
$40.8m
Opening balance
Acquired – Note 3
Foreign currency exchange differences
carrying value
2018
$000
86,857
817,091
7,435
911,383
20171
$000
44,570
43,259
(972)
86,857
1. Comparative balances have been restated to reflect the final purchase price accounting for the Holdrite acquisition. Refer to Note 21.
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) Brand names, trade names and trademarks
Brand names, 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. Brand names, 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) customer relationships and distribution agreements
Customer relationship based intangibles assets relate to established customer relationships and distribution agreements for the supply of product. The
intangible asset is amortised on a straight line basis over a period up to twenty years.
(v) 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.
54
Reliance Worldwide Corporation Limited
12. other intangible assets (continued)
Intellectual property,
trade names,
Brand names and
customer
licence Fees,
trademarks product technology
relationships
software and other
2018
$000
20171
$000
2018
$000
20171
$000
2018
$000
20171
$000
2018
$000
20171
$000
2018
$000
total
20171
$000
27,009
393
28,007
–
10,617
–
9,256
1,550
74,889
1,943
214,687
25,574
–
–
–
–
2,125
–
–
–
–
–
6,515
(1,083)
1,279
28,007
17,217
10,617
–
–
–
–
–
–
684
–
–
–
–
–
–
998
–
231,904
64,198
7,363
1,636
–
998
7,363
3,761
–
(1,293)
–
(1,293)
784
–
9,262
(1,083)
248,211
27,009
29,286
28,007
28,518
10,617
11,038
9,256
317,053
74,889
(464)
–
(24)
–
–
–
(422)
(378)
(1,608)
–
158
(728)
–
(62)
–
(76)
(464)
(1,684)
–
–
–
–
–
–
–
–
(491)
–
(145)
(636)
–
–
–
–
–
(4,033)
(681)
(4,497)
(705)
–
(3,880)
–
(3,880)
(1,061)
(764)
(3,582)
(1,142)
–
1,292
–
1,292
(280)
–
(342)
(62)
(5,374)
(4,033)
(8,422)
(4,497)
247,483
26,545
27,602
28,007
27,882
10,617
5,664
5,223
308,631
70,392
cost
Opening balance
Acquired – Note 3
Transfers
Additions
Disposals
Foreign exchange
Closing balance
accumulated amortisation
Opening balance
Transfers
Amortisation
Disposals
Foreign exchange
Closing balance
carrying Value
1. Comparative balances have been restated to reflect the final purchase price accounting for the Holdrite acquisition.
13. trade and other payables
Current:
Trade payables
Other creditors, accruals and provision for employee bonuses
14. Borrowings
Secured:
Bank Overdraft
Borrowings
total secured borrowings
2018
$000
61,089
106,589
167,678
non-current
2018
$’000
2017
$’000
2018
$’000
2017
$000
50,584
47,326
97,910
total
2017
$’000
–
659,670
659,670
–
260,539
260,539
–
662,345
662,345
9,403
260,962
270,365
2018
$’000
–
2,675
2,675
current
2017
$’000
9,403
423
9,826
Annual Report 2018
55
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
14. Borrowings (continued)
The Company and certain of its subsidiaries are parties to a $750 million syndicated facility agreement (30 June 2017 - $350 million bi-lateral facilities) which is
available for drawing by way of cash advances (“Facility”).
The Facility will mature as follows:.
• Tranche A: $250m maturing 30 September 2021
• Tranche B: $250m maturing 30 September 2022
• Tranche C: $250m maturing 30 September 2023
The Facilities contain financial covenants that the Company is in compliance with.
The security provided to support the Facility is:
• Unlimited cross guarantees from each entity that comprises the Group, other than Reliance Worldwide Corporation (Europe) S.L.U, subsidiaries of
John Guest Holdings Limited which are not incorporated in the United Kingdom (refer Note 22) and other 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), and Reliance Employee Share Investments Pty Ltd (“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);
• Specific share security from Reliance Worldwide Holdings (International) LLC over its shares in John Guest Holdings Limited and its rights under the
acquisition agreement entered into in connection with the acquisition of John Guest Holdings Limited; and
• A real property mortgage from Reliance Worldwide Corporation over a property in Cullman, Alabama, USA.
The Facility has a variable interest rate which is based on a variable base rate plus a margin.
The Group also has secured term loan and revolving credit facilities in the United Kingdom (“UK Facilities”) totalling £4.0 million which will mature on 31 August
2018 and not be extended.
These 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, a subsidiary (which carries on the Group’s
operations in the UK) which are tested annually and have been 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.
56
Reliance Worldwide Corporation Limited
15. employee benefits (continued)
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
2018
$’000
5,833
1,749
4,402
current
2017
$’000
4,355
346
4,030
(4,908)
(3,614)
Foreign currency exchange differences
Reclassification
closing balance
140
(559)
6,657
16. employee benefits expense
(i) retirement benefits costs
2018
$’000
4,084
–
1,107
(771)
–
559
non-current
2017
$’000
4,831
–
21
–
–
(768)
4,084
2018
$’000
9,917
1,749
5,509
total
2017
$’000
9,186
346
4,051
(5,679)
(3,614)
140
–
(52)
–
11,636
9,917
(52)
768
5,833
4,979
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
2018
$000
103,468
5,645
951
5,511
5,211
8,889
2,834
546
133,055
(23,618)
109,437
2017
$000
81,701
4,453
661
4,786
4,509
6,452
768
164
103,494
(23,618)
79,876
Annual Report 2018
57
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
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
KRW
PLN
CZK
Australian dollar
United States dollar
Pound Stirling
European Euro
New Zealand dollar
Canadian dollar
South Korean Won
Polish Zloty
Czech Koruna
Less: bank overdrafts - AUD
cash and cash equivalents in the consolidated statement of cash Flows
2018
$000
157,510
57,558
43,640
11,358
643
1,861
1,085
231
445
274,331
–
274,331
(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
Transaction costs accounted for as investing 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
58
Reliance Worldwide Corporation Limited
2018
$000
65,991
20,677
3,582
(194)
2,834
(103)
2,119
17,501
11,911
(117)
(25,383)
(6,546)
(6,922)
57
(5,577)
256
80,086
2017
$000
8,441
19,511
2,544
1,179
97
3,224
–
–
–
34,996
(9,403)
25,593
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
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
number of shares
2018
number
2017
number
2018
$
company
2017
$
525,000,000
265,094,765
–
–
525,000,000
1,261,370,989
1,272,732,768
–
–
–
1,100,143,275
(16,312,337)
–
–
(8,583,993)
(11,361,779)
790,094,765
525,000,000
2,336,617,934
1,261,370,989
–
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.
In June 2018, the Company completed a 1 for 1.98 pro rata Entitlement Offer providing eligible shareholders an entitlement to subscribe for further shares at an
issue price of $4.15 per share, resulting in the issue of an additional 265,094,765 ordinary shares. Proceeds from the Entitlement Offer were used to partly fund
the acquisition of John Guest Holdings Limited.
(b) redeemable preference shares
Redeemable preference shares were issued to incorporate the Company. The shares were redeemed during the financial year.
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 2017 – 5,307,190) 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 30 June the Company had granted 3,295,730 Rights (30 June 2017 – 2,849,730) with the following vesting dates:
Vesting date
12 June 2022
1 July 2022
7 August 2022
5 February 2023
3 April 2023
number of rights
235,730
2,719,000
95,000
84,000
162,000
3,295,730
Vesting conditions include a continuous service period. No Rights vested during the reporting period or have subsequently vested.
Annual Report 2018
59
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
19. share based payments (continued)
Unless the Board determines otherwise, if a participant ceases employment after the first twelve months of Rights being granted and any of the following has
occurred then a pro rata portion of unvested Rights will remain on foot and vest in the ordinary course as though the participant had not ceased employment:
• The participant’s employment is terminated by RWC without cause; or
• The participant terminates employment for good reason.
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 2,068,432 shares at an average price $4.15 per
share. The shares were acquired under the terms of the pro rata Entitlement Offer undertaken by the Company during May and June 2018. The total number
of shares held in the Trust at 30 June 2018 was 5,389,834. The cost of the shares acquired is accounted for as Treasury Shares and debited against Share
Capital (Note 18).
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.
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.
2018
$000
2,834
2018
$000
(4,778)
19,877
15,099
2017
$000
767
2017
$000
(3,269)
(1,509)
(4,778)
(1,100,943)
(1,100,943)
–
–
(1,100,943)
(1,100,943)
832
2,834
3,666
–
(10,767)
(10,767)
65
767
832
–
–
–
(1,092,945)
(1,104,889)
Share based payment expense recognised in the profit or loss account:
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
Hedging reserve
Opening balance
Hedging loss during the year
total reserves
60
Reliance Worldwide Corporation Limited
20. reserves (continued)
(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.
(d) hedging reserve
The hedging reserve records the effective portion of the cumulative change in the fair value of the hedging instruments used in cash flow hedges.
21. comparative balances
In these financial statements, comparative balances have been restated under the requirements of accounting standards. The following section explains the
changes which have been reflected in the restated comparative balances during the year ended 30 June 2018.
acquisition of securus, Inc.
The Group acquired all of the ordinary shares of Securus Inc. (“Holdrite”) on 12 June 2017. The acquisition accounting for this transaction has now been finalised.
The final acquisition accounting resulted in net reclassifications of:
• $10.6 million between intangible assets and goodwill;
• $1.2 million between inventory and goodwill on acquisition.
There was no material impact to the Group’s profit as a result of these changes.
Comparative financial information has been restated to reflect the finalisation of the acquisition accounting. The following table summarises the changes made
to the provisional acquisition accounting.
Fair value of net assets acquired
Identifiable assets
Cash and cash equivalents
Trade and other receivables1
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
1. Trade and other receivables are net of provision for doubtful debts.
provisional fair
Final fair value
value recognised
recognised
on acquisition
on acquisition
$000
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
$000
9,222
9,462
5,052
956
4,481
64,198
93,371
9,589
346
9,935
83,436
126,695
83,436
43,259
Annual Report 2018
61
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
22. 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
country of
Incorporation
class of shares
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 Ltd
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 Inc1
Streamlabs Inc2
Reliance Worldwide Corporation (Europe) S.L.U.
Reliance Worldwide Holdings (UK) Limited
Reliance Worldwide Corporation (UK) Limited
Reliance Water Controls Limited
Australia
Australia
Australia
Australia
New Zealand
New Zealand
New Zealand
New Zealand
Canada
America
America
America
America
Spain
United Kingdom
United Kingdom
United Kingdom
Reliance Worldwide Corporation (R.W.C. Israel) Ltd3
Israel
Reliance Worldwide Finance Limited4
United Kingdom
Reliance Worldwide Holdings (International) LLC4
America
John Guest Holdings Ltd5
John Guest International Ltd5
John Guest Speedfit Ltd5
John Guest Engineering Ltd5
John Guest Ltd5
John Guest Connectors Ltd5
John Guest Automotive Ltd5
John Guest North America Holdings Inc5
John Guest USA Inc5
John Guest Automotive Inc5
John Guest Automotive GmbH5
John Guest GmbH5
John Guest SA5
John Guest SRL5
John Guest Pacific Ltd5
John Guest Korea Ltd5
John Guest (Shanghai) Trading Co. Ltd5
John Guest S.L.5
John Guest Czech S.R.O5
John Guest Sp zoo5
John Guest Automotive SRL5
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
America
America
America
Germany
Germany
France
Italy
New Zealand
Korea
China
Spain
Czech Republic
Poland
Italy
1. Merged into the USA subsidiary Reliance Worldwide Corporation on 31 December 2017.
2.
3.
4.
Incorporated on 19 December 2017.
Incorporated on 22 April 2018.
Incorporated on 17 May 2018.
5. Acquired 12 June 2018.
62
Reliance Worldwide Corporation Limited
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
equity holding
equity holding
Functional
2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2017
100%
100%
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
USD
Euro
GBP
GBP
GBP
ILS
USD
USD
GBP
GBP
GBP
GBP
GBP
GBP
GBP
USD
USD
USD
Euro
Euro
Euro
Euro
NZD
KRW
CNY
Euro
CZK
PLN
Euro
23. expenditure commitments
(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
2018
$000
13,829
44,519
41,504
99,852
2017
$000
7,608
30,048
41,433
79,089
(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
2018
$000
11,016
123
11,139
2017
$000
9,474
146
9,620
24. 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 $317,000 (2017: $366,400)
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.
25. 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.
Annual Report 2018
63
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
25. Financial risk management (continued)
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.
Spot exchange rate
Cash
Trade and other receivables
Trade and other payables
Interest bearing liabilities
Net external exposure
Usd
2017
$000
2018
$000
GBp
2017
$000
eUr
2017
$000
2018
$000
2018
$000
0.7405
0.7676
0.5607
0.5907
0.6334
0.6726
40,062
13,700
3,088
3,344
2,209
(3,435)
(5,672)
–
–
–
(7)
–
–
–
56
633
703
843
(43)
(4,590)
(3,873)
–
–
–
39,971
10,237
3,081
(43)
3,901
(2,327)
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.
Increase / (decrease)
in profit after
income tax
Increase / (decrease)
in equity
$000
2017
414
(374)
At relevant 30 June 2018 rates
If foreign exchange rate - 5%
If foreign exchange rate + 5%
Interest rate risk
2018
2,068
(1,871)
$000
2017
414
(374)
2018
2,068
(1,871)
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 $2.6 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 50 basis points 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 debt facilities in place and their terms are disclosed at
Note 14.
Total facilities available
Amount drawn at 30 June
available undrawn facility
In addition, the Group had cash and cash equivalents of $274.3m at 30 June 2018.
64
Reliance Worldwide Corporation Limited
2018
$000
752,675
662,345
90,330
2017
$000
352,962
260,962
92,000
25. Financial risk management (continued)
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:
2018
Financial liabilities
Trade and other payables
Bank borrowings
total
2017
Financial liabilities
Trade and other payables
Bank borrowings
Bank overdraft
total
credit risk
carrying
less than 1
amount
$000
167,678
662,345
830,023
year
$000
167,678
2,675
170,353
1 to 2 years
2 to 5 years
$000
–
–
–
$000
–
659,670
659,670
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
total
$000
167,678
662,345
830,023
total
$000
97,910
260,962
9,403
368,275
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.
At 30 June, the maximum exposure to credit risk for trade and other receivables by geographic region is as follows:
2018
2017
carrying amount
carrying amount
Americas
Asia Pacific
EMEA
total
$000
107,244
34,927
62,745
204,916
At 30 June 2018, the Group’s most significant customer accounted for $28.7 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
2018
$000
185,682
17,727
1,051
456
204,916
$000
66,187
33,837
9,703
109,727
2017
$000
100,803
8,448
410
66
109,727
Annual Report 2018
65
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
26. 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
Sharon McCrohan
Independent Non-Executive Director (from 27 February 2018)
Heath Sharp
Gerry Bollman
Managing Director and Global Chief Executive Officer
Global Chief Financial Officer
(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
2018
$
2017
$
4,072,737
6,290,011
86,935
–
940,548
65,526
23,347
767,609
5,100,220
7,146,493
(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
2018 are:
Jonathan Munz
Russell Chenu
Stuart Crosby
Ross Dobinson
Sharon McCrohan
Heath Sharp
Gerry Bollman2
Terry Scott3
total
shares
2018
number
2017
number
79,015,152
157,500,000
155,217
150,506
32,457
–
1,204,041
–
–
60,000
100,000
20,000
–
800,000
–
640,000
options1
2018
number
2017
number
–
–
–
–
–
–
–
–
–
–
4,000,000
1,307,190
–
4,000,000
1,307,190
–
80,557,373
159,120,000
5,307,190
5,307,190
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.
3. Mr. Scott ceased to be a member of Key Management Personnel on 1 July 2017.
At 30 June 2018, no Key Management Personnel had been offered or held any rights to be awarded shares other than as disclosed above.
Details of movements in holdings during the period are disclosed in the Remuneration Report.
66
Reliance Worldwide Corporation Limited
26. Key management personnel and related party transactions (continued)
(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
2018
$000
100
27. 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
2018
$
2017
$000
100
2017
$
KpmG australia
Audit services
Other assurance and non-audit services
• Due diligence
•
Tax services
• Other assurance services
• Other services
Total remuneration paid to KPMG Australia
overseas KpmG offices
• Due diligence
•
•
Audit services
Tax services
• Other services
Total remuneration paid to KPMG overseas
total remuneration to KpmG
485,000
177,000
–
184,007
–
103,519
772,526
–
20,291
64,999
–
85,290
857,816
22,500
79,500
25,000
15,000
319,000
313,159
–
–
22,722
335,881
654,881
Annual Report 2018
67
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
28. 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 2018 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
Finance income
Finance costs
net finance costs
Dividend income
profit before tax
Income tax expense
profit for the period attributable to the owners of the company
other comprehensive profit
Cash flow hedges – effective portion of changes in fair value
total comprehensive profit for the period attributable to the owners of the company
2018
$000
225,915
(157,477)
68,438
3,947
(4,306)
(17,206)
(14,448)
(119)
36,306
42,410
(10,378)
32,032
4,635
72,973
(23,446)
49,527
(10,767)
38,760
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
–
48,483
68
Reliance Worldwide Corporation Limited
28. deed of cross guarantee (continued)
statement of financial position at 30 June 2018
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
2018
$000
2017
$000
195,239
48,944
59,057
9,079
312,319
44,206
730,141
7,278
39,825
1,416,083
1,534
2,239,067
2,551,386
–
39,965
294
2,849
46,108
291,000
2,776
4,979
298,755
341,863
15,585
47,172
52,763
2,145
117,665
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
2,209,523
1,126,593
2,336,618
(171,310)
44,215
1,261,371
(163,377)
28,599
2,209,523
1,126,593
Annual Report 2018
69
notes to the consolIdated FInancIal statements
Important notIces
For the year ended to 30 June 2018
29. parent entity disclosure
As at, and throughout, the financial year to 30 June 2018 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
Retained profits /(Accumulated losses)
total equity
(c) parent entity contingent liabilities
2018
$000
77,853
–
77,853
2018
$000
164,077
2,319,634
2,483,711
61,979
67,560
129,539
2,354,172
2017
$000
(4,372)
–
(4,372)
2017
$000
1,979
1,530,641
1,532,620
2,628
297,844
300,472
1,232,148
2,336,618
1,261,371
3,667
13,887
833
(30,056)
2,354,172
1,232,148
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 28.
30. subsequent events
On 27 August 2018, the Directors resolved to declare a final dividend for the 2018 financial year of 3.0 cents per share. The dividend is fully franked. The
aggregate dividend payment amount is $23.7 million. The dividend will be paid to eligible shareholders on 11 October 2018. The Company does not have a
dividend reinvestment plan.
Subsequent to 30 June 2018, the Board approved granting up to a further 2,601,000 Rights to nominated eligible executives and employees including the
Global Chief Executive Officer (“CEO”) under the Equity Incentive Plan. The CEO’s grant is subject to shareholder approval which will be sought at the next
Annual General Meeting.
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.
70
Reliance Worldwide Corporation Limited
DIrectors’ DeclaratIon
Important notIces
For the year ended to 30 June 2018
In the opinion of the Directors of the Reliance Worldwide Corporation Limited (“the Company”):
(1) the consolidated financial statements and notes set out on pages 37 to 70, 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 2018 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 28 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 28.
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 resolution of the Directors.
Jonathan munz
chairman
Melbourne
27 August 2018
Heath sharp
chief executive officer and managing Director
Annual Report 2018
71
InDepenDent auDIto’s report
Important notIces
72
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. 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 Company is in accordance with the Corporations Act 2001, including: •giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and •complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: •Consolidated Statement of financial position as at 30 June 2018; •Consolidated Statement of profit or loss and other comprehensive income, Consolidated Statement of changes in equity and Consolidated Statement of cash flows for the year then ended; •Notes including a summary of significant accounting policies; and •Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. 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. Key Audit Matters
The Key Audit Matters we identified are:
•
•
acquisition of
Holdings Limited; and
John Guest
Valuation of inventory.
Key Audit Matters are those matters that, in our professional
judgement, were of most significance in our audit of the
Financial Report of the current period.
These matters were addressed in the context of our audit of the
Financial Report as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Acquisition of John Guest Holdings Limited ($1,237 million)
Refer to Note 3 Business Combinations to the Financial Report
The key audit matter
How the matter was addressed in our audit
Measurement of intangible assets acquired as
part of the John Guest business acquisition is a
Key Audit matter due to:
•
•
the size of the acquisition (base purchase
consideration of $1,237 million); and
level of
the
in
judgement
evaluating the provisional purchase price
accounting
allocation
standards.
required
against
(PPA)
The Group engaged an external expert to advise
on the
identification and measurement of
intangible assets in connection with the PPA.
Significant judgement was required by us in
assessing the valuation methodologies applied
to these intangible assets, and inputs into the
valuations, including forecasted revenues and
discount rates.
In assessing this key audit matter, we involved
senior audit team members, including valuation
specialists, who collectively understand the
economic
and
Group’s
environment it operates in.
business
the
Our audit procedures included:
•
reading the sale and purchase agreement to
understand the key terms and conditions of the
identification and
relating
transaction
measurement of intangible assets.
the
to
• working together with our valuation specialists, we
challenged
the valuation methodologies and
assumptions used in the provisional PPA at it relates
to intangible assets. This included:
assessing
the methodology
for
consistency with industry practices and criteria
in the accounting standards;
applied
comparing certain inputs used by the external
expert to external industry examples;
assessing the discount rate applied by the
Group using our knowledge of the Group, its
industry and publicly available data of
comparable entities;
evaluating forecast revenues using historical
results of the John Guest business prior to
acquisition, published industry trends for the
markets in which the John Guest business
operates in, and the Group’s strategy for the
business; and
assessing the competence, objectivity and the
scope of the external expert.
•
assessing the Group’s disclosures in respect of the
acquisition against the accounting standards.
Annual Report 2018
73
InDepenDent auDIto’s report
Important notIces
Valuation of inventory ($203 million)
Refer to Note 9 Inventories to the Financial Report.
The key audit matter
How the matter was addressed in our audit
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:
examining the construct of the standard cost;
evaluating the underlying documentation of the
Group’s methodology and
inquiring with
finance and operational personnel in the Group
about the allocation methodology applied; and
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 the Group’s consideration of changes in
market conditions, and its implications to the
valuation of inventory.
assessing the accuracy of the Group’s expected
selling prices to inform our evaluation of the current
expected selling prices
into the
inventory valuation. We did this by comparing a
sample of previously
identified slow moving
inventories to subsequent sales amounts achieved.
This was performed across various products and
site categories.
incorporated
observing the condition of a sample of inventory at
the
physical
identification from the count to the accounting
records as they enter into the inventory valuation.
inventory counts.
traced
We
challenging the
identification of categories of
inventory at risk of net realisable value being less
than cost using:
our observations of poorer condition inventory
from the inventory counts;
the implications to saleability of inventory given
The valuation of inventory is a key audit matter
as a result of:
•
•
•
the extent of audit effort applied to address
the Group’s inventory volumes held across
multiple product categories in multiple
manufacturing sites. The high volume of
manufactured products across multiple
regions leads to greater audit effort, as
inventory is tested at a regional level.
the
certain products where there are readily
available competitor products in the market,
inventory net
increasing
risk of
realisable values falling below cost due to
market demand / pricing pressures. We
focus our audit effort on assessing products
at risk of these conditions, including those
already
identified as slow moving or
obsolete.
the inherent complexities in applying a
standard
to
inventories requires additional audit effort in
assessing certain products “at risk”.
cost of manufacturing
74
Reliance Worldwide Corporation Limited
our understanding of the changing market
conditions from our industry experience; and
comparison against recent sales trends.
testing the Group’s value ascribed to inventory,
across various product and site categories, where
net realisable value is lower than cost. This was
performed on a sample basis 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
subsequent to year end.
from
transactions
assessing the appropriateness of the Group’s
policies for the valuation of inventory against the
requirements of the accounting standards.
•
•
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 this Auditor’s Report was the Directors Report,
Remuneration Report, Operating and Financial Review and Financial Highlights. The Chairman’s Report
and Chief Executive Officer’s Report are expected to be made available to us after the date 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 and our related assurance opinion.
In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In
doing so, we consider whether the Other Information is materially inconsistent with the Financial Report
or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information,
and based on the work we have performed on the Other Information that we obtained prior to the date of
this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Report
The Directors are responsible for:
• preparing the Financial Report that gives a true and fair view in accordance with Australian
Accounting Standards and the Corporations Act 2001
•
•
implementing necessary internal control to enable the preparation of a Financial Report that gives
a true and fair view and is free from material misstatement, whether due to fraud or error
assessing the Group and Company’s ability to continue as a going concern and whether the use of
Annual Report 2018
75
InDepenDent auDIto’s report
Important notIces
76
Reliance Worldwide Corporation Limited
the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the Financial Report Our objective is: •to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and •to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Reliance Worldwide Corporation Limited for the year ended 30 June 2018 complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities 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 exclusively within the section labelled “Remuneration Report”, for the year ended 30 June 2018. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Paul McDonald Partner Melbourne 27 August 2018 shareholder InformatIon
Important notIces
The information set out below was applicable at 30 August 2018.
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 95.
largest shareholders
The names of the 20 largest registered holders of ordinary shares are listed below.
name
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Limited
GSA Custodians Pty Ltd
Citicorp Nominees Pty Limited
National Nominees Limited
BNP Paribas Nominees Pty Ltd
BNP Paribas Noms Pty Ltd
Australian Foundation Investment Company Limited
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
Reliance Employee Share Investments Pty Limited
HSBC Custody Nominees (Australia) Limited
AMP Life Limited
UBS Nominees Pty Ltd
Sandhurst Trustees Ltd
Nabe Pty Ltd
BNP Paribas Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited
Netwealth Investments Limited
CS Third Nominees Pty Limited
total holders
number of shares
issued shares
% of
1,679
3,565
1,976
1,924
106
9,250
852,262
10,051,357
14,457,372
43,386,763
721,347,011
790,094,765
0.11
1.27
1.83
5.49
91.30
100.00
number of shares
% of
held
Issued shares
235,541,551
107,708,193
79,015,152
68,188,523
64,263,541
61,879,090
25,250,542
9,810,870
6,944,361
5,918,643
5,389,834
5,113,712
4,225,532
2,973,760
2,250,660
2,107,071
1,981,678
1,494,387
1,433,854
1,329,074
29.81
13.63
10.00
8.63
8.13
7.83
3.20
1.24
0.88
0.75
0.68
0.65
0.53
0.38
0.28
0.27
0.25
0.19
0.18
0.17
Annual Report 2018
77
shareholder InformatIon
Important notIces
substantial shareholders
The number of shares held by substantial shareholders at 14 September 2018 was:
name
Bennelong Australian Equity Partners Ltd
GSA Custodians Pty Ltd
BNP Paribas Nominees Pty Limited (as custodian for UniSuper Limited)
Challenger Limited
Buy-Back
The Company does not have a current on-market buy-back.
number of
shares held
96,327,571
79,015,152
55,130,743
47,658,571
%
12.19
10.00
6.98
6.03
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.
78
Reliance Worldwide Corporation Limited
Annual Report 2018
79
corporate DIrectorY
Important notIces
Board of Directors
Mr. Jonathan Munz (Chairman)
Mr. Heath Sharp
Mr. Russell Chenu
Mr. Stuart Crosby
Mr. Ross Dobinson
Ms. Sharon McCrohan
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
80
Reliance Worldwide Corporation Limited
RELIANCE WORLDWIDE CORPORATION LIMITEDACN 610 855 877www.rwc.comRWC_AnnualReport_2018Cover_FINAL.indd 29/18/18 2:27 PM