Waters
Annual Report 2023

Plain-text annual report

ANNUAL REPORT 2023 Waterco pioneers reliable solutions for healthy, safe water environments. This annual report is printed on Ecostar Offset recycled silk paper which comprises 60% recycled paper & FSC®certified pulp. This paper meets ISO 14001 Environmental Accreditation standards. Waterco Limited is pursuing reduction of its carbon footprint and embraces the new technologies which make recycled paper available. Contents | 2023 4 6 7 14 16 24 35 37 85 86 Company Profile Group Consolidated Financial Highlights Chief Executive Officer’s Review of Operations Board of Directors Statement of Corporate Governance Practices Directors’ Report Auditor's Independence Declaration Consolidated Financial Report Shareholder Information Corporate Directory 1 WATERCO LIMITED | ANNUAL REPORT 2023Company Profile CANADA Boucherville USA Augusta UK Kent CHINA Guangzhou MALAYSIA Kuala Lumpur SINGAPORE INDONESIA Jakarta AUSTRALIA Sydney, Brisbane, Melbourne, Adelaide, Perth NEW ZEALAND Auckland Waterco pioneers reliable solutions for healthy, safe water environments, which are used in residential, commercial and industrial applications in over 40 countries. Established in 1981, it has since become a global brand recognised for designing and manufacturing filtration and sanitisation innovations for the swimming pool, spa, aquaculture, and water purification sectors. 4 4 Manufacturing Power House Waterco’s research and development team has created an innovative range of award winning products. Waterco delivers high quality products at exceptional value with its efficient manufacturing procedures, advanced fibreglass winding and pioneering plastic molding. Swimart is a market leading brand in the pool care industry across Australia and New Zealand with over 40 years experience. Swimart is focused on making pool care easy, with 68 retail stores and 6 mobile franchises across Australia and New Zealand. Swimart provides its customers a great range, service and advice through its highly trained and experienced technicians focused on their pool care needs through its fleet of over 250 Swimart service vans. Zane Solar Systems consists of a 36-strong dealer network throughout Australia. These highly skilled and trained professionals install solar, heat pump and gas pool heating systems for both domestic and commercial applications using Zane’s Gulfstream and Gulfpanel solar absorber, Electroheat pool heat pumps and Turbotemp gas pool heaters. regions of Malaysia, In certain residents experience water discolouration caused by rust from unlined galvanised pipes. To service this market Waterco has set up a dealer network of 10 Watershoppes selling Waterco’s range of water filters and drinking water purifiers. 5 WATERCO LIMITED | ANNUAL REPORT 2023Group Consolidated Financial Highlights Financial Year Ended 2023 2022 2021 Operating revenue ($ million) 134.00 128.14 118.38 Sales revenue ($ million) 129.05 123.28 113.35 2020 98.47 93.58 2019 88.24 89.62 Earnings Before Interest and Tax (EBIT) ($ million) from continuing operations Earnings Before Interest and Tax (EBIT) ($ million) from discontinued operations EBIT (continuing operations) / Sales Revenue 14.5 15.17 9.4 4.83 5.13 - - - 17.92 -0.71 11.20% 12.30% 8.30% 5.20% 6.00% Profit before income tax from continuing operations ($ million) Profit/(loss) before income tax from discontinued operations ($ million) 13.85 14.87 9.06 3.9 4.17 - - - 17.92 -0.86 Net profit after tax ($ million) 10.8 11.57 12.7 17.56 2.28 Total assets ($ million) 167.95 157.65 135.4 146.21 116.83 Equity ($ million) 121.23 111.01 100.45 87.26 75.83 Basic Earnings per share from continuing and discontinued operations 30.7 cents 32.7 cents 35.6 cents 48.8 cents 6.1 cents Basic Earnings per share from continuing operations Basic Earnings per share from discontinued operations 30.7 cents 32.7 cents 35.6 cents 8.6 cents 8.4 cents - - - 40.2 cents (2.3 cents) Dividends per share (Interim and Final) 10.0 cents 8.0 cents 7.0 cents 5.0 cents 5.0 cents Net Tangible Assets per share Year-end share price $3.41 $4.00 $3.10 $3.60 $2.78 $2.90 $2.43 $2.55 $2.06 $1.61 6 6 Chief Executive Officer’s Review Of Operations SOON SINN GOH Chairman/Group CEO REVENUE AND PROFITABILITY The Group reports an increase in Sales for the year of 5% from $123.28m to $129.05m. Net Profit Before Tax (NPBT) fell 7% from 14.87m to 13.85m while Earnings Before Interest and Tax (EBIT) recorded a small reduction of 4% from $15.17m to $14.50m The major reasons for the improvement in sales were the result of the ongoing effects of Covid-19 which resulted in a lot of our major pool builders order books filled till the end of June 2023. However,a weakness in the Australian Dollar over the year and increase in input costs (mainly wages, freight and energy costs) resulted in lower margins and higher overheads for the year. As a result, the Australian and New Zealand Division, which accounts for a major portion of the Group’s profitability and sales, registered a decrease in EBIT of 34%. Swimart Division met expectations despite an increase in operating expenses in the current year. Retail sales across the Swimart Franchise Network continued to grow as home improvement expenditure started to slow down with normal travel returning and interest rates rising by 3.25% since the start of the financial year. DIVISIONAL EBIT PERFORMANCE The breakdown of EBIT contribution by division is as follows: FY23 FY22 DIVISIONAL EBIT ($000) ($000) % Change Australia and New Zealand North America and Europe Asia 5,090 2,950 6,458 7,704 2,559 4,911 Consolidated Reported EBIT 14,498 15,174 -34% +15% +32% -4% 7 WATERCO LIMITED | ANNUAL REPORT 2023AUSTRALIA AND NEW ZEALAND (ANZ) The Australia and New Zealand (ANZ) Division derives its revenue predominantly from the domestic swimming pool industry. In this market, Waterco offers a wide range of products, including chemicals for swimming pool water treatment. Waterco also owns the Swimart franchise, which features pool stores and mobiles in Australia and New Zealand. The success of these stores is built on more than three decades of experience, during which Waterco has developed an extremely good understanding of the factors that drive consumer demand in the after-market. Franchise partners benefit from a programme that has been developed and improved on in-house since 1983, when the first company-owned pool shop was opened in Sydney. This has since grown into a successful Swimart franchising retail system. Steady market share in the domestic pool sector has underpinned the Division’s performance. The investment in the heat pump division over the last few years has paid off well - The ANZ Division achieved a substantial increase in heat pump sales during the year. This year was another challenging year for the ANZ Market with the operating costs continuing to rise (wage, local freight and energy costs and a weaker Australian Dollar putting pressure on margins. However, unlike the previous year, there were few problems sourcing of stock and booking shipping lines. Unlike the previous year where Group Stock Levels went up by 40% or $14m, Group Stock Levels only went up 3% or $1.5m as supplies and shipping returned to normal. Despite a challenging year in the ANZ Market, Waterco was able to achieve a 0.5% increase in external sales on the previous year. NORTH AMERICA AND EUROPE Waterco North America and Europe comprises the Group’s operations in the USA, Canada and UK. This division recorded a increase in external sales of 7.5% on the same period last year. The North America and Europe Division recorded a healthy 15% increase in EBIT as supplies returned to normal and management made excellent progress in winning market share. Waterco USA (WUSA): The US market is the largest in the world. Waterco has invested significantly in this market, through start-up operations, as well as a substantial acquisition of Baker Hydro in March 2005. Our operations in Augusta, Georgia, now distribute a wide range of filters and assemble commercial pumps. In June 2020, Waterco USA opened a small branch in Canada (Distribution Waterco Canada or DWC) to service its local customer base. Swimart continues its brand refresh and update of all its stores and mobile assets across Australia and New Zealand. Waterco engineers a large output single-phase inverter pool heat pump Waterco engineers a high-output single- phase inverter pool heat pump. The 31kW Electroheat ECO-V Inverter Top Vent Single Phase Pool Heat Pump delivers a massive 39kW of heat at 27°C air and 32kW at 15°C air, thanks to its oversized evaporator area and twin fans. This makes it ideal for swimming pool owners who don't have or can't get three-phase power. 8 Overall, this entity recorded an outstanding increase in sales of 23% during the year under review despite the number of new pool constructions continuing to fall during the year. Lacron Filters Waterco Europe (WEL): Waterco started operations in the UK in 1999 and subsequently acquired the business of Lacron Ltd in 2003. The renowned “Lacron” name is synonymous with quality filters and, coupled with Waterco’s established progressive manufacturing techniques, this has enabled WEL to bring to the market filters of quality at acceptable prices. Today, both the Lacron and the Waterco brands are well-recognised as quality products in Europe. This recognition continues, even after the manufacturing operations had been transferred to Malaysia and China, because the same high standards have been maintained. Waterco Europe recorded a decline in sales of 10% during the year due to the expected fall in the number new pools being built. This Entity continues to reinforce its interest in commercial filters of high pressure ratings developed for water treatment, in particular, as pre-filtration for seawater desalination. The Group’s ability to manufacture filters of such pressure ratings from composites provides an opportunity to enhance our presence in a market that has traditionally used steel to cope with such pressures. However, its mix of sales resulted in a vast improvement in its Gross Margin leading to an overall net profit for the year less than 1% below the PCP. ASIA Waterco Far East in Malaysia (WFE): This Entity was born out of Waterco’s familiarity with the Southeast Asian market. WFE was initially a sales operation designed to service Waterco Australia’s Southeast Asian customer base. In 1991 WFE added manufacturing operations to its undertakings in Kuala Lumpur, Malaysia. As well as bringing the Group closer to Southeast Asia markets, this also gave cost-efficiency in our manufacturing operations. Since then, WFE has become the principal manufacturing facility for the Waterco Group. WFE continues to deliver robust new products to give the Group a strong reputation and competitive edge. WFE has achieved ISO9001:2008 certification, the internationally recognised standard for the quality management of businesses, and demonstrates the existence of an effective and well-designed quality management system, which stands up to the rigours of an independent external audit. A key criterion of this standard is that the management system can provide confidence in creating products that meet expectations and requirements. Local sales in Malaysia recorded a greater than 30% increase in the current year despite continuing political uncertainty and cost pressures faced by the business especially with the availability of foreign labour that which has not returned to Pre-Covid 19 Levels. The sourcing of raw materials and components has improved during the year and the restrictions imposed by the Pandemic no longer having an effect on the business The growth in the use of robots (still at a relatively small scale) in the manufacturing Established in 1971, Lacron Ltd. is known for its superior quality and durability. Lacron commercial fiberglass filters are the preferred choice for more intense commercial installations, such as large- scale spas and heavily used pools. Waterco’s Malaysian manufacturing facility in Kuala Lumpur Waterco’s high-tech facility takes up 6.3 hectares and has a total work force of 504 staff. 9 WATERCO LIMITED | ANNUAL REPORT 2023Electrochlor Plus Mineral Chlorinator: Smart pool care, all in one This advanced device automatically sanitises, manages pH, filters, and controls auxiliary equipment, so you can relax and enjoy your pool. With the Electrochlor Plus mobile app, you can monitor and control all of your pool's function. 10 process has kept these wage increases to a moderate level. The Entity’s capacity has been increased during the year and this has led to greater efficiencies in the business and an improvement in financial performance. Combined with improved efficiencies and reduced wastages in WFE, profits were better than expected. Waterco Guangzhou (WGZ): Commenced operations in 2000, delivering advantages of low operational costs and a foothold into the huge China market. The manufacturing of filters primarily for the European and the Australian markets has been relocated to Malaysia, leaving this entity to focus on the development of commercial heat pumps and to improve marketing of pool equipment to the commercial pool market in China. External sales for the current year were slightly up on last year despite the economic challenges facing the Country with a further decline in the Construction Industry , general slow-down in consumption and growth across the Country and unemployment (especially among the youth ) continuing to rise. Floods in January and June 2023 also caused havoc while a severe drought during the year has reduced Hydro – Electric Power Generation and irrigation right across the country. Waterco International in Singapore (WI): This Entity focuses on sales in Asian countries, other than Malaysia and China, where we have our own trading entities. WI also provides technical assistance to our Indonesian entity and has been able to contribute to the growth of the latter. WI achieved a record 39% increase in external sales during the year. PRODUCT DEVELOPMENT AND MARKET EXPANSION Waterco Continues to Invest in Product Innovation and R&D Waterco, a leading provider of water treatment products and systems, is committed to staying at the forefront of the industry through continuous investment in product innovation and research and development (R&D). In recent years, Waterco has made significant progress in developing new technologies for swimming pools. The company's latest innovation is an IoT platform that enables homeowners and pool service technicians to obtain essential data about swimming pools remotely. The IoT platform was developed by a team of specialized software engineers and cloud architects over the past four years. It includes a WiFi board that can be customized and adapted to different equipment, new production tools, a robust device registry, and digital tools that simulate production and real-world use. Waterco expects the IoT platform to improve pool management, reduce operating costs, and enhance the customer experience. The platform is expected to be available in early 2024. MARKET EXPANSION Waterco Vietnam In addition to its investment in R&D, Waterco is also expanding its global footprint. In 2023, the company opened a branch in Vietnam to tap into the growing demand for its products in the country. Vietnam has seen a rapid growth in its middle class in recent years, and this has led to an increased demand for luxury goods and services, including swimming pools. The country is also a popular tourist destination, and many hotels and resorts are investing in swimming pools to attract visitors. Waterco believes that there is a significant opportunity for growth in the Vietnamese market. The company's decision to open a branch in Vietnam is a strategic move that will help Waterco to better serve its customers in the region. The company's continued investment in product innovation and R&D, as well as its expansion into new markets, is a testament to Waterco's commitment to providing its customers with the best possible water treatment solutions. DIVIDEND AND OUTLOOK The results (Net Profit After Tax of $10.805m was 7% below last year NET PROFIT FOR THE YEAR (AFTER TAX) ($000) ($000) FY23 FY22 % change Profit before income tax expense 13,853 14,866 -7% Income tax expense/(benefit) 3,048 3,292 Net Profit for the year 10,805 11,574 -7% Waterco aims to improve market share by increasing awareness of its innovations in the region. With the population becoming progressively wealthier, research is showing that swimming pools and access to clean water are considered an important investment in improving quality of life. 11 WATERCO LIMITED | ANNUAL REPORT 2023The Board will provide a profit guidance at a later stage for the financial year ending 30 June 2024, as more information becomes available. Waterco declares a final dividend payment of 5 cents per share, payable to shareholders on 15 December 2023. With an interim dividend of 5 cents per share, declared after the announcement of the Half-Year results, this brings the total dividend for the year at 10 cents per share compared to the 8 cents in the previous financial year. EVENTS AFTER BALANCE DATE Purchase of Davey On 5 August 2023, Waterco Ltd signed an agreement with GUD Holdings Ltd to purchase the worldwide business of Davey Water Products for a consideration of approximately $65m. The purchase is being fully funded by Bank Facilities provided by Westpac Banking Corporation. The Davey Business provides Waterco with not only a much larger presence in the pool industry but a significant entry point in the water treatment business especially in regional areas. The settlement of this business took place on 1st September 2023. Davey, an iconic Australian brand since 1934, manufactures and distributes a wide range of water-related products, from water transfer and conservation to water treatment and filtration. With branches in Australia, New Zealand, and France, Davey is a global leader in the water industry. 12 13 WATERCO LIMITED | ANNUAL REPORT 2023Board of Directors SOON SINN GOH - B COM FCPA Chairman/Group CEO Mr. Goh is the founder of Waterco Limited. He has been a member of the Board since the Company’s incorporation in February 1981. Prior to the inception of Waterco, he was the Managing Director of a company specialising in the construction of water and sewage treatment facilities. His accounting and financial management academic training combined with understanding of the technical aspects of the water treatment industry is an important contributing factor to the success of Waterco. He held no other listed company directorships during the past three financial years. BRYAN GOH - B ECON Executive Director/Chief Operating Officer Mr. Goh was appointed to the Board in June 2010. As the Chief Operating Officer, Mr. Goh has overall responsibility for the business operations in Australia and New Zealand. Mr. Goh was on the board of directors of The Swimming Pool & Spa Association of New South Wales Ltd (from February 2005 to February 2009), a non-profit organisation dedicated to maintaining and improving standards within the industry for the betterment of consumers, pool builders and suppliers. He held no other listed company directorships during the past three financial years. BEN HUNT - PHD (ANU) Non-Executive Director Dr. Hunt was appointed to the Board as a Non-Executive Director in June 1998. He has held academic appointments as the Head of the Graduate School of Business, Associate Dean of the Faculty of Business and Associate Professor of Finance at the University of Technology, Sydney (UTS). He has a doctorate from the Australian National University. Although Dr. Hunt has written extensively on Australian financial markets (he is the co-author of the text Australian Institutions and Markets, 8th Ed.), his knowledge extends to the South East Asian region. He has been a regular presenter of financial seminars in Hong Kong and Singapore for the UK publishing and training company Euromoney. Dr. Hunt is the Chairman of the Remuneration Committee and a member of the Audit Committee. He held no other listed company directorships during the past three financial years. 14 (RICHARD) CHENG FAH LING - B COM CA Non-Executive Director Mr. Ling was appointed to the Board as a Non-Executive Director in May 2009. He holds a Bachelor of Commerce degree from the University of Newcastle, Australia. He is a member of Chartered Accountants Australia and New Zealand and the Malaysian Institute of Accountants. He has experience in total logistics and corporate finance in capital markets. Mr. Ling was formerly a Non-Executive Director, the Chairman of the Audit Committee and a member of the Remuneration Committee of Tiong Nam Logistics Holdings Berhad, a public company listed on Bursa Malaysia (Malaysian Stock Exchange). Mr. Ling is Chairman of the Audit Committee and a member of the Remuneration Committee of Waterco Limited. He held no other listed company directorships during the past three financial years. JUDY RAPER AM, BE (Hons), PHD, FATSE, FAICD, FIE(Aust), MIET. Non-Executive Director Professor Raper was appointed to the Board as a Non-Executive Director in April 2020. She holds a Bachelor of Engineering (Hons) and has a doctorate from The University of New South Wales. She has held several academic and non-academic appointments in Australia, the United States and the UK as the Dean of Engineering at the University of Sydney, Head of Chemical & Biological Engineering at University of Missouri in United States, Division Director of Chemical, Bioengineering, Environmental Engineering and Transport Systems at the National Science Foundation in United States and Deputy Vice-Chancellor (Research & Innovation) at the University of Wollongong. She is currently the Dean and Chief Executive Officer of TEDI- London responsible for the development of a new start-up Engineering Institution. Professor Raper is a Fellow of the Australian Academy of Technology, a fellow of the Australian Institute of Company Directors and an Honorary Fellow of Engineers Australia. Professor Raper is a member of the Remuneration Committee and the Audit Committee of Waterco Limited. She held no other listed company directorships during the past three financial years. WAYNE BEAUMAN BE, CA, GAICD Non-Executive Director Mr Beauman was appointed to the Board as a Non-Executive Director on 21July 2023.He has a Bachelor of Economics from Macquarie University. He is an Associate of Chartered Accountants Australia and New Zealand and a graduate of the Australian Institute of Company Directors. Mr Beauman is an experienced finance professional with more than 25 years as a Partner in Chartered Accounting firms. He has provided assurance and related services to clients with national and international operations across a broad range of industries including manufacturing, real estate and property development, mining, retail, financial services and local government. He is highly skilled in financial data analysis and reporting as well as providing advice to Executive Management and Corporate Boards on governance and regulatory reporting requirements. Mr Beauman is a member of the Remuneration Committee and the Audit Committee of Waterco Limited since his appointment to the Board. He held no other listed company directorships during the past three years. 15 WATERCO LIMITED | ANNUAL REPORT 2023Statement of Corporate Governance Practices This statement explains how Waterco Limited ACN 002 070 733 (Waterco or Company) has complied with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations – 4th Edition, published February 2019 (ASX Recommendations), during the financial year ended 30 June 2023 (Reporting Period). All Waterco charter, codes and policy documents referred to in this statement are available in the Corporate Governance section of the Company’s website, www.waterco.com.au This statement has been adopted by the Board as current as of 25 August 2023. PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 1.1 Role of Board and management The Board Charter sets out the roles and responsibilities of the Board. The Board is ultimately responsible for the growth, strategic direction and success of the Company and has set out specific matters reserved for its decision and matters delegated to the management. The Board has disclosed a copy of the Board Charter available in the Corporate Governance section of the Company’s website, www.waterco.com.au The Company has in place a policy for nomination and appointment of directors. Before appointing a director, the Company will undertake appropriate checks on a candidate for directorship and will provide all material information in its possession to its shareholders to make a decision on whether or not to elect or re-elect a director. When considering the re-election of an incumbent director or election of a new director, the Board takes into account the following: (a) business experience, particularly in respect of the industries in which the company operates; (b) standing in the community; (c) educational qualifications; (d) checks against the person’s character, criminal record and bankruptcy history; (e) availability and other directorships; (f) the possession of particular skills such as finance, marketing or risk management; (g) whether the appointment or re-appointment will contribute positively to the skill set and diversity of the Board as a whole; and (h) gender diversity policy of the Company. In addition to being set out in the Board Charter, the letters of appointment executed with all directors describe the key duties and responsibilities of each member of the Board, and further include the terms of appointment, remuneration, time commitment envisaged, expectations regarding committee work, the requirement to disclose directors’ interests and confidentiality obligations. Mr Soon Sinn Goh has an employment agreement with the Company as the Group CEO. As Mr Goh spends a majority of his time developing and enhancing manufacturing capabilities in Malaysia and sales in various entities other than Australia and New Zealand, he also has a letter of employment with Waterco (Far East) Sdn Bhd setting out his role in Malaysia and a letter of employment with Waterco International Pte Ltd for his role in Singapore. Key Management Personnel have written employment agreements setting out a description of key duties and responsibilities, reporting lines, remuneration and termination rights. 1.2 Information regarding election and re-election of director candidates 1.3 Written appointment 16 1.4 Company Secretary 1.5 Diversity 1.6 Board reviews The Company Secretary is appointed by and accountable to the Board and has particular responsibility for: (a) advising the board and its committees on governance matters; (b) monitoring whether board and committee policy and procedure are being followed; (c) coordinating timely completion of board and committee papers; (d) ensuring that business conducted at board and committee meetings are accurately recorded in the minutes; and (e) helping to organise the induction and professional development of directors. The Board Charter explicitly reflects this delegation by the Board to the Company Secretary. The Board recognises diversity and equity as strengths and adopted a Diversity & Equity Policy for the Company which includes an express requirement for the Board to set measurable objectives for achieving gender diversity. The Diversity & Equity Policy is available in the Corporate Governance section of the Company’s website, www.waterco.com.au. In accordance with the Diversity & Equity Policy, the Board set objectives for achieving gender diversity across its organisation. The objectives for the Reporting Period were: Measurable objective for the Reporting Period Women on the Board Women in senior executive positions (excluding Board Members) Women employees in the company 20% 20% 35% The Board assessed the progress towards these objectives during the Reporting Period by reviewing the relative proportion of women and men in the Company’s workforce at all levels. During the Reporting Period, the Company has met the measurable objectives for women on the Board with 1 female Director out of 5 Directors on the Board; and 1 female senior executive out of 2 senior executives of the Company (defined by the Company as Key Management Personnel). However, the Company did not meet the measurable objective for total women employed. As at 30 June 2023, women represented 34.44% of the overall workforce. The Company will continue to work towards achieving the target measurable objective. The Board is committed to an ongoing internal process of performance evaluation of the Board, its committees and individual directors to ensure the diligent and effective discharge of responsibilities and a consistent mindset in improving corporate governance practices. The Board undertakes the performance evaluations by way of evaluation forms. The Board has undertaken an evaluation on the performance of the Board, its committees and individual directors for the Reporting Period. 1.7 Management reviews The Company is committed to an ongoing internal process of performance evaluation of Key Management Personnel to ensure the diligent and effective discharge of their responsibilities. The Group CEO has undertaken a performance evaluation review of Key Management Personnel for the Reporting Period. 17 WATERCO LIMITED | ANNUAL REPORT 2023PRINCIPLE 2: STRUCTURE THE BOARD TO BE EFFECTIVE AND ADD VALUE RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 2.1 Nominations committee The Company has not established a nomination committee. The ASX Recommendations acknowledge that such committees may not be required for smaller boards. The Board is of the opinion that it is appropriate for a company the size of Waterco for matters that come under the purview of a nomination committee to be undertaken by the Board through the Remuneration Committee. Furthermore, the Board has established processes in place to raise and address issues that would otherwise be considered by a nomination committee. During the Reporting Period, the Board comprised an Executive Chairman who is also the Group CEO, an Executive Director and three Non-Executive Directors. The Board views each of the three Non-Executive Directors as being independent. The Board’s membership is reviewed periodically to ensure that it maintains an appropriate mix of skills, qualifications and experience. In particular, the Board has identified skills and experience in corporate finance, international trade and international business environment, marketing and accounting and technical and industry knowledge in the water treatment and pool industries to be important. The Board composition represents diversity in gender, age, ethnicity and background. At each Annual General Meeting (AGM), one third of the directors (excluding the CEO) and any director appointed to fill a casual vacancy since the previous AGM must retire but may stand for re-election. The Company achieved its preferred Board composition of at least five directors during the Reporting Period, with a majority of Non-Executive (and, where possible, independent) Directors. 2.2 Board skills matrix Below is the matrix of skills and attributes that Waterco is aiming to achieve across its Board membership. This matrix was adopted by the Board on 1 July 2020. The Board aims to improve in some areas, such as legal and engineering experience and female representation. General Governance Executive and Non-Executive experience Leadership Strategic thinking Industry experience (local & global) Governance committee experience Risk management experience Knowledge of ethical and fiduciary duties Commitment to environmental protection and sustainability Corporate responsibility, health and safety Stakeholder engagement Technical Legal Financial Engineering Human resources Regulatory and compliance experience Diversity Female Male Different ethnicities and cultures Languages other than English 18 2.3 Disclose independence and length of service The names of the independent directors in office during the Reporting Period are: (a) Ben Hunt; (b) (Richard) Cheng Fah Ling; and (c) Judy Raper. The Company’s assessment of the materiality of a director’s interest is considered on a case by case basis by the Board. Where an entity associated with a Director provides services to the Company, the Board uses a threshold of $100,000 in fees in a financial year as a guideline. However, the Board does not follow an inflexible set of criteria but considers whether the relationship in question is reasonably likely to interfere with that Director’s independent judgement. Further details of the directors’ skills, experience, expertise and lengths of service are set out in the Board of Directors' section of the Company’s Annual Report. A majority of the Board are independent directors, taking into account the factors relevant to "independence" under the ASX guidelines. The roles of Chairperson and Group CEO are both held by Mr Soon Sinn Goh. The Board believes that Mr Goh brings a vital level of industry experience to the operations of the Company. Also, as the major shareholder of the Company, Mr Goh’s commitment to the success of the Company is unquestionable. Therefore, it is the Board’s opinion that it is appropriate in the Company’s circumstances that the two roles be combined. With the majority of the Directors being independent, and with Independent Directors chairing the Audit and the Remuneration Committees, the Board is also of the opinion that it is not necessary that the office of Chairperson be held by an Independent Director. 2.4 Majority of directors independent 2.5 Independent Chair 2.6 Induction and professional development All new directors undergo an induction to familiarise them with the business of the Company, the Company’s internal control and risk management practices and policies and procedures. The Company also seeks to provide appropriate professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform their role as directors effectively. 19 WATERCO LIMITED | ANNUAL REPORT 2023PRINCIPLE 3: INSTIL A CULTURE OF ACTING LAWFULLY, ETHICALLY AND RESPONSIBLY RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 3.1 Statement of Values The Board’s statement of values can be found on the Company’s website, www. waterco.com.au 3.2 Code of conduct The Board has established a Code of Conduct for directors, key management personnel and employees. 3.3 Whistleblower policy The Company encourages employees to speak up about unlawful, unethical or irresponsible behavior within the organisation through the Company’s whistleblower policy which is available in the Corporate Governance section of the Company’s website, www.waterco.com.au 3.4 Antibribery and corruption policy The Company is committed to conducting all dealings lawfully, ethically and in line with the Company’s Statement of Values. The Company’s antibribery and corruption framework enables it to prevent, detect and response to bribery and corruption risks. The policy is available in the Corporate Governance section of the Company’s website, www.waterco.com.au PRINCIPLE 4: SAFEGUARD THE INTEGRITY OF CORPORATE REPORTS RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 4.1 Audit committee The Audit Committee operates under the Audit Committee Charter. The role of the Audit Committee is to assist the Board with its oversight of the integrity of the financial statements, including overseeing the existence and maintenance of internal controls, accounting systems, and the financial reporting process. The Committee also nominates external auditors, reviews existing audit arrangements and co-ordinates external and internal auditing functions. In addition, the Audit Committee examines any other matters referred to it by the Board. During the Reporting Period, the Audit Committee consisted of 3 Independent Non-Executive Directors and was headed by an Independent Chairperson not holding the position of Chairperson of the Board. The members of the Audit Committee during the Reporting Period were: (a) (Richard) Cheng Fah Ling – Chairman; (b) Ben Hunt; and (c) Judy Raper. The number of Audit Committee meetings and details of Committee members’ attendance are included in the Directors’ Report section of the Company’s Annual Report. 20 4.2 CEO and CFO certification of financial statements The Board has received a written statement from its Group CEO and Chief Financial Officer (CFO) which includes a declaration under section 295A of the Corporations Act 2001 (Cth) advising that: (a) in their opinion the Company’s financial reports have been properly maintained and have complied with the appropriate accounting standards and give a true and fair view of the Company’s financial position and performance; and (b) the opinion has been formed on the basis of a system of risk management and internal control adopted by the Board, and that this system is operating efficiently. 4.3 External auditor at AGM The external auditor attends the AGM for the purpose of answering shareholder questions regarding the conduct of the audit and the preparation and content of the audit report. PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 5.1 Disclosure and Communications Policy The Company’s Continuous Disclosure Policy sets out the rules and responsibilities for Waterco’s officers and employees to ensure compliance with ASX Listing Rules and promote factual and timely disclosure of all material matters concerning the Company. 5.2 Board to receive information on announcements To ensure that the Board has timely visibility of the nature and quality of the information being disclosed to the market and the frequency of such disclosures, the Board receives copies of all material market announcements promptly after they have been made. 5.3 Investor presentations Should the Company give a new and substantive investor or analyst presentation, it will release a copy of the presentation materials on the ASX Market Announcements Platform ahead of the presentation. 21 WATERCO LIMITED | ANNUAL REPORT 2023PRINCIPLE 6: RESPECT THE RIGHTS OF SECURITY HOLDERS RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 6.1 Information on website Waterco keeps investors informed by publishing information on the Company’s website. All disclosures made to the ASX and all information provided to analysts or the media during briefings are promptly posted on the Company’s website after they have been released to the ASX. 6.2 Investor relations programs The Company’s Shareholder Communication Policy details the mechanisms put in place to ensure that the rights of shareholders are respected and to facilitate the effective exercise of those rights. The Shareholder Communication Policy contains information on persons whom shareholders can contact in relation to procedures at shareholders meetings, matters being considered at shareholders meetings and other issues. It also indicates the predominant sources for investors to engage with the Company at general meetings of the Company. 6.3 Facilitate participation at meetings of security holders Shareholders who are unable to attend any of the Company’s meetings are encouraged to vote on the proposed motions by appointing a proxy. Proxy forms are included with meeting notices which also provides details on how proxy forms should be completed and submitted. 6.4 6.5 Substantive resolutions The Company ensures that all substantive resolutions at the shareholders’ meeting are decided on a poll rather than by a show of hands. Facilitate electronic communications The Company recognises the benefits of the use of electronic communications. Shareholders have the option of selecting to receive the following information electronically from the share registry: dividend statements; annual reports; notices of meetings and proxy forms and the ability to vote online; and other general company communications. With this in place, shareholders can log into their account to make changes to their communication preferences. The share registry can also be contacted via email or telephone. Contact details can be found on the Company’s website. PRINCIPLE 7: RECOGNISE AND MANAGE RISK RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 7.1 Risk committee The Company has not established a Risk Committee. The functions of the Risk Committee are performed by the Audit Committee who reports to the Board on the effectiveness of the risk management and internal control processes of the Company regularly by circulation of Minutes of Meetings to the directors and through other means of formal and informal reporting. Further details regarding the Audit Committee, its membership and the number of meetings held during the Reporting Period are set out in response to Recommendation 4.1. 7.2 Annual risk review The Board reviews the risk management framework of the Company periodically as and when necessary to meet the operational requirements of the Company and changes in the law through the Audit Committee. The Board has performed the review for the Reporting Period. 22 7.3 Internal audit The Company reviews and continually improves the effectiveness of its risk management and internal control processes. Further details regarding audit Recommendation 4.1. functions are set out in response to 7.4 Sustainability risks The Board considers that the Company is not materially exposed to economic, environmental and social sustainability risks. PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY RECOMMENDATION WATERCO’S COMPLIANCE WITH ASX RECOMMENDATIONS 8.1 Remuneration committee 8.2 Disclosure of Executive and Non-Executive Director remuneration policy 8.3 Policy on hedging equity incentive schemes The Remuneration Committee is responsible for making recommendations to the Board on remuneration packages and policies for the Executive Directors and the Key Management Personnel. The Remuneration Committee Charter is published on the Company’s website. During the Reporting Period, the Remuneration Committee consisted of three independent Non-Executive Directors and was headed by an independent Chairperson not holding the position of Chairperson of the Board. The members of the Remuneration Committee during the Reporting Period were: (a) Ben Hunt - Chairman; (b) (Richard) Cheng Fah Ling; and (c) Judy Raper. The number of Remuneration Committee meetings and details of Committee members’ attendance during the Reporting Period are set out in the Directors’ Report section of the Company's Annual Report. Remuneration packages for Executive Directors are set so as to include an appropriate balance of fixed remuneration and performance-based remuneration. Remuneration of the Company’s Non-Executive Directors operates on different principles to the remuneration of Executive Directors. Non- Executive Directors receive fixed fees and do not participate in schemes designed for the remuneration of Executive Directors. Non-Executive Directors do not receive options or bonus payments or retirement benefits other than statutory superannuation. The Remuneration Report at the Directors’ Report section of the Annual Report sets out: (a) information about the Remuneration Policy developed by the Remuneration Committee and adopted by the Board; and (b) details of remuneration of the directors (executive and non-executive) and Key Management Personnel. The Company did not offer any equity-based remuneration scheme during the Reporting Period. In the previous reporting period, the Company issued 350,000 performance options (Options) to three executives (holders) under the Company’s long term incentive plan. The Options will vest in 3 tranches over three years, subject to satisfaction of certain vesting conditions. Once vested, each Option entitles the holder to receive one fully paid ordinary share in Waterco. The Options are not transferable (except with the approval of the Board) or sold, assigned or otherwise disposed of or encumbered by the holders. The holders are not permitted to enter into transactions which limit the economic risk of participating in long term incentive plan. 23 WATERCO LIMITED | ANNUAL REPORT 2023Directors' Report Your directors present their report on the Company and its controlled entities for the financial year ended 30 June 2023. Directors The names of directors in office during and since the end of the financial year are: • Soon Sinn Goh • Bryan Goh • Ben Hunt • (Richard) Cheng Fah Ling • Judy Raper All directors have been in office since the start of the financial year. On 21 July 2023, Mr Wayne Beauman was appointed a director. For details of the directors’ qualifications and experience, refer to the section titled “Board of Directors” which is to be read as part of this report. Company Secretaries The following persons held the position of Joint Company Secretary throughout the financial year: • Gerard Doumit FCPA JP Mr Doumit was appointed Company Secretary on 22 July 1991. He has been employed by Waterco since January 1987 as an Accountant and is currently Chief Financial Officer (CFO) and Company Secretary. He holds a Bachelor of Economics (Accounting) from Macquarie University. • Sin Wei Yong Mr Yong was appointed Company Secretary on 1 July 2020. He is an admitted solicitor and holds a Bachelor of Laws (Hons) from Northumbria University, United Kingdom. He joined the Company in 2014 as a Legal Officer. He has extensive experience in corporate governance and has more than 15 years’ experience in legal and regulatory compliance in a financial services group prior to joining the Company. Principal Activities The principal activities of the consolidated Group during the financial year were: • wholesale, export and manufacture of equipment and accessories in the swimming pool, spa pool, spa bath, rural pump and water treatment industries; • manufacture and sale of solar heating systems for swimming pools and pre-heat industrial solar systems; • franchise of retail outlets for swimming pool equipment and accessories; and • formulating, packing and distribution of swimming pool chemicals to independent pool stores and stores in its Swimart franchise network. There were no significant changes in the nature of the consolidated Group’s principal activities during the financial year. Consolidated Results The consolidated profit of the group after providing for income tax and eliminating non-controlling interests amounted to $10.846 million. 24 Dividends Dividends paid or declared for payment are as follows: • Final ordinary dividend of 5 cents per share paid on 15 December 2022 as recommended in last year’s report - $1.763 million • Interim dividend of 5 cents per share paid on 15 June 2023 as declared in the half yearly report - $1.761 million • Final ordinary dividend of 5 cents per share declared by the directors to be paid on 15 December 2023 - $1.760 million. All dividends paid or declared since the end of the previous financial year were fully franked. Review of Operations A review of operations of the Consolidated Group during the financial year and of the results of those operations together with likely developments in the operations of the consolidated Group and the expected results of those operations are set out in the Chief Executive Officer’s Review of Operations. Financial Position The net assets of the Consolidated Group have increased by $10.22 million from $111.01 million in June 2022 to $121.23 million in June 2023. The change has largely resulted from: • Upward movement in profits (less dividends paid) of 7.32 million; • Net increase in the asset revaluation reserve of group companies of $4.25 million; • Net decrease in non-controlling Interests of $0.14 million; • Foreign currency translation loss of $0.01 million; • Net decrease in share capital of $1.20 million from the Waterco Share Buy-Back. The Group’s working capital being current assets less current liabilities increased from $49.92 million in 2022 to $56.57 million in 2023. The Directors believe that the Group is in a strong and stable financial position. Significant Changes in State of Affairs The Directors are not aware of any significant changes in the state of affairs of the Consolidated Group that occurred during the financial year which have not been covered elsewhere in this report. After Balance Date Events On 17 July 2023, the company announced its eighth on market share buyback of $1,000,000 worth of shares (approximately 226,244 shares) commencing on 18 July 2023 and ending on 2 July 2024 (or earlier if the $1,000,000 is purchased before then). On 5 August 2022, Waterco Ltd signed an agreement with GUD Holdings Ltd to purchase the worldwide business of Davey Water Products for a consideration of approximately $65m. The purchase is being fully funded by Bank Facilities provided by Westpac Banking Corporation. The completion of the purchase took place on 1 September 2023. The Davey Business provides Waterco with not only a much larger presence in the pool industry but a significant entry point in the water treatment business especially in regional areas. Final Dividend Since the end of the reporting period, the Board resolved to pay a final dividend of 5 cents per share fully franked. 25 WATERCO LIMITED | ANNUAL REPORT 2023Future Developments, Prospects and Business Strategies Information as to future developments, prospects and business strategies in the operations of the Consolidated Group are included in the Chief Executive Officer’s Review of Operations. Other possible developments have not been included in this report as such inclusions would, in the opinion of the Directors, prejudice the interests of the Consolidated Group. Environmental The Consolidated Group’s operations are subject to some environmental regulations, particularly with regard to the storage of chemicals and waste management. The Consolidated Group has adequate systems in place for the management of its environmental requirements. For the financial year ended 30 June 2023 and as at the date of this report, the Directors are not aware of any breaches of the environmental regulations. Data, privacy and cyber security The Consolidated Group’s strategy is built around detecting, protecting and responding to cyber threats. The use of up-to-date technology to protect against cyber incidents supplemented by strong internal control processes help ensure the privacy, integrity and security of both customer and staff data. Climate change Over the last few years, there has been a move towards a low carbon economy with both investors and regulators now expecting companies to embrace cleaner/renewable energy solutions. The Group continues to invest in technologies which replace traditional sources of energy (electricity from coal) with renewable alternatives like solar. An example of this was the installation of solar panels at Rydalmere property a few years ago which cut traditional electricity consumption by above 75%. In addition, the group has undertaken continuous research into and production of energy efficient products, and product lines which are only powered by solar. This process started in the mid 1980s (well before the world started talking about renewable clean energy) with the acquisition of Zane Solar Systems. The solar business started off distributing rubber absorber for solar pool heating to be replaced over time by the more durable and energy efficient solar roof panels. The Group keeps abreast of market norms on sustainability and continues to monitor investor expectations and changing customer preferences while at the same time making any necessary changes to comply with evolving regulatory and legislative requirements. Directors’ Shareholdings Details of the Directors’ shareholdings are contained in the Key Management Personnel Shareholding table on page 32. Meetings of Directors During the financial year, 12 meetings of directors (including Audit and Remuneration Committees) were held. Attendances are set out below: Director Directors’ Meeting Audit Committee Meeting Remuneration Committee Meeting Number Eligible To Attend Number Attended Number Eligible To Attend Number Attended Number Eligible To Attend Number Attended Soon Sinn Goh Bryan Goh Ben Hunt (Richard) Ling Judy Raper 5 5 5 5 5 5 5 5 5 5 - - 5 5 5 - - 5 5 5 - - 2 2 2 - - 2 2 2 Wayne Beauman N/A N/A N/A N/A N/A N/A Shares under option Unissued ordinary shares in Waterco Limited under option at the date of this report are as follows: Grant date Expiry date Exercise price Number under option 23 August 2021 23 August 2031 $3.15 350,000 There have been no shares issued or options exercised during the year ended 30 June 2023. 26 Indemnifying Officers or Auditor During and since the financial year, the Company has paid premiums to insure all directors and officers against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity as director or officer of the Company, other than conduct involving a wilful breach of duty in relation to the Company. In accordance with common commercial practice, the insurance policy prohibits disclosure of the nature of the liability insured against and the amount of the premium. The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or any related body corporate against a liability incurred by such an officer or auditor. Directors’ Benefits No director has received or become entitled to receive, during or since the financial year, a benefit arising from a contract made by the parent entity, or a related body corporate with a director, a firm of which a director is a member or a director or an entity in which a director has a substantial financial interest other than: i. Sales made by a controlled entity to Asiapools (M) Sdn Bhd of which Mr Soon Sinn Goh is a director and shareholder. ii. Payments made for rental of warehouses, offices and a pool shop to Mint Holdings Pty Ltd of which Mr Soon Sinn Goh is a director and shareholder. iii. Rent charged to Mint Holdings Pty Ltd for office space in Rydalmere, NSW. This statement excludes a benefit included in the aggregate amount of emoluments received or due and receivable by directors and shown in the Company’s accounts or the fixed salary of a full-time employee of the parent entity, controlled entity or related body corporate. Proceedings on Behalf of Company No person has applied for leave of Court to bring proceedings on behalf of the Company or intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or any part of those proceedings. The Company was not a party to any such proceedings during the year. Non-Audit Services The Board of Directors, in accordance with advice from the Audit Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the services disclosed below did not compromise the external auditor’s independence for the following reasons: • all non-audit services are reviewed and approved by the Audit Committee prior to commencement to ensure they do not adversely affect the integrity and objectivity of the auditor; and • the nature of the services provided do not compromise the general principles relating to auditor independence in accordance with APES 110: Code of Ethics for Professional Accountants set by the Accounting Professional and Ethical Standards Board. Officers of the company who are former partners of RSM Australia The following persons were officers of the Company during the financial year and were previously partners of the current audit firm, RSM, at a time when RSM undertook an audit of the Group: Wayne Beauman who retired from RSM on 31/12/2018 Auditor’s Independence Declaration The lead auditor’s independence declaration for the year ended 30 June 2023 has been received and is included in the directors’ report. Auditor RSM Australia continues in office in accordance with section 327 of the Corporations Act 2001. 27 WATERCO LIMITED | ANNUAL REPORT 2023ASIC Corporations (rounding in Financial/Directors Reports) Instruments 2016/191 The amounts in the financial reports and directors’ report have been rounded to the nearest thousand dollars in accordance with ASIC Corporations Instruments 2016/191. Remuneration Report Introduction This report provides remuneration policy and payment details applying in the financial year for persons who were members of Key Management Personnel of the Company. 2023 Remuneration Policy The Remuneration Committee governs the Company’s Remuneration Policy. The Committee comprises Independent Non-Executive Directors. It has the following objectives: • attract, retain and motivate management of the appropriate calibre to further the success of the business; • align management reward with shareholder value; • ensure that total remuneration is reasonable and comparable with market standards; • ensure that remuneration should realistically reflect the responsibilities of the executives; • ensure that incentive schemes reward superior company performance and be clearly linked to appropriate performance benchmarks based on improved company performance; and • ensure that the remuneration costs are disclosed in accordance with the requirements of law and relevant accounting standards. The remuneration structure for Key Management Personnel of the Waterco Group comprises: • Fixed remuneration. This consists of base salary and the full costs of other benefits; and • Incentives. The level varies with performance. It consists of an annual incentive plan. The Remuneration Committee reviews market data and the performance of the Group CEO. The Committee then recommends the fixed remuneration and annual incentive payment of the Group CEO for approval by the Board. The Group CEO recommends Key Management Personnel’s fixed remuneration and annual incentive payments to the Remuneration Committee. Fixed remuneration for Key Management Personnel is reviewed annually and determined by reference to appropriate benchmark information of comparable companies, taking into account their responsibility, performance, qualifications, experience and potential. Adjustments are made only if there is the prospect of fixed remuneration levels falling behind market levels. The remuneration of Non-Executive Directors is fixed and does not change according to the performance of the company. They do not participate in any incentive plans available to managers. Non-Executive Directors are paid fees based on the nature of their work and their responsibilities. The Company makes superannuation guarantee (SG) payments, in addition to those fees. The level and structure of fees is based upon the need for the Company to be able to attract and retain Non-Executive Directors of an appropriate calibre, the demands of the role and prevailing market conditions. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is $300,000. This was approved by shareholders at the Annual General Meeting held on 26 October 2018. There has been an increase of 5% in the Non-Executive Director fees for the 2023/2024 financial year. The total fees are now at an aggregate of $237,807 including the Superannuation Guarantee Charge. The Remuneration Committee seeks independent external advice when required. 28 Performance–based Remuneration Policy, and its Relationship with Company Performance Incentive Plan There is an annual incentive plan in place for all Key Management Personnel. This is a payment that varies with performance measured over a twelve-month period. There have been no changes in performance-based remuneration policy compared with the prior reporting period. Maximum payments are capped. In the case of the Group CEO, the Remuneration Committee sets the performance requirements; in the case of other Key Management Personnel, the Group CEO recommends performance requirements for consideration by the Remuneration Committee. The annual incentive performance criteria relate to the employee’s responsibilities. If requirements are achieved, there will be an improvement in shareholder value. The key performance requirement for an incentive payment is Earnings Before Interest and Tax (EBIT). This provides a clear alignment between the interests of shareholders and the level of reward for eligible employees. Performance criteria are tabulated below Key Management Personnel with annual incentives Summary of Performance Condition FY 23 Why Chosen Soon Sinn Goh – Group CEO Key Management Personnel Earnings Before Interest and Tax (EBIT) for the Waterco Group. Encourage Group CEO to improve the performance levels of the Group as a whole and thereby increase shareholder wealth. Earnings Before Interest and Tax (EBIT) for the Waterco Group. The performance of Key Management Personnel can have a Group impact, so targets are based on Group performance. The satisfaction of the performance conditions of the annual incentive is based on a review of the audited financial statements of the Group. If the Group’s performance, as a whole does not reach the relevant target levels, then no annual incentive payments are made. In the year ending 30 June 2023, the Key Management Personnel have achieved their performance (Threshold Level) based on normal operations. The payment of this incentive is subject to Board Approval, and if approved, will be paid in December 2023. Waterco Limited Group Employee Share Option Plan This plan was approved by the Board on 24 June 2021. On 23 August 2021, the CFO was issued 100,000 options at an exercise price of $3.15 per share (being the Volume Weighted Average Price (VWAP) of Waterco Shares for the 5 days preceding date of issue) under this plan. The Options will vest in 3 tranches in accordance with the Exercise Periods set out below provided the Vesting Condition for each year has been met and the CFO remains employed by the company at the beginning of the Exercise Period. 29 WATERCO LIMITED | ANNUAL REPORT 2023Details of the Issue are as follows Tranche No No of Options Vesting Date Vesting Condition –Group EBIT Exercise Price Expiry Date Vested 1 2 3 33,000 23 August 2022 $10,338,853 33,000 23 August 2023 $11,278,748 34,000 23 August 2024 $12,218,644 $3.15 $3.15 $3.15 23 August 2031 33,000 23 August 2031 33,000 23 August 2031 The CFO has met the Vesting Condition for Tranche 2 as the EBIT for the financial year ending 30 June 2023 has exceed $11,278,748. The CFO may now exercise the options for both Tranches 1 and 2 in whole or in part anytime, from now until 23 August 2031. The value of all three tranches over the 10 year period amount to $38,230 ($3,823 per year). No other options or share-based payments were granted in the 2023 financial year. No options have been exercised during the 2023 financial year. The following table shows the Sales Revenue, Earnings Before Interest and Tax (EBIT), Net Profit Before Tax (NPBT), Net Profit After Tax (NPAT), Earnings Per Share (EPS), dividends and year-end share price in the financial year just ended and the previous four financial years for the consolidated Group. Year ended June 23 June 22 June 21 June 20 June 19 Sales revenue ($million) from continuing and discontinued operations Earnings Before Interest and Tax (EBIT) ($million) from continuing and discontinued operations NPBT ($million) from continuing and discontinued operations 129.05 123.29 113.35 93.58 89.62 14.50 15.17 9.40 22.75 4.42 13.85 14.87 9.06 21.83 3.31 EPS (cents) from continuing and discontinued operations 30.7 32.7 35.6 48.8 6.1 Dividends per share paid (cents) Year end share price ($) 10.0 4.00 7.0 3.60 6.0 2.90 NPAT ($million) continuing operations 10.80 11.57 12.70 5.0 2.55 3.01 5.0 1.61 3.14 NPAT ($million) discontinued operations - - - 14.54 (0.86) Please see commentary on performance on page 25. 30 Employment Details of Key Management Personnel The following table provides employment details for the financial year for Key Management Personnel. The table also illustrates the proportion of remuneration that was performance and non-performance based. Position held as at 30 June 2023 and any change during the year Contract details (duration & termination) Key Management Personnel S S Goh Chairman & Group CEO No fixed term; may be terminated on 6 months’ notice by either party B Goh Group Marketing Director - Executive No fixed term; may be terminated on 2 months' notice by either party B Hunt Director - Non-Executive R Ling Director - Non-Executive J Raper Director - Non-Executive W Beauman Director - Non-Executive (appointed 21 July 2023) No fixed term, but subject to member confirmation every 3 years after AGM when first appointed. No fixed term, but subject to member confirmation every 3 years after AGM when first appointed. No fixed term, but subject to member confirmation every 3 years after AGM when first appointed. No fixed term, but subject to member confirmation every 3 years after AGM when first appointed. G Doumit Chief Financial Officer / Company Secretary No fixed term, may be terminated on 2 months’ notice by either party J Ainsworth Chief Commercial Officer Three year fixed term, (subject to renewal), may be terminated on 2 months’ notice by either party Proportions of elements of remuneration related to performance Proportions of elements of remuneration not related to performance Non- salary cash- based incentives % Shares/ Units % Options/ Rights % Fixed Salary/ Fees % Total % - - - - - - - - - - - - - - - - - - - - - - 1 - 100 100 100 100 100 100 100 100 100 100 100 100 99 100 100 100 31 WATERCO LIMITED | ANNUAL REPORT 2023Changes in Directors and Key Management Personnel During the Year On 23 June 2023, the Board designated Ms Jo Ainsworth, the Chief Commercial Officer as a Key Management Personnel. Changes in Directors and Key Management Personnel Subsequent to Year-end On 21 July 2023, Mr Wayne Beauman was appointed as a non-executive director. Key Management Personnel Shareholding Number of Shares held by Key Management Personnel 2023 Key Management Personnel Balance 1.7.2022 Received as Remuneration Net Change Other Balance 30.6.2023 Mr S S Goh Mr B Goh Mr B Hunt Mr R Ling Ms J Raper Mr W Beauman 1) Mr G Doumit Ms J Ainsworth 2) 21,721,853 540,121 170,223 - - - 71,300 - - - - - - - - - - - - - - - - - 21,721,853 540,121 170,223 - - - 71,300 - 1) Mr Wayne Beauman was appointed a Non-Executive Director on 21st July 2023 2) Ms Joanne Ainsworth was appointed Chief Commercial Officer on 1 October 2022 2022 Key Management Personnel Balance 1.7.2021 Received as Remuneration Net Change Other Balance 30.6.2022 Mr S S Goh Mr B Goh Mr B Hunt Mr R Ling Ms J Raper Mr W Beauman 1) Mr G Doumit Ms J Ainsworth 2) 21,721,853 540,121 170,223 - - - 71,300 - - - - - - - - - - - - - - - - - 21,721,853 540,121 170,223 - - - 71,300 - Number of Options held by Key Management Personnel 2023 Key Management Personnel Balance 30.6.2023 Exercisable No Vested Unexercisable No Total at 30.6.2023 Unvested Total at 30.6.2023 Mr G Doumit 100,000 66,000 - 66,000 34,000 32 Remuneration Details The following table provides remuneration details for the 2023 and 2022 financial years for Key Management Personnel. Short-term benefits Post- employment benefits Long-term benefits Long-term benefits Renumeration incl Salary, fees and leave $ Profit share and bonus $ Non- monetary (3) $ Pension and super- annuation $ Key Management Personnel Soon Sinn Goh 1) Bryan Goh Ben Hunt (Richard) Ling Judy Raper Wayne Beauman 2) Gerard Doumit Joanne Ainsworth 3) 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 469,558 449,973 318,000 300,000 68,013 64,774 68,013 64,774 68,013 64,774 - - 35,000 35,000 70,000 66,500 - - - - - - - - - - - - - - - - - - - - 225,868 50,000 18,460 215,113 50,000 19,676 178,229 - - - - - 27,499 16,709 25,292 23,568 7,141 6,477 7,141 6,477 7,141 6,477 - - 27,500 27,099 16,718 - LSL $ 4,620 3,959 15,180 13,310 - - - - - - - - Share options Total $ - - - - - - - - - - - - 536,677 505,641 428,472 403,378 75,154 71,251 75,154 71,251 75,154 71,251 - - 12,975 10,748 3,823 338,626 3,823 326,459 - - - - 194,947 - (1) S S Goh’s Remuneration of $505,641 is made up of $196,285 paid/payable by Waterco Ltd, $154,678 paid by Waterco (Far East) Sdn Bhd (a subsidiary) and $154,678 paid by Waterco International Pte Ltd (a subsidiary). (2) Mr Wayne Beauman was appointed a Non-Executive Director on 21st July 2023 (3) Ms Joanne Ainsworth was appointed Chief Commercial Officer on 1 October 2022. Joanne’s remuneration has been calculated from 1 October 2022 (date of appointment) until 30 June 2023 (4) Non-monetary benefits are made up of Company vehicle benefits 33 WATERCO LIMITED | ANNUAL REPORT 2023 Securities Received that are not Performance Related No Key Management Personnel are entitled to receive securities which are not performance-based as part of their remuneration package. Cash incentives, Performance-related Bonus and Share-based Payment Maximum cash incentives expressed as a percentage of fixed remuneration and the maximum value that could have been earned in 2022/2023 if stretch performance targets were achieved are tabulated below: Position Maximum possible incentive Maximum possible incentive $ Key Management Personnel Group CEO, Waterco Limited Executive Director / Chief Operating Officer , Waterco Limited Chief Financial Officer / Company Secretary, Waterco Limited Chief Commercial Officer, Waterco Limited 28% 23% 22% 26% $150,000 $100,000 $75,000 $50,000 The percentage of cash incentives payable (subject to Board Approval) and forfeited for the year to key management personnel. Key Management Personnel Group CEO, Waterco Limited Executive Director / Chief Operating Officer , Waterco Limited Chief Financial Officer / Company Secretary, Waterco Limited Chief Commerical Officer , Waterco Limited Short term incentive in respect of 2023 financial year Payable % Forfeited % 42% 40% 40% 20% 58% 60% 60% 80% This Report of the Directors, incorporating the Remuneration Report, is signed in accordance with a resolution of the Board of Directors: Soon Sinn Goh Chairman Dated at Sydney this 8 September 2023 34 Auditor’s Independence Declaration RSM Australia Partners Level 13, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +61 (0) 2 8226 4500 F +61 (0) 2 8226 4501 www.rsm.com.au AUDITOR’S INDEPENDENCE DECLARATION As lead auditor for the audit of the financial report of Waterco Limited for the year ended 30 June 2023, I declare that, to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. RSM AUSTRALIA PARTNERS Cameron Hume Partner Sydney, NSW Dated: 13 September 2023 THE POWER OF BEING UNDERSTOOD AUDIT | TAX | CONSULTING RSM Australia Partners is a member of the RSM network and trades as RSM. RSM is the trading name used by the members of the RSM network. Each member of the RSM network is an independent accounting and consulting firm which practices in its own right. The RSM network is not itself a separate legal entity in any jurisdiction. RSM Australia Partners ABN 36 965 185 036 Liability limited by a scheme approved under Professional Standards Legislation 35 WATERCO LIMITED | ANNUAL REPORT 2023 36 Consolidated Financial Report for the year ended 30 June 2023 38 39 40 41 42 81 82 Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor's Report 37 WATERCO LIMITED | ANNUAL REPORT 2023Consolidated Statement of Profit or Loss and other Comprehensive Income For The Year Ended 30 June 2023 Note No. 2023 $000 2022 $000 Consolidated Group Continuing Operations Revenues Changes in inventories of finished goods and work in progress Raw materials and consumables used Employee benefits expense Depreciation and amortisation expense Impairment expense Finance costs Advertising expense Discounts allowed Outward freight expense Rent expense Research and development Insurance – general Contracted staff expense Warranty expense Commission expense Other expenses Profit before income tax expense Income tax benefit/(expense) Profit for the year Other comprehensive income Items that will not be classified subsequently to profit or loss Property revaluation increment (net of tax) Items that maybe reclassified to profit or loss Exchange translation differences Share options expense Other comprehensive income for the year Total comprehensive income for the year Profit attributable to: Members of the parent entity Non-controlling interest Total comprehensive income for the year Members of the parent entity Non-controlling interest Total comprehensive income for the year Earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) The accompanying notes form part of these financial statements. 38 3 4 4 4 4 4 4 6 31 31 133,999 128,141 1,244 (65,761) (26,438) (7,066) (79) (707) (2,421) (953) (2,312) (1,138) (2,005) (1,366) (243) (536) (469) (9,896) 13,853 (3,048) 10,805 4,245 (12) 13 4,246 15,051 10,846 (41) 10,805 15,092 (41) 15,051 30.7 30.7 (13,056) (49,597) (24,485) (6,314) (79) (328) (2,421) (473) (2,425) (959) (1,564) (1,348) (430) (487) (391) (9,387) 14,866 (3,292) 11,574 676 1,533 - 2,209 13,783 11,641 (67) 11,574 13,850 (67) 13,783 32.7 32.7 Consolidated Statement of Financial Position As At 30 June 2023 ASSETS Current Assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total Current Assets Non-Current Assets Property, plant & equipment Right of use assets Intangible assets Deferred tax assets Total Non-Current Assets Total Assets LIABILITIES Current Liabilities Trade and other payables Contract liabilities Borrowings Current tax liabilities Short term provisions Total Current Liabilities Non-Current Liabilities Borrowings Deferred tax liabilities Long-term provisions Total Non-Current Liabilities Total Liabilities Net Assets EQUITY Issued capital Reserves Retained earnings Parent interest Non-controlling interest Note No. 8 9 10 11 13 14 15 18 16 17 18 19 20 18 21 22 23 24 25 2023 $000 12,337 17,106 50,145 2,643 82,231 65,874 17,001 1,170 1,675 85,720 Consolidated Group 2022 $000 11,946 17,201 48,688 1,077 78,912 59,986 15,794 1,119 1,842 78,741 167,951 157,653 12,353 2,552 6,765 595 3,394 25,659 14,566 6,254 238 21,058 46,717 14,211 - 8,271 2,547 3,964 28,993 12,614 4,823 213 17,650 46,643 121,234 111,010 33,643 24,909 62,314 120,866 368 34,847 20,664 54,992 110,503 507 Total Equity 121,234 111,010 The accompanying notes form part of these financial statements. 39 WATERCO LIMITED | ANNUAL REPORT 2023Consolidated Statement of Changes in Equity For The Year Ended 30 June 2023 Ordinary Shares Retained Earnings Capital Profits Reserve Asset Revaluation Reserve Foreign Currency Translation Reserve Share Options Reserve Non- Controlling Interests Total Consolidated Group Note No. $000 $000 $000 $000 $000 $000 $000 $000 Balance at 30/6/21 35,590 45,842 211 25,768 (7,536) Comprehensive income Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners and other transfers Cancellation of shares under Waterco Share Buyback Dividends paid Total transactions with - - - 11,641 - 11,641 (743) - - (2,491) 30 owners and other transfers (743) (2,491) - - - - - - - - 676 1,532 676 1,532 - - - - - - - - 13 13 - - - 574 100,449 (67) 11,574 - 2,221 (67) 13,795 - - - (743) (2,491) (3,234) Balance at 30/6/22 34,847 54,992 211 26,444 (6,004) 13 507 111,010 Comprehensive income Profit/(loss) for the year Other comprehensive Income/(loss) for the year Total comprehensive income for the year Transactions with owners, in their capacity as owners and other transfers Cancellation of shares under Waterco Share Buyback Dividends paid Total transactions with owners and other transfers - - - 10,846 - 10,846 (1,204) - - (3,524) 30 (1,204) (3,524) - - - - - - - 4,245 4,245 - - - - (13) (13) - - - (41) 10,805 - 4,245 (41) 15,050 13 13 - (98) (1,204) (3,622) (98) (4,826) Balance at 30/6/23 33,643 62,314 211 30,689 (6,017) 26 368 121,234 The accompanying notes form part of these financial statements. 40 Consolidated Statement of Cash Flows For The Year Ended 30 June 2023 Consolidated Group Cash Flows from Operating Activities Receipts from customers Payments to suppliers and employees Interest received Other Income Finance costs Income tax paid Net cash provided by operating activities (note 35) Cash Flows from Investing Activities Dividend received Payment for property, plant & equipment Payment for business Proceeds from sale of business Proceeds from sale of property, plant & equipment Net cash (used in)/provided by investing activities Cash Flows from Financing Activities Proceeds from bank borrowings Repayment of bank borrowings Share buyback Payment of right of use liabilities Payment of lease liabilities Dividends paid Dividends paid-outside interests Net cash (used in) financing activities Net (decrease ) / increase in cash held Cash at beginning of the year Effects of exchange rate changes on balance of cash held in foreign currencies 2023 $000 140,445 (124,712) 60 924 (707) (4,823) 11,187 1 (2,915) (520) - 46 (3,388) 1,102 (1,706) (1,204) (1,591) (101) (3,524) (99) (7,123) 676 11,946 (285) 2022 $000 128,196 (124,663) 20 1,829 (328) (1,730) 3,324 1 (3,501) (520) - 97 (3,923) 4,124 (139) (744) (1,820) (161) (2,491) - (1,231) (1,830) 11,694 2,082 Cash and cash equivalents the end of the year (Note 8) 12,337 11,946 The accompanying notes form part of these financial statements. 41 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies These consolidated financial statements and notes represent those of Waterco Limited and controlled entities, (“Group”). The financial statements are presented in Australian dollars, which is Waterco Limited's functional and presentation currency. The directors have the power to amend and reissue the financial statements. Waterco Limited (a for-profit entity) is a listed public company, incorporated and domiciled in Australia. The separate financial statements of the parent entity, Waterco Limited, have not been presented within this financial report as permitted by the Corporations Act 2001. Supplementary information about the parent entity is disclosed in note 2. The financial statements were authorised for issue on 8 September 2023. Basis of Preparation The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, Australian Accounting authoritative pronouncements of Accounting Standards Board Corporations Act 2001. the Australian the Interpretations, o t h e r (AASB) and Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards as issued by the IASB. Material accounting policies adopted in the preparation of these financial statements are presented below and have been consistently applied unless otherwise stated. The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive investment properties, certain classes of property, plant and equipment and derivative financial instruments. income, The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the consolidated entity's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 1. 42 New or amended Accounting Standards and Interpretations adopted The consolidated entity has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. a. Principles of Consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the parent (Waterco Limited) and all of the subsidiaries (including any structured entities). Subsidiaries are entities the parent controls. The parent 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. A list of the subsidiaries is provided in Note 12. All subsidiaries have a 30 June financial year end except for Waterco Guangzhou Ltd, PT Waterco Indonesia and Waterco Vietnam Company Ltd which have a 31 December financial year end. The reason for this is local company regulation. The assets, liabilities and results of all subsidiaries are fully consolidated into the financial statements of the Group from the date on which control is obtained by the Group. The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the Group. interests Equity interests in a subsidiary not attributable, directly or indirectly, to the Group are presented as “non-controlling interests”. The Group initially recognises non-controlling that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profit or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of comprehensive income. Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) Business combinations Business combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is attained, whereby the fair value of the identifiable assets acquired and liabilities (including contingent liabilities) assumed is recognised (subject to certain limited exemptions). When measuring the consideration transferred in the business combination, any asset or liability resulting from a contingent consideration arrangement is also included. Subsequent to initial recognition, contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability is remeasured each reporting period to fair value, recognising any change to fair value in profit or loss, unless the change in value can be identified as existing at acquisition date. All transaction costs incurred in relation to the business combination are expensed the statement of comprehensive income. to The acquisition of a business may result in the recognition of goodwill or a gain from a bargain purchase. Operating segments the Operating segments are presented using 'management approach', where information presented is on the same basis as the internal reports provided to the Chief Operating Decision Makers ('CODM'). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. the b. Fair Value of Assets and Liabilities The Group measures some of its assets and liabilities at fair value on either a recurring or non- recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the Group would receive to sell an asset or would have to pay to transfer a liability in an orderly (ie unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to the characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. information To the extent possible, market is extracted from either the principal market for the asset or liability (ie the market with the greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (ie the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instrument, by reference to observable market information where such instruments are held as assets. Where this information is not available, other valuation techniques are adopted and, where significant, are detailed in the respective note to the financial statements. is lease liability lease. The c. Lease liabilities A lease liability is recognised at the commence-A lease liability is recognised at the commencement initially date of a recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the consolidated entity's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred. Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right-of- use asset, or to profit or loss if the carrying amount of the right-of-use asset is fully written down. 43 WATERCO LIMITED | ANNUAL REPORT 2023 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) d. Inventories Inventories are measured at the lower of cost and net realisable value. Cost is determined on a standard cost basis. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Net realisable value is determined as the estimated selling price less costs to sell. e. Income Tax The income tax expense/(income) for the year comprises current income tax expense/(income) and deferred tax expense/(income). Current income tax expense charged to profit or loss is the tax payable on taxable income. Current tax liabilities/(assets) are measured at the amounts expected to be paid to/(recovered from) the relevant taxation authority. Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well unused tax losses. Current and deferred income tax expense/ (income) is charged or credited outside profit or loss when the tax relates to items that are recognised outside profit or loss. Except for business combinations, no deferred income tax is recognised from the initial recognition of an asset or liability, where there is no effect on accounting or taxable profit or loss. Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled and their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability. Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised. Where temporary differences exist in relation to investments in subsidiaries, branches, associates, and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future. Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where: (a) a legally enforceable right of set-off exists; and (b) the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. Waterco Limited and its wholly-owned Australian Subsidiaries have formed a consolidated group for the purposes of the tax consolidation provisions of the Income Tax Assessment Act 1997. Each entity in the group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the “stand-alone taxpayer” approach to allocation. All of the deferred tax assets and liabilities of the subsidiary members have become part of the deferred assets and liabilities of Waterco Ltd. Each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the consolidated group. The group notified the ATO on 20 January 2005 that it had formed an income tax consolidated group to apply from 1 July 2003. f. Discontinued operations A discontinued operation is a component of the consolidated entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued the operations are presented separately on face of the statement of profit or loss and other comprehensive income. g. Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency. 44 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) g. Foreign Currency Transactions and Balances Functional and presentation currency Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year- end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non- monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined. Exchange differences arising on the translation of monetary items are recognised in the statement of comprehensive income, except where deferred in equity as a qualifying cash flow or net investment hedge. Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly in equity, otherwise the exchange recognised difference in the statement of is recognised comprehensive income Group companies The financial results and position of foreign operations whose functional currency is different the group’s presentation currency are from translated as follows: • assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; • income and expenses are translated at average exchange rates for the period; and • retained earnings are translated at the exchange rates prevailing at the date of the transaction Exchange differences arising on translation of foreign operations are transferred directly to the Group’s foreign currency translation reserve in the statement of comprehensive income. These differences are recognised in the statement of comprehensive income in the period in which the operation is disposed. h. Employee Benefits Provision for employee benefits, which include long service leave, and annual leave are computed to cover expected benefits at balance date. Employee benefits expected to be settled within one year together with benefits arising from wages and salaries, annual leave and sick leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plus related on-costs. (see notes 19 and 21) Employee benefits (long service leave) payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. In determining the liability, consideration is given to employee wage increases and the probability that the employee may satisfy any vesting requirements. Those cash flows are discounted using market yields on national government bonds with terms to maturity that match the expected timing of cash flows attributable to employee benefits. Contributions are made by the consolidated group to an employee superannuation fund and are charged as expenses when incurred. The consolidated group has no legal obligation to cover any shortfall in the funds obligations to provide benefits to employees on retirement. i. Deferred Expenditure Expenditure during the research phase of a project incurred. is recognised as an expense when Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. j. Acquisition of Assets The cost method of accounting has been used for acquisition of all assets (including shares). Cost is defined as the fair value of the assets given up at the date of acquisition plus costs incidental to acquisition. Where goodwill arises, it is brought to account. Goodwill arises on the acquisition of a business. Goodwill is not amortised. Instead, goodwill 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. Impairment losses on goodwill are taken to profit or loss and are not subsequently reversed. 45 WATERCO LIMITED | ANNUAL REPORT 2023 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) k. Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation. Property Land and buildings are measured on a fair value basis being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction. The value of the land and buildings owned by the consolidated group are based on the following independent valuations: Land & Buildings Date of Valuation Amount Rydalmere NSW 25 May 2023 AUD 33,100,000 Malaysia 14 June 2023 USA 4 May 2022 AUD 19,985,817 (MYR 62,000,000) AUD 2,594,937 (USD 1,845,000) Increases (net of deferred taxes) in the carrying amount arising on revaluation of land and buildings are credited to a revaluation surplus in equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the statement of comprehensive income. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. On 25 May 2023, Waterco Ltd revalued its Rydalmere Property resulting in an increase of $A3,600,000 from the last valuation of the property done on 30 June 2021. The value of the Rydalmere Property went up from $A29.5m to $A33.1m. On 14 June 2023, Waterco (Far East) Sdn revalued its SG Buloh Property resulting in an increase of RM2,000,000 from the last valuation of the property done on 15 May 2020. The value of the property went up from RM60,000,000 ($A20,426,227) to RM62,000,000 ($A19,985,817). The above valuations were performed by independent valuers. Plant and equipment Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment. In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to 46 the estimated recoverable amount and impairment losses are recognised either in profit or loss or as a revaluation decrease if the impairment losses relate to a revalued asset. A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(o) for details of impairment). The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. included The cost of fixed assets constructed within the consolidated group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including building and capitalised leased assets, but excluding freehold land, is depreciated over their useful lives commencing from the time the asset is ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The gain or loss on disposal of all fixed assets is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds of disposal, and is included in operating profit before income tax of the consolidated group in the year of disposal. Depreciation where applicable has been charged in the accounts so as to write off each asset over the estimated useful life of the asset concerned. Either the diminishing value or straight line method, as considered appropriate, is used. The depreciation rates used for each class of depreciable assets are: Class of Fixed Assets Depreciation Rate Buildings 1.50% - 2.50% Plant and equipment 6.00% - 33.33% Leased plant and equipment 13.00% - 20.00% Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) k. Property, Plant and Equipment (continued) Depreciation (continued) The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s its estimated carrying amount recoverable amount. is greater than Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are recognised in the profit and loss in the period in which they arise. l. Right-of-use assets A recognised at right-of-use asset the is commencement date of a lease. The right-of- use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset. Right-of-use assets are depreciated on a straight- line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right-of use assets are subject to impairment or adjusted for any re- measurement of lease liabilities. The consolidated entity has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Lease payments on these assets are expensed to profit or loss as incurred. m. Revenue recognition The consolidated entity recognises revenue as follows: Revenue from contracts with customers Revenue is recognised at an amount that reflects the consideration to which the consolidated entity is expected to be entitled in exchange for in transferring goods or services to a customer. For each contract with a customer, the consolidated entity: identifies the contract with a customer; identifies the performance obligations the contract; determines the transaction price which takes into account estimates of variable consideration and the time value of money; allocates the transaction price to the separate performance obligations on the basis of the relative stand-alone selling price of each distinct good or service to be delivered; and recognises revenue when or as each performance obligation is satisfied in a manner that depicts the transfer to the customer of the goods or services promised. Variable consideration within the transaction price, if any, reflects concessions provided to the customer such as discounts, rebates and refunds, any potential bonuses receivable from the customer and any other contingent events. Such estimates are determined using either the 'expected value' or 'most likely amount' method. The measurement of variable consideration is subject to a constraining principle whereby revenue will only be recognised to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The measurement constraint continues until the uncertainty associated with the variable consideration is subsequently resolved. Amounts received that are subject to the constraining principle are recognised as a refund liability. Revenue from the sale of goods is recognised at the point of delivery as this corresponds to the transfer of significant risks and rewards of ownership of the goods and the cessation of all involvement in those goods. Rent from revenue investment properties is recognised on a straight-line basis over the lease term. Lease incentives granted are recognised as part of the rental revenue. Contingent rentals are recognised as income in the period when earned. Interest revenue is recognised using the effective interest rate method. Dividend revenue is recognised when the right to receive a dividend has been established. Franchise fee income is invoiced and recognised as revenue on a monthly basis. Other revenue is recognised when it is received or when the right to receive payment is established. All revenue is stated net of the amount of goods and services tax (GST). 47 WATERCO LIMITED | ANNUAL REPORT 2023 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) Other receivables are recognised at amortised cost, less any allowance for expected credit losses. q. Trade and Other Payables These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. Due to their short-term nature, they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition. Contract Liabilities Contract liabilities represent the consolidated entity's obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the consolidated entity recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the consolidated entity has transferred the goods or services to the customer. r. Provisions Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. s. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities in the statement of financial position. t. Borrowings and Borrowing Costs Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method. Borrowing costs directly attributable the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. to All other borrowing costs are recognised in profit or loss in the period in which they are incurred. n. Goods and Services Tax (GST) 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 an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cashflows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. o. Impairment of Assets At the end of each reporting period, the Group assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information including dividends received from subsidiaries, associates or jointly controlled entities deemed to be out of pre-acquisition profits. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another Standard (eg in accordance with the revaluation model in AASB116). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other Standard. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing goodwill and intangible assets with indefinite lives. is performed annually for p. Trade and Other Receivables Trade receivables are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method, less any allowance for expected credit losses. Trade receivables are generally due for settlement within 30 days. The consolidated entity has applied the simplified approach to measuring expected credit losses, which uses a lifetime expected loss allowance. To measure the expected credit losses, trade receivables have been grouped based on days overdue. 48 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) u. Investments and Other Financial Assets Investments and other financial assets are initially measured at fair value. Transaction costs are included as part of the initial measurement, except for financial assets at fair value through profit or loss. Such assets are subsequently measured at either impaired cost or fair value depending on their classification. Classification is determined based on both the business model within which such assets are held and the contractual cash flow characteristics of the financial asset, unless an accounting mismatch is being avoided. the Financial assets are derecognised when rights to receive cash flows have expired or have been transferred and the consolidated entity has transferred substantially all the risks and rewards is no reasonable of ownership. When expectation of recovering part or all of a financial asset, its carrying value is written off. there Financial assets at fair value through profit or loss Financial assets not measured at amortised cost or at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. Typically, such financial assets will be either: (i) held for trading, where they are acquired for the purpose of selling in the short-term with an intention of making a profit, or a derivative; or (ii) designated as such upon initial recognition where permitted. Fair value movements are recognised in profit or loss. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income include equity investments which the consolidated entity intends to hold for the foreseeable future and has irrevocably elected to classify them as such upon initial recognition. Impairment of financial assets The consolidated entity recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity's assessment at the end of each reporting period as to whether the financial instrument's credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain. Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12-month expected credit loss allowance is estimated. This represents a portion of the asset's lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset's lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognised within other comprehensive income. In all other cases, the loss allowance is recognised in profit or loss. v. Current and Non-Current Classifications Assets and liabilities are presented in the statement of financial position based on current and non- current classification. An asset is classified as current when: i. it is either expected to be realised or intended to be sold or consumed in the consolidated entity's normal operating cycle; ii. it is held primarily for the purpose of trading; iii. it is expected to be realised within 12 months after the end of the reporting period; or iv. the asset is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. All other assets are classified as non-current. A liability is classified as current when: i. it is either expected to be settled in the consolidated entity's normal operating cycle; ii. it is held primarily for the purpose of trading; iii. it is due to be settled within 12 months after the end of the reporting period; or iv. there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. All other liabilities are classified as non-current. 49 WATERCO LIMITED | ANNUAL REPORT 2023 y. New Accounting Standards and Interpretations not yet mandatory or early adopted Australian Accounting S t a n d a r d s and Interpretations that have recently been issued or amended but are not yet mandatory, have not been early adopted by the consolidated entity for the annual reporting period ended 30 June 2023. The consolidated entity has not yet assessed the impact of these new or amended Accounting Standards and Interpretations. . z. Comparative Figures Where required by Accounting Standards comparative figures have been adjusted to conform with changes in presentation for the current financial year. Notes To The Financial Statements For The Year Ended 30 June 2023 Note 1: Statement of Significant Accounting Policies (continued) w. Rounding of Amounts The amounts in the financial statements and directors’ report have been rounded off to the nearest $1,000 in accordance with ASIC Corporations (Rounding in Financial/Directors Reports) Instrument 2016/191. x. Critical Accounting Estimates and Judgements The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group. Key Estimates (i) Inventory Classification Included in inventory are certain inventory items held to service existing products and various components used in the manufacturing process. The nature of these items may require them to be included in inventory for more than one year. Management has evaluated these inventory items and do not consider the carrying value of these items as material. All inventory items have therefore been classified as current. (ii) Inventory Obsolescence Management review inventory reports on a regular basis to determine slow-moving or obsolescence. Appropriate provisions for impairment of slow-moving items. Obsolete items are disposed of as and when identified. carried are (iii) Impairment-General The Group assesses impairment at the end of each reporting period by evaluating conditions and events specific to the Group that may be indicative of impairment triggers. Recoverable amounts of relevant assets are reassessed using value-in-use calculations which incorporate various key assumptions. 50 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 2: Parent Information The following information has been extracted from the books and records of the parent and has been prepared in accordance with accounting standards STATEMENT OF FINANCIAL POSITION ASSETS Current Assets Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Non-Current Liabilities TOTAL LIABILITIES EQUITY Issued capital Capital profits reserve Asset revaluation reserve Share options reserve Retained earnings TOTAL EQUITY STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Total profit after tax Total comprehensive income 2023 $000 36,058 85,588 121,646 26,124 14,549 40,673 33,643 180 20,615 27 26,508 80,973 2023 $000 3,979 7,194 2022 $000 36,575 78,271 114,846 26,325 10,027 36,352 34,847 180 17,400 13 26,054 78,494 2022 $000 6,793 6,793 Guarantees At 30 June 2023, Waterco Ltd has provided guarantees up to RM11,150,000 and USD1,000,000 (AUD5,102,519) (2022: RM11,150,000 and USD1,000,000 (AUD5,125,032) to two Malaysian Banks for loans provided to a subsidiary, Waterco (Far East) Sdn Bhd. Contractual Commitments At 30 June 2023, Waterco Ltd has not entered into any contractual commitments for the acquisition of any property, plant and equipment. (2022: $nil). Significant accounting policies The accounting policies of the parent entity are consistent with those of the consolidated entity, as disclosed in note 1, except for the following: • Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity. • Dividends received from subsidiaries are recognized as other income by the parent entity and its receipt may be an indicator of an impairment of the investment 51 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 3: Revenue and Other Income Revenue from Continuing Operations Sales revenue • Sale of goods Other revenue • Interest received 3(a) • Dividends received • Rental income • Rent-Other • Other Total Revenue Timing of revenue recognition - Goods transferred at a point in time - Services transferred over time (a) Interest received or receivable from • Other persons Total interest revenue Other Income Net gain on disposal of non-current assets • Property, plant and equipment Consolidated Group 2023 $000 2022 $000 129,050 123,285 60 1 3,712 252 924 20 1 3,006 296 1,533 133,999 128,141 129,050 4,949 133,999 123,285 4,856 128,141 60 60 15 20 20 69 52 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 4: Profit for the Year Profit for the year has been determined after: (a) Expenses: Cost of Sales Finance costs: • Borrowings • Lease liabilities • Finance charges on finance leases Depreciation of non-current assets : • Buildings • Plant & equipment • Capitalised leased assets • Right of use assets Impairment of non-current assets: • Goodwill on acquisition • Goodwill on consolidation Bad and doubtful debts • Trade debtors Rental expense on Operating leases • Minimum lease payments Note 5: Auditors’ Remuneration Remuneration of the auditor of the parent entity for: • Audit or reviewing the financial report Remuneration of other auditors of subsidiaries for: • Auditing or reviewing the financial report of subsidiaries Consolidated Group 2023 $000 2022 $000 63,921 62,974 296 408 3 707 614 1,127 78 5,247 7,066 54 25 79 - 1,138 130 189 50 270 8 328 843 784 103 4,584 6,314 54 25 79 103 959 225 136 53 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 6: Income Tax Expense (a) The components of tax expense comprise: • Current tax • Deferred tax • Recoupment of prior year tax losses Income tax attributable to: - Profit from continuing operations (b) The prima facie tax on profit before income tax is to the income tax as follows: Consolidated Group 2023 $000 2,820 57 171 3,048 3,048 2022 $000 3,451 (159) - 3,292 3,292 Profit before income tax 13,853 14,866 Prima facie tax payable on profit before income tax at 30% (2022: 30%) 4,156 4,460 Add Tax effect of: • Depreciation of buildings • Impairment of goodwill • Entertainment • Unrealised foreign exchange losses • Right of use assets • Non deductible expenses • Under provision for tax in prior period • Other Less Tax effect of: • Research and development • Effects of lower rates in overseas countries • Unrealised foreign exchange gains • Adjustment recognised for prior period • Reinvestment allowance • Foreign controlled entities tax losses not tax effected • Other Income tax expense/(benefit) attributable to entity The applicable weighted average effective tax rates are as follows: 194 23 10 - - 33 - - - 539 120 239 147 150 173 3,048 22% 185 23 6 49 4 10 46 12 148 592 - - 482 281 - 3,292 22% 54 Notes To The Financial Statements For The Year Ended 30 June 2023 Note7: Key Management Personnel Compensation (a) Key Management Personnel (KMP) Compensation The total remuneration paid to KMP of the company and the Group during the year are as follows: Short-term employee benefits Post-employment benefits Other long term benefits Consolidated Group 2023 $000 1,569 118 37 1,724 2022 $000 1,319 98 32 1,449 Refer to the remuneration report contained in the directors’ report for remuneration paid or payable to each KMP (b) Compensation Practices In constructing, reviewing and determining the remuneration policy for Executive Directors and the senior executive team, the Board and Remuneration Committee have considered a number of factors including: • the importance of attracting, retaining and motivating management of the appropriate calibre to further the success of the business; • linking pay to performance by rewarding effective individual achievement as well as business performance; and • the mix within the package which is designed to align personal reward with enhanced shareholder value over both the short and long-term. The Executive Directors’ and the senior executive team’s package consists of two general components: • fixed remuneration component consisting of base salary which executives may “salary sacrifice” and other benefits; and • variable or “at risk” component consisting of an annual short term incentive plan for executives Remuneration of the company’s Non-Executive Directors is determined by the Board, based on the nature of their work, responsibilities and market comparisons. The maximum aggregate amount of fees that can be paid to Non-Executive Directors is subject to approval by shareholders. 55 WATERCO LIMITED | ANNUAL REPORT 2023 Notes To The Financial Statements For The Year Ended 30 June 2023 CURRENT ASSETS Note 8: Cash and cash equivalents Cash at bank and in hand (1) Reconciliation of cash Cash at the end of the year as shown in the statement of cash Cash and cash equivalents (1) Includes $489,524 (2022:$867,262) in advertising levies held by Waterco Ltd in its capacity as the franchisor of the Swimart network and included in other creditors (see note 16). Amounts are held in a separate bank account at year end in accordance with the franchise agreement and are not available for general use by Waterco Ltd. Note 9: Trade and other receivables Trade receivables Less: allowance for expected credit loss impairment of receivables Other receivables Consolidated Group 2023 $000 12,337 12,337 12,337 16,166 (425) 15,741 1,365 17,106 2022 $000 11,946 11,946 11,946 16,571 (519) 16,052 1,149 17,201 Closing Balance 30.6.2022 $000 Movements in the allowance of expected credit loss of receivables are as follows: Opening Bal- ance 1.7.2022 Charge for the Year $000 $000 Amounts Written Off $000 Consolidated Group Current trade receivables 403 219 (103) 519 Opening Balance 1.7.2022 $000 Charge for the Year $000 Amounts Written Off $000 Closing Balance 30.6.2023 $000 Consolidated Group Current trade receivables 519 - (94) 425 56 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 9: Trade and other receivables (continued) There are $1,004,000 (2022: $4,221,000) within trade and other receivables that are not impaired and are past due date. It is expected these balances will be received in full. Impaired receivables are provided for in full. The following table details the Group’s trade and other receivables exposed to credit risk (prior to collateral and other credit enhancements) with ageing analysis and impairment provided for thereon. Amounts are considered as ‘past due’ when the debt has not been settled, with the terms and conditions agreed between the Group and the customer or counterparty to the transaction. Receivables that are past due are assessed for impairment by ascertaining solvency of the debtors and are provided for where there are specific circumstances indicating that the debt may not be fully repaid to the Group. The balances of receivables that remain within initial trade terms (as detailed in the table) are considered to be of high credit quality. Gross amount Past due and impaired $000 $000 Past due but not impaired (days overdue) < 30 $000 61–90 $000 31–60 $000 > 90 $000 Within initial trade terms $000 Consolidated Group 2022 Trade and term receivables Other receivables Total 16,571 1,149 17,720 519 1,829 1,317 519 1,829 1,317 827 827 248 248 11,831 1,149 12,980 2023 Trade and term receivables Other receivables Total 16,166 1,365 17,531 425 425 829 829 742 (160) (407) 742 (160) (407) 14,737 1,365 16,102 The Group does not hold any financial assets with terms that have been renegotiated, but which would otherwise be past due or impaired. The consolidated entity has increased its monitoring of debt recovery as there is an increased probability of customers delaying payment or being unable to pay, due to the Coronavirus (COVID-19) pandemic. As a result, the calculation of expected credit losses has been revised as at 30 June 2023 and rates have increased in each category up to 6 months overdue. 57 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 10: Inventories Raw materials and stores at cost Work in progress at cost Finished goods at cost Goods in transit at cost Provision for inventory write-down Note 11: Other current assets Prepayments NON CURRENT ASSETS Note 12: Interests in Subsidiaries Parent Entity Waterco Limited Controlled Entities of Waterco Limited: Swimart Pty Ltd Zane Solar Systems Australia Pty Ltd Swimart Network Pty Ltd Ezera Systems Pty Ltd Waterco USA Inc Waterco Engineering Sdn Bhd Waterco (Far East) Sdn Bhd Watershoppe (M) Sdn Bhd Baker Hydro (Far East) Sdn Bhd Solar-Mate Sdn Bhd Waterco (NZ) Ltd Swimart (NZ) Ltd Waterco (Guangzhou) Ltd Waterco (Europe) Ltd PT Waterco Indonesia Waterco International Pte Ltd Medipool Pte Ltd Guangzhou Waterco Environmental Technology Co Ltd Waterco Vietnam Company Limited 58 Consolidated Group 2023 $000 13,546 3,552 37,052 2,538 (6,543) 50,145 2,643 2,643 2022 $000 10,844 3,741 34,759 5,608 (6,264) 48,688 1,077 1,077 Country of incorporation Carries on business in % owned 2023 2022 Australia Australia - - Australia Australia Australia Australia USA Malaysia Malaysia Malaysia Malaysia Malaysia New Zealand New Zealand China Australia Australia Australia Australia USA Malaysia Malaysia Malaysia Malaysia Malaysia New Zealand New Zealand China 100 100 100 60 100 100 100 100 100 100 100 100 100 United Kingdom United Kingdom 100 51 100 60 100 Vietnam 100 Indonesia Singapore Singapore China Vietnam Indonesia Singapore Singapore China 100 100 100 60 100 100 100 100 100 100 100 100 100 100 51 100 60 100 100 Notes To The Financial Statements For The Year Ended 30 June 2023 Consolidated Group Note 13: Property, plant & equipment Freehold land at independent valuation Freehold buildings at independent valuation Less: accumulated depreciation Plant & equipment at cost Less: accumulated depreciation Leased plant & equipment at cost Less: accumulated depreciation Total written down value Movements in Carrying Amounts 2023 Consolidated Group: Balance at the beginning of year Effects of exchange rate changes Additions Revaluation Reclassification Disposals Depreciation expense* Carrying amount at the end of year 2023 $000 23,671 32,406 (258) 32,148 37,006 (26,985) 10,021 64 (31) 33 65,873 Freehold Land $000 Buildings $000 Plant & Equipment $000 Leased Plant $000 19,486 (250) - 4,435 - - - 23,671 31,739 (93) 8 1,479 (371) - (614) 32,148 8,591 (103) 3,619 - - (45) (2,041) 10,021 170 - - - - (59) (78) 33 *Depreciation expense that is absorbed into the cost of manufactured inventory is $1,161,230 2022 Consolidated Group: Balance at the beginning of year Effects of exchange rate changes Additions Revaluation Disposals Depreciation expense* Carrying amount at the end of year Freehold Land $000 Buildings $000 Plant & Equipment $000 Leased Plant $000 19,138 326 - 22 - - 19,486 31,715 433 110 360 - (879) 31,739 7,629 153 2,749 - (28) (1,912) 8,591 340 - - - (68) (102) 170 *Depreciation expense that is absorbed into the cost of manufactured inventory is $1,025,152 2022 $000 19,486 32,864 (1,125) 31,739 36,205 (27,614) 8,591 272 (102) 170 59,986 Total $000 59,986 (446) 3,627 5,914 (371) (104) (2,733) 65,873 Total $000 58,822 912 2,859 382 (96) (2,893) 59,986 59 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 13: Property, Plant & Equipment (continued) If Land & Buildings were stated at historic cost, amounts would be as follows: Cost Less: Accumulated depreciation Net book value Consolidated Group 2023 $000 2022 $000 25,323 (5,449) 19,874 25,586 (5,447) 20,139 The Group’s land and buildings were revalued as per the disclosures in note 1(k). The directors consider the carrying value of the land and buildings to be a fair reflection of their market value. Note 14: Right of use Assets Leased buildings Accumulated depreciation Movement in carrying amount Leased buildings Opening net carrying amount Addition to Right of use Asset Depreciation expense Closing net carrying amount 33,559 (16,558) 17,001 15,794 6,454 (5,247) 17,001 29,446 (13,652) 15,794 12,883 7,495 (4,584) 15,794 The consolidated entity leases land and buildings for its offices, warehouses and retail outlets under agreements of between five to fifteen years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated. The consolidated entity also leases plant and equipment under agreements of between three to seven years. Note 15: Intangible assets Goodwill Less: impairment Goodwill on consolidation Less: impairment Product development costs less: amortisation 60 1,071 (169) 902 249 (112) 137 131 - 131 1,170 1,069 (114) 955 249 (87) 162 2 - 2 1,119 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 15: Intangible assets (continued) Movements in Carrying Amounts Consolidated Group: Balance at the beginning of year Additions Disposals Effects of exchange rate changes Impairment/amortisation expense Carrying amount at the end of year Goodwill on consolidation $000 Goodwill $000 Deferred expenditure $000 162 - - - (25) 137 955 - - 1 (54) 902 2 129 - - - 131 Total $000 1,119 129 - 1 (79) 1,170 CURRENT LIABILITIES Note 16: Trade and other payables - unsecured Trade creditors Sundry creditors and accrued expenses (1) (1) Included in sundry creditors are advertising levies collected of $489,524 (2022: $867,262) and held by Waterco Ltd in its capacity as the franchisor of the Swimart network. These amounts are held in a separate bank account at year end (see Note 8). Note 17: Borrowings Bank loans - secured (refer Note 20) Bank trade bills (refer Note 20) Right of use lease liability Unexpired interest Lease liability Consolidated Group 2023 $000 2022 $000 7,807 4,546 12,353 8,469 5,742 14,211 404 2,568 4,165 (395) 23 6,765 2,111 2,117 4,355 (413) 102 8,272 61 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 18: Taxes a) Liabilities Current Income Tax Non Current Deferred tax liability comprises: Tax allowances relating to property, plant & equipment Revaluation adjustments taken direct to equity Other Parent entity DTA netted off against DTL Consolidated DTL b) Assets Current Income Tax Deferred tax assets comprises: Provisions Attributable to tax losses Tax allowances relating to property, plant & equipment Other Parent entity DTA netted off against DTL Consolidated DTA c) Reconciliations i. Gross Movements The overall movement in the deferred tax account is as follows: Opening balance Credit/(Charge) to statement of comprehensive income Credit/(Charge) to equity Closing Balance ii. Deferred Tax Liability The movement in deferred tax liability for each temporary difference during the year is as follows: Tax allowances relating to property, plant & equipment Opening balance Transfer to deferred tax asset Credit/(Charge) to statement of comprehensive income Closing balance 62 Consolidated Group 2023 $000 2022 $000 595 2,525 8,835 (333) 11,027 (4,773) 6,254 2,547 1,677 7,457 462 9,596 (4,773) 4,823 - - 2,231 4,086 (240) 371 6,448 (4,773) 1,675 (2,980) (269) (1,331) (4,580) 1,677 - 46 1,723 2,396 4,086 (226) 359 6,615 (4,773) 1,842 (2,984) 4 - (2,980) 1,301 - 376 1,677 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 18: Taxes (continued) c) Reconciliations (continued) ii. Deferred Tax Liability (continued) Property revaluation adjustments taken direct to equity Opening balance Net revaluations during current period taken direct to equity Closing balance Other Opening balance Credit/(charge) to statement of comprehensive income Closing balance iii. Deferred Tax Assets The movement in deferred tax asset for each temporary difference during the year is as follows: Provisions Opening balance Credit/(Charge) to statement of comprehensive income Closing balance Capital tax losses Opening balance Credit/(Charge) to statement of comprehensive income Closing balance Tax allowances relating to Property plant & equipment Opening balance Transfer from deferred tax liability Credit/(Charge) to statement of comprehensive income Closing balance Other Opening balance Credit/(charge) to statement of comprehensive income Closing balance d) Deferred tax assets not brought to account the benefits of which can only be realised in if the conditions for deductibility set out in note 1e) occur - tax losses - Operating losses Consolidated Group 2023 $000 2022 $000 8,237 1,400 9,637 (318) (15) (333) 2,396 (164) 2,232 4,086 - 4,086 (226) (14) (240) 359 10 369 2,100 2,100 8,237 - 8,237 (418) 100 (318) 2,134 262 2,396 3,895 191 4,086 (248) 22 (226) 356 3 359 2,220 2,220 63 WATERCO LIMITED | ANNUAL REPORT 2023 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 19: Short-term provisions Employee Benefits (see note 1h) Opening Balance Additional provisions Amounts used Closing Balance Consolidated Group 2023 $000 2022 $000 3,964 1,684 (2,254) 3,394 3,868 2,440 (2,344) 3,964 Amounts not expected to be settled within the next 12 months The current provision for employee benefits includes all unconditional entitlements (including bonuses 801,348) (FY22 1,619,519) where employees have completed the required period of service and also those where employees are entitled to pro-rata payments in certain circumstances. The entire amount is presented as current, since the consolidated entity does not have an unconditional right to defer settlement. NON-CURRENT LIABILITIES Note 20: Borrowings Bank loans - secured (1) Right of use lease liability Lease liability 1,294 13,272 - 14,566 642 11,949 23 12,614 (1) Bank facilities of the group are secured by a first ranking general security interest over all the assets and undertakings of the parent entity (including a first registered mortgage over the Rydalmere Property), and corporate guarantees from the parent entity to the banks of an overseas subsidiary. That part of the facilities which are payable or subject to an annual review within 12 months, are classified as current. Bank Facilities of $8.15m relating to the parent entity mature on 30 November 2024. As at 30 June 2023, the parent entity has drawn nil trade advances (2022: 90 day trade advance of $2m with an interest rate payable of 2.9%shown as part of bank loans-secured shown in current borrowings in note 17). Bank Facilities of RM51.5m ($A16.601m) relate to a subsidiary and are due to mature between May 2024 and January 2029. As at 30 June 2023 an amount of AUD4.225m has been drawn and shown in Note 17 Current Borrowings: Bank loans secured $A0.366m and Bank trade bills $A2.568m and in Note 20 as Non Current borrowings Bank loans secured $1.291m. These loans bear an interest of 4.01%-7.06% and are repayable by monthly instalments. Note 21: Long-term provisions Employee Benefits (see note 1h) Opening balance Additional provisions Amounts used Closing balance a) Aggregate employee entitlement liability b) Number of employees at year end 64 213 25 - 238 3,632 742 212 1 - 213 4,177 735 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 22: Issued capital Ordinary shares are classified as equity. 35,493,146 ordinary shares fully paid at beginning of the year (2022: 35,715,248) On 31 July 2022, 100,885 shares were purchased at $3.74 and cancelled under Waterco Ltd Share-buyback Scheme On 31 August 2022, 14,424 shares were purchased at $3.74 and cancelled under Waterco Ltd Share-buyback Scheme On 30 September 2022, 67,485 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 31 October 2022, 47,002 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 30 November 2022, 8,104 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 31 December 2022, 4,517 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 31 January 2023, 18,513 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 28 February 2023, 2,969 shares were purchased at $3.95 and cancelled under Waterco Ltd Share-buyback Scheme On 31 March 2023, 248 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 30 April 2023, 3,721 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 31 May 2023, 4,722 shares were purchased at $4.00 and cancelled under Waterco Ltd Share-buyback Scheme On 30 June 2023, 35,789 shares were purchased at $3.60 and cancelled under Waterco Ltd Share-buyback Scheme On 31 July 2021, 27,363 shares were purchased at $2.90 and cancelled under Waterco Ltd Share-buyback Scheme On 30 September 2021, 9,052 shares were purchased at $3.14 and cancelled under Waterco Ltd Share-buyback Scheme On 31 October 2021, 26,596 shares were purchased at $3.15 and cancelled under Waterco Ltd Share-buyback Scheme On 30 November 2021, 19,905 shares were purchased at $3.28 and cancelled under Waterco Ltd Share-buyback Scheme On 31 December 2021, 10,310 shares were purchased at $3.30 and cancelled under Waterco Ltd Share-buyback Scheme On 28 February 2022, 4,862 shares were purchased at $3.30 and cancelled under Waterco Ltd Share-buyback Scheme On 31 March 2022, 21,328 shares were purchased at $3.31 and cancelled under Waterco Ltd Share-buyback Scheme On 30April 2022, 91,022 shares were purchased at $3.56 and cancelled under Waterco Ltd Share-buyback Scheme On 31 May 2022, 4,460 shares were purchased at $3.60 and cancelled under Waterco Ltd Share-buyback Scheme On 30 June 2022, 7,204 shares were purchased at $3.60 and cancelled under Waterco Ltd Share-buyback Scheme 35,184,767 ordinary shares fully paid at the end of the year (2022: 35,493,146) Consolidated Group 2023 $000 2022 $000 34,847 35,590 (377) (55) (270) (188) (32) (18) (74) (12) (1) (15) (19) (143) - - - - - - - - - - - - - - - - - - - - - - (79) (28) (84) (65) (34) (16) (71) (324) (16) (26) 33,643 34,847 65 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 22: Issued capital (continued) Ordinary shares Ordinary shares are classified as equity Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the company in proportion to the number of and amounts paid on the shares held. The fully paid ordinary shares have no par value and the company does not have a limited amount of authorised capital. On a show of hands, every member present at a meeting in person or by proxy shall have one vote and, upon a poll, each share shall have one vote. Share buy-back On 1 June 2021, the company announced a sixth share buyback of $3,000,000 worth of shares (approximately 1,034,483 shares) commencing on 16 June 2021 and ending on 15 June 2022 (or earlier if the $3,000,000 is purchased before then). During the current year, the company purchased and cancelled nil shares (2022:222,102) shares costing $nil (2022:$ 743,559) This Share buyback expired on 15 June 2022. On 30 June 2022, the company announced a seventh share buyback of $3,000,000 worth of shares (approximately 833,333 shares) commencing on 1 July 2022 and ending on 30 June 2023 (or earlier if the $3,000,000 is purchased before then). During the current year, the company purchased and cancelled 308,379 shares. (2022: nil) shares costing $1,204,011 (2022: nil). This Share buyback expired on 30 June 2023. After balance date, on 17 July 2023, the company announced its eighth on market share buyback of $1,000,000 worth of shares (approximately 226,244 shares) commencing on 18 July 2023 and ending on 2 July 2024 (or earlier if the $1,000,000 is purchased before then) Capital Management Management controls the capital of the group in order to maintain a good debt to equity ratio, provide the shareholders with adequate returns and ensure that the group can fund its operations and continue as a going concern. The group’s debt and capital includes ordinary share capital and financial liabilities supported by financial assets. There are no externally imposed capital requirements. Management effectively manages the group’s capital by assessing the group’s financial risks and adjusting its capital structure in response to changes in these risks and in the market. These responses include the management of debt levels, distributions to shareholders and share issues. There have been no changes in the strategy adopted by management to control the capital of the group since the prior year. This strategy is to ensure that the group’s gearing ratio remains between 30% and 70%. The gearing ratios for the year ended 30 June 2023 and 30 June 2022 are as follows: Total borrowings Less cash and cash equivalents Net debt Total equity Total capital Consolidated Group 2023 $000 21,331 (12,337) 8,994 121,234 130,228 2022 $000 20,886 (11,946) 8,940 111,010 119,950 Gearing ratio 7% 7% 66 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 23: Reserves a) Capital profits The capital profits reserve relates to non taxable profits on sale of property. Note No. 2023 $000 2022 $000 Consolidated Group 211 211 b) Foreign currency translation (6,017) (6,004) The foreign currency translation reserve records exchange differences on translation of foreign controlled subsidiaries and the exchange gains and losses on hedges of the net investment in foreign operations. c) Asset revaluation reserve Balance at the beginning of the year Property revaluation increment (net of tax and reinstatement) Effect of foreign exchange changes on translation Balance at the end of the year The asset revaluation reserve records the revaluation of land and buildings to fair value d) Share Options Reserve Balance at the beginning of the year Share option increment Balance at the end of the year The share options reserve records the cost of the share option plan Note 24: Retained earnings Opening retained earnings Net profit attributable to the members of the parent entity Dividends paid Closing retained earnings 30 26,444 25,768 382 3,863 30,689 402 274 26,444 13 13 26 - 13 13 24,909 20,664 54,992 10,846 (3,524) 62,314 45,842 11,641 (2,491) 54,992 67 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note No. Note 25: Non-controlling interest Issued capital Retained profits Non-controlling interest equity holding in subsidiaries: Ezera Systems Pty Ltd PT Waterco Indonesia Medipool Pte Ltd Note 26: Lease commitments Finance leases Lease expenditure contracted and provided for: not later than one year later than one year but not later than five years Total minimum lease commitments Less: future finance charges Lease liability Current portion Non-current portion 17 20 Consolidated Group 2022 $000 176 331 507 40% 49% 40% 39 89 128 (3) 125 102 23 125 2023 $000 176 192 368 40% 49% 40% 23 - 23 - 23 23 - 23 Finance leases of 3 or 4 years are taken out on motor vehicles, forklifts and IT equipment with an option to purchase the asset at the end of the lease term at a residual of 30% to 45% depending on the asset. Note 27: Contingent Liabilities Estimate of the maximum amount of contingent liabilities that may become payable Corporate guarantees provided by the parent company to overseas banks to secure loans for a subsidiary Note 28: Related Parties Transactions with director related parties i) Sales made to Asiapools (M) Sdn Bhd. Mr S S Goh, a shareholder has significant influence over Asiapools (M) Sdn Bhd. (ii) Payments made to Mint Holdings Pty Ltd for rental of warehouses, offices and a retail shop Mr S S Goh is a director and shareholder of Mint Holdings Pty Ltd (iii) Payments received from Mint Holdings Pty Ltd for rental of office space 4,225 4,225 5,125 5,125 361 721 9 360 685 23 Terms and conditions All transactions were made on normal commercial terms and conditions and at market rates. 68 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 29: Operating Segments Segment Information Identification of reportable segments The group has identified its operating segments based on the internal reports that are reviewed and used by the Board of Directors (chief operating decision makers) in assessing performance and determining the allocation of resources. The group is managed primarily on the basis of location since the group’s operations have similar risk profiles and performance criteria. Operating segments are therefore determined on the same basis. chemicals, The group operates predominantly in one industry being the manufacture and wholesale of swimming pool equipment, accessories manufacture and sale of solar pool heating systems and as a franchisor of swimming pool outlets retailing swimming pool accessories and equipment. and Basis of accounting for the purposes of reporting by operating segments Accounting Policies Adopted Unless stated otherwise, all amounts reported to the Board of Directors as the chief decision maker with respect to operating segments are determined in accordance with accounting policies that are consistent to those adopted in the annual financial statements of the Group. Inter-segment transactions An internally determined transfer price is set for all inter-entity sales. The price is reviewed annually (unless special circumstances arise) and is based on what would be realised in the event the sale was made to an external party at arm’s length under the same terms and conditions. All such transactions are eliminated on consolidation for the Group’s financial statements. to Corporate charges are allocated reporting segments based on the services provided to those reporting segments. Inter-segment loans payable and receivable are initially recognised at the consideration received net of transaction costs. If inter-segment loans receivable and payable are not on commercial terms, these are not adjusted to fair value based on market interest rates. Segment assets Where an asset is used across multiple segments, the asset is allocated to the segment that receives the majority of the economic value from the asset. In the majority of instances, segment assets are clearly identifiable on the basis of their nature and physical location. Segment liabilities Liabilities are allocated to segments where is a direct nexus between the incurrence of the liability and the operations of the segment. Unallocated items The following items of revenue, expenses, assets and liabilities are not allocated to operating segments as they are not considered part of the core operations of any segment: – other revenues 69 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 29: Operating Segments (continued) Geographical Segments AUSTRALIA & NEW ZEALAND $000 87,033 929 87,962 ASIA $000 15,834 38,532 54,366 2023 NORTH AMERICA & EUROPE $000 CONSOLIDATED GROUP $000 26,183 577 26,760 129,050 40,038 169,088 4,949 (40,038) 133,999 REVENUE Sales to customers outside the consolidated group Intersegment sales Total segment revenue Reconciliation of segment revenue to group revenue Other revenue Intersegment elimination Total group revenue Segment Net Profit Before Tax 9,465 6,345 2,992 18,802 18,802 (4,949) 13,853 133,459 73,739 9,746 216,944 Reconciliation of segment result to group net profit before tax Unallocated items - other Net profit before tax SEGMENT ASSETS Segment asset increases for the period Reconciliation of segment assets to group assets Intersegment eliminations Total group assets (48,993) 167,951 3,627 96,527 (49,810) 46,717 CAPITAL EXPENDITURE 1,566 1,934 127 SEGMENT LIABILITIES Reconciliation of segment liabilities to group liabilities Intersegment eliminations Total group liabilities 49,078 36,223 11,226 70 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 29: Operating Segments (continued) Geographical Segments AUSTRALIA & NEW ZEALAND $000 86,542 1,320 87,862 ASIA $000 12,397 41,318 53,715 2022 NORTH AMERICA & EUROPE $000 CONSOLIDATED GROUP $000 24,346 870 25,216 123,285 43,508 166,793 4,856 (43,508) 128,141 REVENUE Sales to customers outside the consolidated group Intersegment sales Total segment revenue Reconciliation of segment revenue to group revenue Other revenue Intersegment elimination Total group revenue Segment Net Profit Before Tax 10,993 5,110 3,619 19,722 19,722 (4,856) 14,866 126,427 64,420 5,798 196,645 Reconciliation of segment result to group net profit before tax Unallocated items - other Net profit before tax SEGMENT ASSETS Segment asset increases for the period Reconciliation of segment assets to group assets Intersegment eliminations Total group assets CAPITAL EXPENDITURE 882 1,887 SEGMENT LIABILITIES Reconciliation of segment liabilities to group liabilities Intersegment eliminations Total group liabilities 44,896 31,645 89 9,936 (38,992) 157,653 2,858 86,477 (39,834) 46,643 71 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 30: Dividends Paid or Proposed Dividends are recognised when declared during the financial year and no longer at the discretion of the company. Final fully franked ordinary dividend of 5c per share (2022:5c) franked at the tax rate of 30% paid Interim fully franked ordinary dividend of 5c per share (2022:3c) franked at the tax rate of 30% paid Proposed final fully franked ordinary dividend of 5c per share (2022:5c) franked at the tax rate of 30% Balance of franking account at year end adjusted for franking credits arising from payment of income tax payable, payment of proposed dividends and franking credits not available for distribution Note 31: Earnings Per Share Basic earnings per share Basic earnings per share is calculated by dividing the profit (after tax) attributable to members of Waterco Ltd by the weighted average number of ordinary shares outstanding during the financial year adjusted for any share issues and share buybacks that have taken place during the year. Diluted earnings per share Diluted earnings per share adjusts the figures used in the calculation of the basic earnings per share after income tax effect of interest and other financing costs associated with the dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. Net Profit Net Profit/(loss) attributable to outside equity interest Earnings used in the calculation of basic EPS Consolidated Group 2022 $000 2021 $000 1,763 1,761 3,524 1,759 1,426 1,065 2,491 1,775 6,450 6,820 10,805 (41) 10,846 11,574 (67) 11,641 a) Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS 35,291 35,627 b) Weighted average number of ordinary shares outstanding during the year used in calculation of diluted EPS 35,291 35,627 72 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 32: Employee Benefits Share Option Plan This plan was approved by the Board on 24 June 2021 Its objective is to encourage employees to acquire ordinary shares in the company in order to promote the long term success of the company. On 23 August 2021, the company issued the following options to three senior executives at an exercise price of $3.15 per share (being the Volume Weighted Average Price (VWAP) of Waterco Shares for the 5 days preceding date of issue) under this plan. Senior Executive Mr Gerard Doumit Mr Marchal De Pasuale CEO Waterco USA Mr Tony Fisher Position CFO CEO Waterco Nth America and Waterco Europe No of Options 100,000 100,000 150,000 Tranche 1 33,000 33,000 50,000 Tranche 2 33,000 33,000 50,000 Tranche 3 34,000 34,000 50,000 The Options will vest in 3 tranches in accordance with the Exercise Periods set out below provided the Vesting Condition (EBIT) for each year has been met and the executives remain employed by the Waterco Group at the beginning of the Exercise Period. Tranche 1 2 3 Exercise Period 23/8/22-23/8/31 23/8/23-23/8/31 23/8/24-23/8/31 Vesting Condition 30 June 2022 30 June 2023 30 June 2024 EBIT $10,338,853 $11,278,748 $12,218,644 All 3 executives have met the Vesting Condition for Tranche 1 as the EBIT for the financial year ending 30 June 2022 has exceeded $10,338,853. Each executive may now exercise the options for Tranche 1 anytime from now until 23 August 2031. All 3 executives have met the Vesting Condition for Tranche 2 as the EBIT for the financial year ending 30 June 2023 has exceeded $11,278,748. Each executive may now exercise the options for Tranche 2 anytime from now until 23 August 2031 Nil options were exercised during the period. Note 33: Events Subsequent to Reporting Date Purchase of Davey On 4 August 2023, Waterco Ltd signed an agreement with GUD Holdings Ltd to purchase the worldwide business of Davey Water Products for a consideration of approximately $65m. The purchase is being fully funded by Bank Facilities provided by Westpac Banking Corporation. The Davey Business provides Waterco with not only a much larger presence in the pool industry but a significant entry point in the water treatment business especially in regional areas. The settlement of this business took place on 1st September 2023. There were no other reportable events subsequent to balance date. 73 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 34: Financial Risk Management The Audit Committee (AC) has been delegated responsibility by the Board of Directors for, amongst other issues, monitoring and managing financial risk exposures of the Group. The AC monitors the Group’s financial risk management policies and exposures and approves financial transactions within the scope of its authority. It also reviews the effectiveness of internal controls relating to commodity price risk, counterparty credit risk, currency risk, financing risk and interest rate risk. The AC meets on a bi-monthly basis and minutes of the AC are reviewed by the Board. The AC’s overall risk management strategy seeks to assist the consolidated group in meeting its financial targets, while minimising potential adverse effects on financial performance. Its functions include the review of the use of hedging derivative instruments, credit risk policies and future cash flow requirements. The main risks the group is exposed to through its financial instruments are interest rate risk, credit risk, foreign currency risk, liquidity risk and price risk. (a) Interest Rate Risk The consolidated group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and liabilities. (b) Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets is the carrying amount, net of any provisions for doubtful debts, as disclosed in the statement of financial position and notes to the financial statements. Credit risk is managed through maintenance of procedures in relation to approval, granting and renewal of credit limits, regular monitoring of exposures against such limits and the monitoring of the financial stability of significant customers. Such monitoring is used in assessing receivables for impairment. Depending on the subsidiary, credit terms are generally 30 days from invoice month. Credit risk for derivative financial instruments arises from the potential failure by counterparties to the contract to meet their obligations. The credit risk exposure to forward exchange contracts and interest rate swaps is the net fair value of these contracts as disclosed in (c). The Group has no single concentration of credit risk with any single debtor or group of debtors. However, on a geographical basis, the group has significant credit exposure to Australia, New Zealand and USA given the substantial operations in those regions. Trade and other receivables that are neither past due or impaired are considered to be of high credit quality. Aggregates of such amounts are as detailed in Note 9. The consolidated entity has adopted a lifetime expected loss allowance in estimating expected credit losses to trade receivables through the use of a provisions matrix using fixed rates of credit loss provisioning. These provisions are considered representative across all customers of the consolidated entity based on recent sales experience, historical collection rates and forward- looking information that is available. As disclosed in note 9, due to the Coronavirus (COVID-19) pandemic, the calculation of expected credit losses has been revised as at 30 June 2023 and rates have increased in each category up to 6 months overdue. Management closely monitors receivable balances on a monthly basis and is in regular contact with its customers to mitigate risk. The parent entity is exposed to fluctuations in foreign currencies arising from the sale and purchase of goods in currencies other than the group’s measurement currency. The parent entity has forward contracts in place at balance date relating to highly probable forecast transactions. These contracts commit the group to buy and sell specified amounts of foreign currencies in the future at specified exchange rates. Contracts are taken out with terms that reflect the underlying settlement terms of the commitment to the maximum extent possible so that hedge ineffectiveness is minimised. 74 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 34: Financial Risk Management (continued) (c) Foreign Currency Risk (continued) The following table summarises the notional amounts of the Group (and parent entity) commitments in relation to forward exchange contracts.. Notional Amounts 2023 $000 2022 $000 Average Exchange Rate 2022 2023 $000 $000 Consolidated Group (and Parent Entity) Buy USD/Sell AUD - Less than 6 months - 3,000 - 0.7544 d) Liquidity Risk The group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate unutilised borrowing facilities are maintained. Financial liability and financial asset maturity analysis Consolidated Group Within 1 Year 1 to 5 Years 2023 $000 2022 $000 2023 $000 2022 $000 Over 5 years 2023 $000 2022 $000 Total 2023 $000 2022 $000 Financial Assets Cash Receivables Total anticipated inflows Financial Liabilities Bank overdraft Bank loans Trade and other payable Right of use lease liability Lease liability Total contractual outflows Less bank overdrafts Total expected 12,337 17,105 11,946 17,201 29,442 29,147 - - - - - - - 2,972 14,905 3,770 23 - 4,228 14,211 3,942 102 - 1,294 - 13,272 - - 642 - 11,949 23 21,670 - 22,483 - 14,566 - 12,614 - outflows 21,670 22,483 14,566 12,614 Net (outflow)/ inflow on financial instruments 7,772 6,664 (14,566) (12,614) - - - - - - - - - - - - - - - - - - - - - - - - 12,337 17,105 11,946 17,201 29,442 29,147 - 4,266 14,905 17,042 23 - 4,870 14,211 15,891 125 36,236 - 35,097 - 36,236 35,097 (6,794) (5,950) e) Price Risk Price risk relates to the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in market prices largely due to demand and supply factors for commodities; 75 WATERCO LIMITED | ANNUAL REPORT 2023 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 34: Financial Risk Management (continued) Net Fair Values The net fair value of bank overdrafts, bank loans and lease liabilities is determined by discounting the cash flows, at market interest rates of similar borrowings, to their present value. Their net fair value is adjusted for any costs involved in settling the instrument. Financial Assets Cash at bank and in hand Receivables Financial Liabilities Bank overdraft Bank loans Lease liabilities Right of use lease liability 2023 2022 Carrying Amount $000 Net Fair Value $000 Carrying Amount $000 Net Fair Value $000 12,337 17,105 29,442 - 4,266 23 17,042 21,331 12,337 17,105 29,442 - 4,309 24 17,042 21,375 11,946 17,201 29,147 - 4,870 125 15,891 20,886 11,946 17,201 29,147 - 4,919 131 15,891 20,941 For financial assets and other liabilities, the net fair value approximates their carrying value. Financial assets where the carrying amount exceeds the net fair values have not been written down as the consolidated group intends to hold these assets to maturity. Sensitivity Analysis The following table illustrates sensitivities to the Group’s exposures to changes in interest rates and exchange rates. The table indicates the impact on how profit and equity values reported at balance date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. The sensitivity assumes the movement in a particular variable is independent to other variables. Consolidated Group Profit $000 Equity $000 +/-150 +/-1,471 +/-150 +/-1,471 +/-60 +/-1,569 +/-60 +/-1,569 Year ended 30 June 2023 +/- 2% in interest rates +/- 5% in $A/$US Year ended 30 June 2022 +/- 2% in interest rates +/- 5% in $A/$US 76 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 35: Cash Flow Information Reconciliation of cash flows from operations with profit after income tax. Profit after income tax Non-cash flows in profit Depreciation Rental income Impairment and amortisation (Profit)/loss on sale of non current assets Changes in Assets and Liabilities: Trade debtors Provision for doubtful debts Other debtors Inventories Prepayments Deferred tax assets Expenditure carried forward Trade creditors Contract liabilities Other creditors Provision for employee benefits Provision for tax Provision for deferred tax Share options reserve Cashflow – Non Operating Activities: Dividends Received Cash Flows provided by operations Consolidated Group 2023 $000 2022 $000 10,805 11,574 8,227 (3,712) 78 (15) 406 (95) (215) (1,458) (1,566) 168 (129) (661) 2,551 (722) (544) (1,952) 9 13 (1) 11,187 7,340 (3,006) 79 (69) (3,489) 116 (109) (13,972) (55) (479) - 2,635 - 609 97 1,565 476 13 (1) 3,324 b) Non Cash Financial and investment activities 1) Property, Plant and Equipment During the year, the consolidated group acquired plant and equipment with an aggregate fair value of $nil (2022:$nil) by means of finance leases. These acquisitions are not reflected in the statement of cash flows. c) Financing Facilities The following lines of credit were available at balance date: Fully Drawn Advance Facilities Master lease facilities Amount utilised Amount unutilised 23,751 1,750 25,501 (7,961) 33,462 24,117 1,750 25,867 (6,883) 32,750 The Fully Drawn Advance Facilities of the parent entity are due to expire on 30 November 2024). The parent entity expects to renew these facilities on expiry date. (refer to note 20) The Fully Drawn Advance Facilities of the controlled entity are due to expire on 31 May 2024 and 30 June 2031. The controlled entity expects to renew these facilities on expiry date. (refer to note 20) 77 WATERCO LIMITED | ANNUAL REPORT 2023 Valuation Techniques is The Group selects a valuation technique that appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The evaluation techniques selected by the Group are consistent with one or more of the following valuation approaches: – Market approach: valuation techniques that use prices and other relevant information generated by market transactions for identical or similar assets or liabilities. – Income approach: valuation techniques that convert estimated future cash flows or income and expenses into a single discounted present value. – Cost approach: valuation techniques that reflect the current replacement cost of an asset at its current service capacity. Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or liability, including assumptions about risks. A change in those inputs might result in a significantly higher or lower fair value measurement. When selecting a valuation technique, the Group gives priority to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable. Notes To The Financial Statements For The Year Ended 30 June 2023 Note 36: Fair Value Measurements The Group measures and recognises the following assets and liabilities at fair value on a recurring basis after initial recognition: - derivative financial instruments; - freehold land and buildings; The Group subsequently measures some items of freehold land and buildings at fair value on a non- recurring basis. The Group does not subsequently measure any liabilities at fair value on a non-recurring basis. a. Fair Value Hierarchy AASB 13: Fair Value Measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that an input that is significant to the measurement. They can be categorised as follows: Level 1 Level 2 Level 3 Measurements based on unobservable inputs for the asset or liability. Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in Level 3. If all significant 78 Notes To The Financial Statements For The Year Ended 30 June 2023 Note 36: Fair Value Measurements (continued) The following tables provide the fair values of the Group’s assets and liabilities measured and recognised on a recurring basis after initial recognition and their categorisation within the fair value hierarchy: Note No 13 13 Note No 13 13 Recurring fair value measurements Non-financial assets Freehold land Freehold buildings Total non-financial assets recognised at fair value on a recurring basis Total non-financial assets recognised at fair value Recurring fair value measurements Non-financial assets Freehold land Freehold buildings Total non-financial assets recognised at fair value on a recurring basis Total non-financial assets recognised at fair value Level 1 $000 30 June 2023 Level 2 $000 Level 3 $000 Total $000 - - - - - - - - 23,671 32,148 23,671 32,148 55,819 55,819 55,819 55,819 Level 1 $000 30 June 2022 Level 2 $000 Level 3 $000 Total $000 - - - - - - - - 19,486 31,739 19,486 31,739 51,225 51,225 51,225 51,225 b. Valuation Techniques and Inputs Used to Measure Level 3 Fair Values Description Fair Value at 30 June 2023 $000 Non-financial assets Freehold land(i) 23,671 Freehold buildings(i) 32,148 51,225 Valuation Technique(s) Inputs Used Market approach using recent observable market data for similar properties; income approach using discounted cash flow methodology Market approach using recent observable market data for similar properties; income approach using discounted cash flow methodology Price per hectare; market borrowing rate Price per square metre; market borrowing rate (i) The fair value of freehold land and buildings is determined at least every three years based on valuations from independent valuers. At the end of each intervening period, the directors review the independent valuation and, when appropriate, update the fair value measurement to reflect current market conditions using a range of valuation techniques, including recent observable market data and/or discounted cash flow methodologies. (ii) There were no changes during the period in the valuation techniques used by the Group to determine Level 3 fair values. 79 WATERCO LIMITED | ANNUAL REPORT 2023Notes To The Financial Statements For The Year Ended 30 June 2023 Note 36: Fair Value Measurements (continued) c. Disclosed Fair Value Measurements The following assets and liabilities are not measured at fair value in the statement of financial position, but their fair values are disclosed in the notes: – lease liability; – bank debt; The following table provides the level of the fair value hierarchy within which the disclosed fair value measurements are categorised in their entirety and a description of the valuation technique(s) and inputs used: Description Note Fair Value Hierarchy Level Valuation Technique(s) Inputs Used Liabilities Lease liability Bank debt 34 34 2 2 Income approach using discounted cash flow methodology Current commercial borrowing rates for similar instruments Income approach using discounted cash flow methodology Current commercial borrowing rates for similar instruments There has been no change in the valuation technique(s) used to calculate the fair values disclosed in the notes to the financial statements. Note 37: Company Details The registered office and principal place of business of the company is: Waterco Limited 36 South Street Rydalmere NSW 2116 80 Directors' Declaration In accordance with a resolution of the directors of Waterco Limited, the directors of the company declare that: 1. the financial statements and notes, as set out on pages 38 to 80 are in accordance with the Corporations Act 2001 and: a. comply with Australian Accounting Standards, which, as stated in accounting policy Note 1 to the financial statements, constitutes compliance with International Financial Reporting Standards (IFRS); b. give a true and fair view of the financial position as at 30 June 2023 and of the performance for the year ended on that date of the consolidated group; and c. that the opinion has been formed on the basis of a sound system of risk management and internal control adopted by the Board, and that this system is operating efficiently; 2. in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and 3. the directors have been given the declarations required by s295A of the Corporations Act 2001 from the Chief Executive Officer and Chief Financial Officer. Soon Sinn Goh Chief Executive Officer Dated at Sydney this 8 September 2023 81 WATERCO LIMITED | ANNUAL REPORT 2023 Independent Auditor's Report to the members of Waterco Ltd 82 Independent Auditor's Report to the members of Waterco Ltd 83 WATERCO LIMITED | ANNUAL REPORT 2023Independent Auditor's Report to the members of Waterco Ltd 84 Shareholder Information For The Year Ended 30 June 2023 (a) Distribution of Shareholders as at 6 September 2023 1 1,001 5,001 10,001 100,001 Range - - - - - 1,000 5,000 10,000 100,000 and over Total Holders 281 164 55 61 25 586 Options - - - - - (b) Marketable Parcel 35 shareholders hold less than a marketable parcel.. (c) Substantial Shareholders The following information is extracted from the company’s register as at 6 September 2023 Name S S Goh Group Redbrook Nominees Pty Ltd Acres Holdings Pty Ltd (d) Voting Rights Number of shares 21,721,853 3,114,529 2,964,883 For all shares, voting rights are one vote per member on a show of hands and one vote per share on a poll (e) Twenty Largest Shareholders The twenty largest shareholders hold 93.02% of the total shares issued. Name Number of shares Redbrook Nominees Pty Ltd Acres Holdings Pty Ltd Goh Lai Huat & Sons Sdn Bhd 1 Mr Soon Sinn Goh 2 3 4 5 Mr Soon Leong Goh 6 Mr Swee Kheong Goon 7 Mrs Christine Goh 8 Mr Shane Goh 9 Mrs Janet Swee Nyet Goh 10 Mr Chu Shien Chang 11 GWK Corporation Pty Ltd 12 Deuteronomy Pty Ltd (Dennis Hambleton SF A/C) 13 14 15 Mr Tiow Lip Lee 16 Ms May-Yin Goh 17 Mr Bryan Weng Keong Goh 18 Mr Khoon Ping Kuok 19 20 DWS Nominees Pty Ltd Brazil Enterprises Pty Ltd Leitch Pty Ltd (Leitch Super Fund A/C) Protango Pty Ltd (BFHunt SF A/C) 19,221,853 3,112,943 2,578,322 2,500,000 681,384 562,717 500,000 470,346 447,112 340,281 334,387 300,000 295,173 269,000 245,386 225,267 205,734 173,000 170,223 95,130 % 54.63 8.85 7.33 7.11 1.94 1.60 1.42 1.34 1.27 0.97 0.95 0.85 0.84 0.76 0.70 0.64 0.58 0.49 0.48 0.27 TOTAL (f) Stock Exchange Listing 32,728,258 93.02 The shares of Waterco Limited are listed on the Australian Stock Exchange under the trade symbol WAT. 85 WATERCO LIMITED | ANNUAL REPORT 2023Corporate Directory Directors Soon Sinn Goh Bryan Goh Ben Hunt (Richard) Cheng Fah Ling Judy Raper Wayne Beauman Secretaries Gerard Doumit Sin Wei Yong Registered office and principal place of business 36 South Street, Rydalmere NSW 2116 Tel: + 61 2 9898 8600 Fax: + 61 2 9898 1877 Website: www.waterco.com.au E-mail: companysecretary@waterco.com Share Registry Computershare Investor Services Pty Limited GPO Box 2975, Melbourne VIC 3001 Tel: 1300 850 505 Offices – Australia NSW 36 South Street, Rydalmere NSW 2116 Tel: + 61 2 9898 8600 QLD 77 Nealdon Drive, Meadowbrook QLD 4131 Postal Address: PO Box 606 Springwood QLD 4127 Tel: + 61 7 3299 9999 VIC Unit 1, 6 Samantha Court, Knoxfield Vic 3180 Tel: + 61 3 9764 1211 WA 2 Stretton Place, Balcatta WA 6021 Tel: + 61 8 9273 1900 SA 580 Torrens Road, Woodville North SA 5012 Tel: + 61 8 8244 6000 Autopool Division QLD 77 Nealdon Drive, Meadowbrook QLD 4131 Tel: +617 3277 4958 WA 2 Stretton Place, Balcatta WA 6021 Tel: +618 9362 4022 86 Auditors RSM Australia Partners Level 13, 60 Castlereagh St, Sydney, NSW 2000 Banker Commonwealth Bank of Australia Level 9, Darling Park Tower 1 201 Sussex Street, Sydney NSW 2000 Solicitors Marque Lawyers Pty Ltd Level 4, 343 George St, Sydney NSW 2000 Offices – International China No.132 Buling Road, Yonghe District, GETDD Guangzhou 511356, PR China Tel: + 86 20 3222 2180 Indonesia Inkopal Plaza Kelapa Gading Blok B No. 31-32 Jl. Raya Boulevard Barat Jakarta 14240, Indonesia Tel: + 62 21 45851481 Malaysia Lot 832, Jalan Kusta Kawasan Perindustrian SB Jaya 47000 Sungai Buloh, Selangor Darul Ehsan Tel: + 60 3 6145 6000 New Zealand 7 Industry Road, Penrose 1061 Auckland, New Zealand Tel: + 64 9 525 7570 Singapore 24 Peck Seah Street #05-02/04 MAPEX Building Singapore 079314 Tel: + 65 6344 2378 United Kingdom Radfield, London Road, Teynham Sittingbourne Kent, ME9 9PS, UK Tel: + 44 1795 521733 United States Of America (and Canada Office) 1812 Tobacco Rd Augusta, GA 30906, USA Tel: + 1 706 793 7291 6185-118 boul. Taschereau, suite 389 Brossard, QC J4Z 0E4 CANADA Tel: + 1 450 748-1421 Vietnam Apartment No. 00.20, Ground Fl, Thu Thiem Lake View 1 Condominium – No. 19 To Huu Street, Thu Thiem Ward, Thu Duc City, Ho Chi Minh City, Vietnam WATERCO LIMITED ABN 62 002 070 733 Registered Office 36 South Street, Rydalmere NSW 2116 T: +61 2 9898 8600 W: www.waterco.com.au E: companysecretary@waterco.com F: +61 2 9898 1877 

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