contents...group financial performance group npat down 39.3% from $7.8m to $4.7m, after impact of...

cOntents04 Performance Highlights

07 Financial Summary

08 Chairman’s and Group CEO’s Review

12 Market Review

14 Strategic Focus

19 Outlook / Acknowledgements

20 Awards

22 Corporate Governance

24 Methven Group Directors

28 Financial Statements

79 General Disclosures

83 Directory

3

as an island

natiOn far frOm

tHe rest Of tHe wOrld,

new Zealand Has a unique

relatiOnsHip witH water.

water is vital tO life and

Our peOple understand

its pOwer tO calm,

refresh and

invigOrate.

4

perfOrmance higHligHts FOR THE YEAR ENDED 31 MARCH 2011

Group Financial Performance

Group NPAT down 39.3% from $7.8m to $4.7m, after impact of providing for the loss of $2.0m relating to the UK customer, Focus (DIY) Limited

Excluding impact of loss from this UK customer, Group NPAT down 13.7% from $7.8m to $6.7m

Net Debt increased only 9.3% from $17.4m to $19.1m, guidance was an increase of 15-20%

Group Operating Revenue down 6.0% from $129.8m to $122.1m

EBITDA down 13.4% from $16.7m to $14.5m, excluding impact of UK customer loss

Highlights

Sales in Australia up 12.1% from A$36.6m to A$41.0m

EBITDA in Australia up 62% from A$2.4m to A$3.8m, despite A$0.5m bad debt

Cumulative Hotel installations for Satinjet showers top 21,000 rooms

Second prestigious Red Dot Award won, this time for Tahi Twin Lever tapware system

Key management change in UK in November 2010

Launched Methven brand at premium global trade show in Frankfurt, March 2011

New computer system implemented in New Zealand; delivered on time, and, on budget

Dividend and Cash Flows

Debt and cash fl ow forecast comply comfortably within banking covenants and headroom

Partially imputed fi nal dividend of 4.5 cps to be paid on 30 June 2011, down on June 2010 fi nal dividend of 5.5 cps, to bring total dividend for the year to 10.0 cps (LY 11.00 cps)

4

7

financial suMMary FOR THE YEAR ENDED 31 MARCH 2011

NZ $000 2011 2010 Change

TRADING RESULTS

Group operating revenue 122,087 129,822 -6.0%

EBITDA 1 12,343 16,698 -26.1%

Net profi t after tax 4,749 7,820 -39.3%

Financial position at year end

Total equity 50,547 53,309

Total assets 99,999 100,958

Intangible assets 38,315 38,306

Net debt 19,074 17,446

Capital expenditure 3,659 2,209

Equity ratio 72.6% 75.3%

Shareholder statistics

Number of shares 66,606,265 66,606,265

Dividend per share 10.00c 11.00c

Share price at year end $1.56 $1.58

Earnings per share 7.1c 11.7c

Net dividend yield 6.4% 7.0%

Gross dividend yield 8.3% 9.9%

Net tangible asset value per share 18.4c 22.5c

1 Excludes impairment, non-operating fx gains/losses and revaluation of the business acquisition option

7

cHairman’s and grOup ceO’s review

8

OUR UNDERLYING MARGINS AND CASH FLOW ARE SOLID WITH BETTER DEBT LEVELS THAN FORECAST AND WE HAVE CONFIDENCE IN OUR FORWARD STRATEGY

It has been a challenging year with a reduced

profi t compounded by the eff ect of our largest UK

customer, Focus (DIY) Limited, entering into voluntary

administration and the Christchurch earthquakes

impacting domestic sales. We’ve made some mistakes

but we have learned from them and are confi dent of

returning the UK to profi t in the coming year.

Our underlying margins and cash fl ow are solid

with better debt levels than forecast and we have

confi dence in our forward strategy allowing us to pay

a fi nal dividend.

We remain committed to our strategies of:

• Design-led product diff erentiation and innovation

• Growing our UK market presence

• Developing the luxury hotel market, and

• Pursuing international distribution opportunities

In addition, we have accelerated our drive to improve

operational effi ciencies in all markets.

Group NPAT for the year to 31 March 2011 was 39.3%

down on last year at $4.7 million, compared to the

previous year of $7.8 million, mainly as a result of the

Focus (DIY) limited loss of $2.0 million. Excluding the

Focus (DIY) Limited loss, Group NPAT was down 13.7%

from $7.8 million to $6.7 million.

Group Net Debt increased only 9.3% from $17.4 million

to $19.1 million and was better than the guidance of up

15-20%, with both Working Capital levels and Capital

Expenditure managed better than forecast.

Our Australian business produced a pleasing result

with sales up 12.1% from A$36.6 million to A$41.0

million and EBITDA up 62.2% from A$2.4 million to

A$3.8 million - this after the Enact Energy bad debt of

A$0.5 million. The continued roll-out of new products

combined with our proven sales methodology has

allowed us to successfully grow our market share.

New Zealand performance was weaker, as building

and renovation activity continued at historic lows,

exacerbated by the adverse eff ect of the Christchurch

earthquakes. Sales were down 8.8% from NZ$43.1

million to NZ$39.3 million resulting in EBITDA

dropping 4.6% from NZ$9.8 million to NZ$9.4

million. We remained committed to our investment

in research and development, increasing our spend

by 50% year on year. We won our second prestigious

Red Dot award for product design, this time for our

Tahi Twin Lever tapware system.

10

We commenced new initiatives to turn around the

performance of our United Kingdom operation. In

October 2010 Group Chief Operating Offi cer, Matthew

Crichton, was seconded to the UK to implement

the successful Australian sales model and Methven

design-led culture. In November 2010 we employed

Steve Lee, the highly regarded and experienced

former Chairman and Chief Executive Offi cer of the

Bristan Group, UK’s largest tapware company, to run

Methven UK. The Methven brand was re-launched in

March 2011 and we repositioned the Deva brand and

range of products.

The loss of our largest United Kingdom customer

Focus (DIY) Limited, which entered into voluntary

administration on 6 May 2011, resulted in a one-off

loss totaling NZ$2.0 million after tax and includes

a non-cash customer impairment of NZ$0.4 million

after tax. We are aggressively pursuing all avenues to

recover the outstanding debt.

We have made good progress in the luxury hotel

market winning new projects with the Hilton,

Marriott, Devere, Holiday Inn, Crowne Plaza and

other prestigious hotel chains as well as achieving

brand standard with the IHG Group. Total hotel rooms

globally, fi tted with Satinjet showers, increased 64%

on last years cumulative total and now totals 21,255

rooms worldwide. In Australia, where the initiative

was fi rst developed, hotel rooms won grew 46% on

last year. Although the initiative has taken longer than

anticipated to gain traction in the Asian and European

markets, good progress has been made with rooms

increasing 168% in Asia, albeit from a low base and

Europe adding 1,240 rooms in its fi rst year.

Our eff orts to fi nd new international distributors for

our premium shower and tapware range moved to a

new level when, for the fi rst time, we exhibited at the

premium ISH Kitchen and Bathroom show in Frankfurt

in March 2011. We are prioritising leads received from

more than 29 European and Asian countries.

The successful implementation of a new computer

system in New Zealand - on time and within budget

- gives us the platform from which to generate

continuous operational improvements as we roll out

to each division with the next “cab off the rank” being

our UK operation.

As we look to the future, despite the rigours of the

past, we are confi dent our strategy based on design

and market leadership, supported by a commitment

to continuous operational improvement, will result in

profi table growth.

DIVIDEND AND CASH FLOWSDebt and cash fl ow forecasts comply comfortably

within banking covenants and headroom.

The Directors have exercised due caution in declaring

a partially imputed fi nal dividend of 4.5 cps be

paid on 30 June 2011, down on the June 2010 fi nal

dividend of 5.5 cps. This brings the total dividend for

the year to 10.00 cps compared to 11.00 cps last year.

COVENANTS AND CASHFLOW 2011 2010

Interest cover (EBITA/interest) - not less than 2.5 7.9x 14.8x

Gearing ratio (Net debt/EBITA) - not to exceed 3.5 1.9x 1.5x

Facility utilisation 75% 60%

rooms worldwide. In Australia, where the initiative

was fi rst developed, hotel rooms won grew 46% on

last year. Although the initiative has taken longer than

anticipated to gain traction in the Asian and European

markets, good progress has been made with rooms

increasing 168% in Asia, albeit from a low base and

Europe adding 1,240 rooms in its fi rst year.

paid on 30 June 2011, down on the June 2010 fi nal

dividend of 5.5 cps. This brings the total dividend for

the year to 10.00 cps compared to 11.00 cps last year.

COVENANTS AND CASHFLOW 2011 2010

Interest cover (EBITA/interest) - not less than 2.5 7.9x 14.8x

Gearing ratio (Net debt/EBITA) - not to exceed 3.5 1.9x 1.5x

Facility utilisation 75% 60%

11

GROUP EBITDA

$NZ

mill

ion

20

15

10

5

02005 2006 2007 2008 2009 2010 2011

GROUP REVENUE

$NZ

mill

ion

140

120

100

80

60

40

20

02005 2006 2007 2008 2009 2010 2011

TRADING RESULTS 2011NZ $000

2010 NZ $000 Change %

Group operating revenue 122,087 129,822 -6.0

EBITDA 1 12,343 16,698 -26.1

Net profi t after tax 4,749 7,820 -39.3

Before Focus (DIY) Limited loss and non-cash customer impairment

EBITDA 1 14,467 16,698 -13.4

Net profi t after tax 6,749 7,820 -13.7

1. Excludes impairment, non-operating fx gains/losses and revaluation of the business acquisition option

AS WE LOOK TO THE FUTURE, DESPITE THE RIGOURS OF THE PAST, WE ARE CONFIDENT OUR STRATEGY BASED ON DESIGN AND MARKET LEADERSHIP, SUPPORTED BY A COMMITMENT TO CONTINUOUS OPERATIONAL IMPROVEMENT, WILL RESULT IN PROFITABLE GROWTH.

market review

AUSTRALIA SALES

$NZ

mill

ion

60

45

30

15

02005 2006 2007 2008 2009 2010 2011

12

AUSTRALIA

Signifi cant earnings growth

AUSTRALIA AU $000 2011 2010

Operating Revenue 40,967 36,553

EBITDA 3,816 2,352

EBITDA % of revenue 9.3% 6.4%

• Operating Revenue up 12.1% from A$36.6 million to

A$41.0 million

• EBITDA up 62.2% from A$2.4 million to

A$3.8 million, despite Enact bad debt of A$486k

• Trading margins have improved particularly due to

weaker USD

• Tapware sales up 30.4%, showers up 25.1%,

Satinjet sales up 8.3%, valve sales down 31.6%

• Won Bunnings’ shower category business

• Strong growth in domestic hotel sales with hotel

rooms up 46%

• Jemfl o technology a winning proposition when

combined with Satinjet

market review

NEW ZEALAND SALES

$NZ

mill

ion

60

45

30

15

02005 2006 2007 2008 2009 2010 2011

13

NEW ZEALAND SALES

$NZ

mill

ion

60

45

30

15

02005 2006 2007 2008 2009 2010 2011

NEW ZEALAND

Softening market aff ected by Christchurch earthquakes

NEW ZEALAND NZ $000 2011 2010


EBITDA 9,367 9,821

EBITDA % of revenue 23.9% 22.8%

• Operating revenue down 8.8% from $43.1 million

to $39.3 million

• Domestic Revenue down 5.8% from $38.6 million

to $36.4 million. Weak second half with Q4 sales

impacted by Christchurch earthquakes. New

Zealand combined building permits up 1% on prior

year. In the second six months down 11.7%

• EBITDA down 4.6% from $9.8 million to

$9.4 million but EBITDA margin to sales improves

• Second Red Dot award won, this time for Tahi Twin

Lever tapware

• New computer system implemented in NZ on time

and within budget

• Research and development investment increased

by 50%

UNITED KINGDOM

Impact of Focus (DIY) Limited loss, diffi cult economic conditions persist

UNITED KINGDOM GB £000 2011 2010


EBITDA (991) 1,518

EBITDA % of revenue (6.8)% 8.1%

• Operating Revenue down 22.1% from £18.7 million

to £14.5 million

• EBITDA down from £1.5 million to breakeven before

£1 million reduction due to the 100% provisioning

of receivables and inventory attributed to Focus

(DIY) Ltd.

• Trading margins improved slightly despite

competitive market conditions

• Group COO Matthew Crichton seconded to

implement successful Australian sales model and

Methven design-led culture in October 2010

• Steve Lee the former Chairman and CEO of

Bristan, largest UK tapware company, appointed in

November 2010 to lead Methven UK

• Launched Methven brand at Ecobuild London and

ISH Frankfurt in March 2011

• Repositioning of the Deva product range and brand

14

strategic fOcus

OUR STRATEGIC OBJECTIVES REMAIN UNCHANGED AND OUR FOCUS IS ON THEIR SUCCESSFUL EXECUTION.

We are continuing to:

• Create innovative and proprietary shower and tapware solutions

• Set the platform for profi table growth in the UK

• Increase sales with our luxury hotel market initiative

• Develop new international distributor opportunities

• Improve operational effi ciency in all Divisions

Creating innovative, award-winning and commercially successful products

The foundation for our success is based upon our ability to continue to develop

award-winning and commercially successful shower and tapware solutions and

experiences. With this in mind we will continue to heavily invest in research and

product development.

In the past year we released two new ranges of shower and tapware as well as a

suite of products adapted to meet United Kingdom requirements - a total of 84 new

products. The Tahi Twin Lever tapware range was the winner of a prestigious 2011

German Red Dot Award for product design, our second such award. Tahi Twin Lever

tapware provides for improved water and energy savings, intuitive operation and

design excellence for our Methven range.

We have also developed more environmentally-friendly products such as the Kiri

Ultra-Low fl ow shower - a new Satinjet product that uses less than six litres of water

a minute. This product won the Gold award in the Sustainable Product Category at

the 2010 New Zealand Best Design Awards.

In the coming year we plan the international launch of three new Satinjet shower

ranges with complementary tapware ranges. This is a total of 59 new Methven

branded products that will increase the breadth of our off ering and fi ll the

remaining price point gaps for the consumer.

Innovative solutions for subsequent years will include digital thermostatic shower

technology that eliminates temperature fl uctuations, is intuitive and easy to use

and provides better water and energy effi ciency. In addition further development

of the Shower Skincare range (previously called HomeSpa) will include additional

applications for use of the de-chlorination and shower infusion technology.

16

Setting the platform for profi table growth in our UK business

Transforming the UK business continues to be our top priority. The turnaround

plan began in October 2010 with many of the foundations now in place. The

unforeseen loss of the Focus (DIY) Limited business has put some further risk into

meeting our profi t objectives and to mitigate this we have accelerated our plans

to improve operational effi ciency.

The key actions for this year include;

• Rollout of the Methven brand and product range into high end bathroom stores

• Launch of the new Deva brand and product range

• Achieve product and supplier rationalisation benefi ts

• Implement new computer system using the New Zealand template

• Relocate to a modern effi cient warehouse

• Improve operating processes

We are confi dent these actions will not only return the UK operation to profi t,

but provide a sound basis for strong market share growth based upon our

diff erentiated brand and product strategy.

Increase Sales in the Luxury Hotel Market

This niche market provides exciting opportunities to grow sales and leverage

our unique Satinjet/Jemfl o proposition that provides hotel guests with a

luxurious water and energy-effi cient shower experience.

After four years of investment in the Australian hotel market, we are now

reaping the benefi ts, resulting in hotel rooms won increasing 46% on the

previous year. With two years in the Asian market and one year in Europe,

we have a large pipeline of quotes in place and will be looking to turn these

into orders in this coming year.

New Satinjet shower products due for release this year will be able to be utilised

for specifi c hotel applications.

Improve Operational Effi ciency

With sales growth expected to remain challenging in the current global

economic climate, we will look to signifi cantly improve productivity levels and

reduce costs in all Divisions. Product and supplier rationalisation across the

Group will enable us to reduce the total cost and investment in stock levels.

The implementation of new computer systems, warehousing and processes will

generate further operational improvements.

19

OutlOOkOutlOOk

acknOwledgements

We are confi dent that, despite what has been

a tough year coupled with some setbacks,

we have taken heed of the lessons we have

learned and can achieve our vision of being

the leading shower brand that delivers life-

enhancing shower experiences.

The Directors wish to thank Group CEO

Rick Fala and the global Methven team for

their tireless eff orts to grow our brand and

market presence in what has been the most

challenging market conditions we have faced.

We will continue to keep the market and

shareholders regularly updated on our

progress, particularly in regards to the

turnaround of our UK operation.

Phil Lough

Chairman

Rick Fala

Managing Director and Group CEO

As a result of all the actions underway that

support our strategic objectives, we are

forecasting profi t will rise signifi cantly on last

year to give a Net Profi t After Tax in excess

of $8.5 million, up more than 25% on prior

year profi t before the impact of the major UK

customer failure (up more than 80% on prior

year reported profi t).

We will continue to invest in our future. Our

commitment to research and development

remains and will not be cut, thus ensuring we

maintain our vision of being the leading shower

brand with design-led product diff erentiation.

Australia’s economic conditions are expected

to soften. We expect modest top line growth

and will focus on improving operational

effi ciencies to ensure we maintain our current

profi t growth rate.

In New Zealand weak building and retail

sectors have been compounded by the

Christchurch earthquakes. The New Zealand

operation is expected to be static until the

Christchurch re-build fully gets underway.

The UK market remains challenging. Our focus

will be on rationalisation and executing our

turnaround strategy. We expect to return to

profi t for the 2012 fi nancial year and have a

sustainable base for growth.

2020

awardsOur design, innovation and commitment to a high level of customer service has lead to the following recognition:

2011

Red Dot Award, Product Design Winner, Germany Product Design Award- Tahi Tapware

Best SupplierPlumbing World Awards,New Zealand- Methven Limited

2010

Red Dot Award, With Honourable Mention, Germany Product Design Award- Shower Infusions

Self Build Product InnovationAwards, UKHighly Commended- Awatea Hi Rise Adjustable Arm

2009

Gold AwardDINZ BeST Design Awards, New Zealand- Shower Infusions - Category - PRODUCT - CONSUMER

Silver AwardDINZ BeST Design Awards, New Zealand- Tahi Thermostatic Mixer - Category- PRODUCT - CONSUMER

German Design CouncilNomination- Tahi Thermostatic Mixer

Top ProductNew Zealand Plumbing DistributorsAssociation Awards- Shower Infusions

Finalist, Top Plumbing SupplierNew Zealand Plumbing DistributorsAssociation Awards- Methven Limited

Top Sales RepresentativeNew Zealand Plumbing DistributorsAssociation Awards- Christine Jackson

Finalist, Top Sales RepresentativeNew Zealand Plumbing DistributorsAssociation Awards- Craig Alexander

Australian International DesignAwardHousing & Building Category- Tahi Shower System

Waterwise MarqueUK Award for Water Effi ciency- Kiri with Satinjet® technology- Enviro-KlickTM two-step cartridge

Industry Support AwardMaster Plumbers, Gasfi tters &Drainlayers- Methven Limited

2008

Product DistinctionThe Chicago Athenaeum GOODDESIGN® Awards- Tahi Thermostatic Mixer Range

Design in Business AwardOverall winner 2008, New ZealandTVNZ / NZ Marketing MagazineMarketing AwardsWinner of the Consumer DurablesAward – Maia Beauty Shower

Innovative Company of the YearTelstraClear Trans-Tasman BusinessAwards, New ZealandWinner, Australian InternationalDesign Award- Kiri Satinjet® Shower Head

Gold AwardDINZ BeST Design Awards, New Zealand- Designworks - Methven Brand Book- Category - GRAPHIC - Corporate Communications

Silver AwardDINZ BeST Design Awards, New Zealand- Shower Infusions - Category - PRODUCT - Concept/Experimental

Silver AwardDINZ BeST Design Awards, New Zealand- Tahi Shower - Category - PRODUCT- Consumer

Silver AwardDINZ BeST Design Awards, New Zealand- Tahi Shower - Category - PRODUCT- Sustainability Product Award

Silver AwardDINZ BeST Design Awards, New Zealand- Maia Beauty Shower - Category- PRODUCT - Consumer

Bronze AwardDINZ BeST Design Awards, New Zealand- Maia Beauty Shower - Category- PRODUCT - Sustainability Product Award

Bronze AwardDINZ BeST Design Awards, New Zealand- Designworks - Methven- Category- GRAPHIC - Graphic Design Arts

Best SupplierPlumbing World Awards,New Zealand- Methven Limited

Waterwise MarqueUK Award for Water Effi ciency- Awatea with Satinjet® technology

Best SupplierNew Zealand Plumbing DistributorsAssociation Awards- Methven Limited

Best Sales RepresentativeNew Zealand Plumbing DistributorsAssociation Awards- Evan Brookie

Runner-Up, Best SalesRepresentativeNew Zealand Plumbing DistributorsAssociation Awards- Julie Dowling

Best New ProductNew Zealand Plumbing DistributorsAssociation Awards- Maia Beauty Shower

2121

Finalist, Best ProductNew Zealand Plumbing DistributorsAssociation Awards- Tahi Shower

2007

Silver, Product DesignDINZ BeST Design Awards, New Zealand- Kiri Shower with Satinjet® Technology

Silver, Product DesignDINZ BeST Design Awards, New Zealand- Tahi Shower Concept

Best SupplierPlumbing World Awards, New Zealand- Methven Limited


Runner-Up, Best SalesRepresentativeNew Zealand Plumbing DistributorsAssociation Awards- Julie Dowling

Finalist, Best Sales RepresentativeNew Zealand Plumbing DistributorsAssociation Awards- Evan Brookie

Finalist, Best ProductNew Zealand Plumbing DistributorsAssociation Awards- Satinjet® Technology

Top Three Water-Effi cientShowerheadsChoice.com.au – AustralianConsumer Association website- Futura Wall Shower with Satinjet® Technology- Bermuda Wall Shower with Flexispray- Olympic 3000 Hi-rise Shower

2006


Finalist, Best ProductNew Zealand Plumbing DistributorsAssociation Awards- Satinjet® Technology

2005

Product DistinctionChicago Athenaeum GOOD DESIGN®Awards- Futura Hi-rise Shower with Satinjet® Technology

Commendation: Product InnovationSavewater Awards, Australia- Satinjet® Technology

Water Smart Champion and BestPractice AwardEnergy and Water Green GlobeAwards, Australia- Methven Australia

Incolink Innovative Product of theYear AwardGreenPlumbers Awards, Australia- Satinjet® Technology

Best New Bathroom ProductDesignEX, Australia- Futura Slide Rail Shower with Satinjet® Technology

Highly CommendedDINZ BeST Design Awards,New Zealand- Futura Slide Rail Shower with Satinjet® Technology

Highly CommendedDINZ BeST Design Awards, New Zealand- Futura Hi-rise Shower with Satinjet® Technology

2002

FinalistGerman IF International Forum DesignCompetition- Isis range

ROLE OF THE BOARDThe Board of Directors sets the strategic direction of the

company and is committed to managing the company in an

ethical and professional manner, and in the best interests of

the company and its shareholders.

Key responsibilities of the Board include:

• developing the strategic direction of Methven with the

senior management team

• monitoring the performance of management and the

overall fi nancial performance of the company and the

Methven Group

• monitoring Methven’s regulatory and legislative

compliance and risk management processes

• ensuring eff ective policies and procedures concerning

disclosure to the market and shareholders.

FRAMEWORKThe Board and management are committed to continued

development of the company’s governance practices.

The Board continues to review and develop its policies and

monitor developments to keep abreast of best practice

corporate governance for the Methven Group of companies,

including its subsidiaries.

The company’s corporate governance framework includes

the company’s constitution, terms of reference for the

Board’s Audit, Compliance and Risk Management Committee

and Remuneration Committee, along with policies on ethics,

delegated authorities, disclosure and communications,

insider trading, risk management, confl ict of interest,

environment, health and safety, and policies and procedures

for employees. The Board supports directors obtaining

independent, professional advice when required.

The Board believes that its corporate governance policies

and procedures meet the New Zealand Exchange Corporate

Governance Best Practice Code and supports the Principles

of Corporate Governance as previously published by the

New Zealand Securities Commission.

corpOrate governance

22

23

BOARD COMPOSITIONThe Board has comprised six Directors since the

appointment of David Mair in October 2009.

The policy for appointment and retirement of directors is

contained within the company’s Constitution. Pursuant to

the Constitution of the company, one-third of the directors

retire by rotation at each Annual Meeting. Richard Cutfi eld

and Gary Nel retire by rotation at the 2011 Annual Meeting.

Being eligible, Richard Cutfi eld off ers himself for re-election.

Gary Nel will not be putting himself up for re-election as a

Director in order to focus on his role as CEO of the Methven

New Zealand operation.

If Richard Cutfi eld is re-elected at the upcoming 2011

Annual Meeting, the Board will then comprise at least four

non-Executive Directors and one Executive Director. The

Directors considered independent by Methven are Phil

Lough (Chairman), Peter Stanes, Richard Cutfi eld and David

Mair. The remaining Director, Rick Fala is deemed not to be

independent. The Board is comfortable that the remaining

fi ve directors have the appropriate skill and experience to

take Methven forward.

A summary of the skills and experience of each Director is

provided on pages 24 and 25.

AUDIT, COMPLIANCE AND RISK MANAGEMENT COMMITTEEThe Audit, Compliance and Risk Management Committee

comprises Peter Stanes (Chairman), Phil Lough, Richard

Cutfi eld and David Mair. This committee assists the Board

to fulfi l its responsibilities in the areas of fi nancial and risk

management.

REMUNERATION COMMITTEEThe Remuneration Committee comprises, Richard Cutfi eld

(Chairman), Phil Lough, Peter Stanes and David Mair. This

committee provides assistance to the Board to ensure that

the company has remuneration and human resource policies

that attract, retain and motivate high calibre and high

performing executives and directors.

NOMINATION COMMITTEEThe Board believes that all board members should be

involved in the selection and appointment process of

new Board members, and, as suggested in the Corporate

Governance Best Practice Code in Appendix 16 of the NZSX

Listing Rules, a nomination committee is therefore not

necessary for Methven.

BOARD AND COMMITTEE MEETINGS HELD DURING THE YEAR:

Board Meetings

Audit, Compliance

and Risk Management Committee

Remuneration Committee

Phil Lough 10 8 3Rick Fala 10 - -Gary Nel 9 - -Richard Cutfi eld 10 8 4Peter Stanes 10 8 4David Mair 9 7 4

Total meetings held 10 8 4

SHARE TRADING BY DIRECTORS AND OFFICERSThe company has formal procedures that directors and

offi cers must follow when trading Methven shares. They

must notify and obtain the consent of the Board prior to

any trading. All trading must be conducted within two

prescribed trading windows. These periods commence from

the date on which the annual result and half yearly results

are announced and conclude on the following 31 August and

31 January respectively.

CONTINUOUS DISCLOSURE POLICYThe Board has adopted a policy to ensure that it meets its

obligations under the NZX continuous disclosure rules.

24

PHIL LOUGHChairman

Phil joined the Board in September 2004. He brings to the table a wide range of skills and experience as an international exporter and marketer of primary and value add products. He is a former CEO of Sealord Group and Deputy Chief Executive of the Dairy Board and has had a hands on role in guiding the international development of these global businesses. Phil is Chairman and Director of Quotable Value Limited and is a Director of Port Nelson Limited, Dairy Equities Limited and Livestock Improvement Corporation Limited. He is a past Chairman of New Zealand Trade and Enterprise. He was awarded the Companion of the Order of New Zealand for services to business in the Queen’s Birthday Honours’ list in June 2008.

RICHARD CUTFIELDIndependent Director

Richard has been a Methven Group Director since March 2001 when he led the management buy-out of Methven from Australian interests, and was Chairman until July 2008.Richard is Chief Operating and Financial Offi cer and a Director of international nursery hardware brand; phil&teds, which he joined early in 2009 following 15 years as an Executive Director of Pencarrow Private Equity Ltd, a leading New Zealand-based private equity investor. Richard is also a Director of Formway Design Studio Limited, a designer and international licenser of award winning high performance offi ce seating and furniture products. Richard holds a Bachelor of Business Studies (Accounting and Finance Major) and has been a Member of the NZ Institute of Chartered Accountants (CA) since 1986.

RICK FALAManaging Director and Group CEO

Rick has been Chief Executive since 1998 and Managing Director since 2001 when he led key management team members in the MBO of the Methven business. He plays a key role in delivering sustainable earnings and devising the international export strategy to drive new growth for the Group. Prior to joining Methven as Chief Financial Offi cer in 1996, he held a range of fi nancial management roles with McKechnie plc’s New Zealand group companies and Ernst and Young. He is a Director of Better by Design, New Zealand Trade and Enterprise’s initiative to create internationally competitive design led businesses. He is also an Advisory Board Member of University of Auckland Business School and a Trustee of Youthline Auckland.

metHven grOup directOrs

25

DAVID MAIRIndependent Director

David joined the Methven Group Board in October 2009. He is a professional investor, and has been part of very successful management teams notably Interlock Group in NZ. He is currently Chairman of Stainless Design Limited and a Director and Acting CEO of Skellerup Holdings Limited. He is also an Executive Director of A2 Corporation Limited. He is a former Executive Director of Interlock Group and Vice President of Asia Operations and the Operations Council Leader of ASSA ABLOY, the giant Swedish lock group. He has spent many years living and working in Japan gaining a rare and intimate knowledge of Japanese quality and process improvement systems. He has also spent a lot of time developing low-cost operational plans that have often included China, Vietnam and other low cost countries.

GARY NELExecutive Director and CEO Methven New Zealand

Gary is Chief Executive of Methven New Zealand and a member of the Global Management Team. He is responsible for overseeing the domestic market, Methven’s revenue engine room and strategic hub for development, design and prototyping. Gary was formerly Chief Operating Officer for the Group and was part of the 2001 MBO management team. Prior to joining Methven, he worked in a variety of engineering and product design roles, both in New Zealand and in his native South Africa. In order to focus on his role as CEO of the Methven New Zealand Operation, Gary will not be standing for re-election as a director at the upcoming Annual Meeting.

PETER STANESIndependent Director

A Director since September 2004, Peter has many years of experience running international manufacturing and marketing companies, both as a senior executive and a director. He is Chairman and Director of Rembrandt Suits Limited and High Society Limited and is a past Director of ZESPRI Group Limited, Wellington Drive Technologies Limited and Aragorn Limited. He was Managing Director of Trigon Industries Limited, overseeing several years of rapid international expansion. Peter was also Managing Director of Feltex NZ Limited, Executive Chairman of the renamed Feltrax International Limited and, through his Feltex/Feltrax involvement, was for a time a director of their major shareholder, Equiticorp Holdings Limited. He also held senior roles at Alex Harvey Industries Limited.

27

Our visiOn is tO be tHe

leading sHOwer brand,

lOved wOrldwide fOr

delivering superiOr,

life-enhancing sHOwer

experiences

METHVEN LIMITEDFor the year ended 31 March 2011

28

The above income statement should be read in conjunction with the accompanying notes.

FInancIal statementsFOR THE YEAR ENDED MARCH

PHIL LOUGHCHAIRMAN MAY

RICK FALAMANAGING DIRECTOR AND GROUP CEO

THE DIRECTORS HAVE PLEASURE IN PRESENTING THE FINANCIAL STATEMENTS, SET OUT ON PAGES TO OF METHVEN LIMITED FOR THE YEAR ENDED MARCH . THE DIRECTORS AUTHORISED THESE FINANCIAL STATEMENTS FOR ISSUE ON MAY .

28

Independent Auditors’ ReportTo the shareholders of Methven Limited

Report on the Financial Statements

We have audited the financial statements of Methven Limited on pages 30 to 78, which comprise the balance sheets as at 31 March 2011, the income statements, statements of comprehensive income, statements of changes in equity and cash flow statements for the year then ended, and the notes to the financial statements that include a summary of significant accounting policies and other explanatory information for both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 March 2011 or from time to time during the financial year.

Directors’ Responsibility for the Financial Statements

The Directors are responsible for the preparation of these financial statements in accordance with generally accepted accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such internal controls as the Directors determine are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing. These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to the Company’s and Group’s preparation of financial statements that give a true and fair view of the matters to which they relate in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s and Group’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

We have no relationship with, or interests in, Methven Limited or any of its subsidiaries other than in our capacities as auditors, tax advisors, and providers of select advisory services. These matters have not impaired our independence as auditors of the Company and Group.

Opinion

In our opinion, the financial statements on pages 30 to 78:(i) comply with generally accepted accounting practice in New

Zealand; (ii) comply with International Financial Reporting Standards;

and(iii) give a true and fair view of the financial position of the

Company and Group as at 31 March 2011, and their financial performance and cash flows for the year then ended.

Report on Other Legal and Regulatory Requirements

We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to our audit of the financial statements for the year ended 31 March 2011:

(i) we have obtained all the information and explanations that we have required; and

(ii) in our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records.

Restriction on Distribution or Use

This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.

Chartered Accountants Auckland

30 May 2011


30

The above income statements should be read in conjunction with the accompanying notes.

CONSOLIDATED PARENT

NZ $000 Notes 2011 2010 2011 2010

Sales revenue 6 122,087 129,822 39,255 43,050Cost of sales (72,430) (80,030) (20,067) (23,668)

Gross profit 49,657 49,792 19,188 19,382Other income 6 40 20 4,365 4,688

Expenses 7Research, design and engineering (2,840) (1,890) (2,840) (1,890)Sales, distribution, marketing & brand development (30,409) (28,415) (6,168) (6,718)Administration and other expenses (8,383) (7,451) (3,981) (4,791)Finance costs (1,276) (1,029) (689) (335)

Profit before income tax 6,789 11,027 9,875 10,336Income tax expense 8 (2,040) (3,207) (2,240) (2,230)

Net profit attributable to shareholders of the parent 4,749 7,820 7,635 8,106

Earnings per share for profit attributable to the shareholders of the parent:Basic earnings per share (cents) 28 7.1 11.7Diluted earnings per share (cents) 28 7.1 11.7

Income statementsFoR tHe YeaR enDeD 31 maRcH 2011


31

CONSOLIDATED PARENT

NZ $000 Notes 2011 2010 2011 2010

Profi t for the year 4,749 7,820 7,635 8,106

Movement in foreign currency translation reserve 19 336 (4,110) - -Movement in cashfl ow hedge reserve 19 (730) (1,610) (88) (453)Deferred tax on hedge reserve 19 210 492 23 136Movement in share-based payments reserve 19 - 36 - 36

Other comprehensive income for the year net of tax (184) (5,192) (65) (281)

Total comprehensive income for the year attributable to the shareholders of the parent 4,565 2,628 7,570 7,825

statements oF comPReHensIve IncomeFoR tHe YeaR enDeD 31 maRcH 2011

The above statements of comprehensive income should be read in conjunction with the accompanying notes.

METHVEN LIMITEDAs at 31 March 2011

32

Balance sHeetsas at 31 maRcH 2011

CONSOLIDATED PARENT

NZ $000 Notes 2011 2010 2011 2010

AssetsCurrent assetsCash and cash equivalents 4,484 4,032 216 528Trade receivables 9 21,613 24,024 7,023 7,072Inventories 10 25,742 24,113 6,353 6,356Derivative financial instruments 11 37 197 8 11Income tax receivable 406 - 217 -Inter-company advances 23 - - 20,289 13,282Prepayments and other assets 1,298 1,085 305 352

Total current assets 53,580 53,451 34,411 27,601

Non-current assetsInvestments in subsidiaries 25 - - 27,937 27,701Property, plant and equipment 12 7,027 7,535 4,334 5,035Deferred tax assets 13 1,048 1,381 195 559Intangible assets 14 38,315 38,306 5,588 4,326Derivative financial instruments 11 29 285 - 285

Total non-current assets 46,419 47,507 38,054 37,906

Total assets 99,999 100,958 72,465 65,507

LiabilitiesCurrent liabilitiesTrade creditors 14,607 11,555 2,658 1,628Interest bearing liabilities 16 22 21,478 - 7,086Derivative financial instruments 11 1,108 373 137 91Income tax payable 286 409 - 149Provisions 15 166 377 142 355Other creditors and accruals 6,037 8,763 2,063 2,801Employee accruals 3,153 2,800 955 1,145Inter-company payables 23 - - 218 224

Total current liabilities 25,379 45,755 6,173 13,479

Non-current liabilitiesInterest bearing liabilities 16 23,536 - 13,988 -Derivative financial instruments 11 40 177 40 -Deferred tax liabilities 13 248 1,505 - -Non-current employee accruals 249 212 121 128

Total non-current liabilities 24,073 1,894 14,149 128

Total liabilities 49,452 47,649 20,322 13,607

Net assets 50,547 53,309 52,143 51,900

EquityShare capital 18 46,986 46,986 46,986 46,986Reserves 19 (5,881) (5,626) (111) 25Retained earnings 19 9,442 11,949 5,268 4,889

Total equity 50,547 53,309 52,143 51,900

The above balance sheets should be read in conjunction with the accompanying notes.


33For the year ended 31 March 2011

33

CONSOLIDATED

NZ $000 NotesShare

capitalHedge reserve

Share-based payments

reserve

Currency translation

reserveRetained earnings

Total equity

Balance at 1 April 2009 46,986 869 180 (1,348) 11,321 58,008

Movement in foreign currency translation reserve 19 - - - (4,110) - (4,110)Movement in cashfl ow hedge reserve 19 - (1,610) - - - (1,610)Deferred tax on hedge reserve 19 - 492 - - - 492Movement in share-based payments reserve 19 - - (99) - 135 36Profi t for the year - - - - 7,820 7,820

Total comprehensive income - (1,118) (99) (4,110) 7,955 2,628

Dividends 20 - - - - (7,327) (7,327)

Balance at 31 March 2010 46,986 (249) 81 (5,458) 11,949 53,309

Balance at 1 April 2010 46,986 (249) 81 (5,458) 11,949 53,309

Movement in foreign currency translation reserve 19 - - - 336 - 336Movement in cashfl ow hedge reserve 19 - (730) - - - (730)Deferred tax on hedge reserve 19 - 210 - - - 210Movement in share-based payments reserve 19 - - (71) - 71 -Profi t for the year - - - - 4,749 4,749

Total comprehensive income - (520) (71) 336 4,820 4,565

Dividends 20 - - - - (7,327) (7,327)

Balance at 31 March 2011 46,986 (769) 10 (5,122) 9,442 50,547

statements oF cHanGes In eQuItYFoR tHe YeaR enDeD 31 maRcH 2011

The above statement of changes in equity should be read in conjunction with the accompanying notes.


34

The above statement of changes in equity should be read in conjunction with the accompanying notes.

PARENT

NZ $000 NotesShare

capitalHedge reserve

Share-based payments

reserveRetained earnings

Total equity

Balance at 1 April 2009 46,986 261 180 3,975 51,402

Movement in cashflow hedge reserve 19 - (453) - - (453)Deferred tax on hedge reserve 19 - 136 - - 136Movement in share-based payments reserve 19 - - (99) 135 36Profit for the year - - - 8,106 8,106

Total comprehensive income - (317) (99) 8,241 7,825

Dividends 20 - - - (7,327) (7,327)

Balance at 31 March 2010 46,986 (56) 81 4,889 51,900

Balance at 1 April 2010 46,986 (56) 81 4,889 51,900

Movement in cashflow hedge reserve 19 - (88) - - (88)Deferred tax on hedge reserve 19 - 23 - - 23Movement in share-based payments reserve 19 - - (71) 71 -Profit for the year - - - 7,635 7,635

Total comprehensive income - (65) (71) 7,706 7,570

Dividends 20 - - - (7,327) (7,327)

Balance at 31 March 2011 46,986 (121) 10 5,268 52,143

statements oF cHanGes In eQuItYFoR tHe YeaR enDeD 31 maRcH 2011 (contInUeD)


35METHVEN LIMITEDFor the year ended 31 March 2011

35

CONSOLIDATED PARENT

NZ $000 Notes 2011 2010 2011 2010

Cash fl ows from operating activitiesReceipts from customers 123,000 130,090 40,412 42,859Payments to suppliers (82,506) (82,008) (20,658) (24,337)Payments to employees (26,615) (25,800) (10,277) (9,140)

13,879 22,282 9,477 9,382

Dividends received 23 - - 2,547 3,286Interest received 40 20 710 448Interest paid (1,248) (1,370) (651) (246)Income taxes paid (3,252) (4,491) (2,219) (2,132)

Net cash infl ow from operating activities 27 9,419 16,441 9,864 10,738

Cash fl ows from investing activitiesPayments for property, plant and equipment, patents, trademarks and software (3,659) (2,189) (2,500) (1,693)Payment for option - (285) - (285)Loans to subsidiaries - - (7,107) (3,013)Proceeds from sale of property, plant and equipment 129 8 129 8Capitalisation of subsidiary - - (236) (316)

Net cash outfl ow from investing activities (3,530) (2,466) (9,714) (5,299)

Cash fl ows from fi nancing activitiesProceeds from borrowings 1,814 - 6,865 1,876Repayment of borrowings - (6,104) - -Dividends paid 20 (7,327) (7,327) (7,327) (7,327)

Net cash outfl ow from fi nancing activities (5,513) (13,431) (462) (5,451)

Net increase / (decrease) in cash and cash equivalents 376 544 (312) (12)Cash and cash equivalents at the beginning of the fi nancial year 4,032 3,732 528 540Foreign currency translation adjustment 76 (244) - -

Cash and cash equivalents at end of year 4,484 4,032 216 528

cashFloW statementsFoR tHe YeaR enDeD 31 maRcH 2011

The above cash fl ow statements should be read in conjunction with the accompanying notes.


36

notes to tHe FInancIal statementsFoR tHe YeaR enDeD 31 maRcH 2011

1 General informationMethven Limited (the “Company” or the “Parent”) and its subsidiaries (together “Methven” or the “Group”) designs, manufactures and supplies showerware, tapware and water control valves.

The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its registered office is 447 Rosebank Road, Avondale, Auckland.

These financial statements have been approved for issue by the Board of Directors on 30 May 2011.

2 Summary of significant accounting policiesThese financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP), New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). These policies have been applied consistently to all years previously presented unless otherwise stated.

(a) Basis of preparation

Entities reporting

The financial statements are for Methven Limited and the consolidated economic entity comprising Methven Limited and its subsidiaries.

Statutory base

Methven Limited is a company registered under the Companies Act 1993 and an issuer in terms of the Securities Act 1978.

The financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993 and the Companies Act 1993.

The Company and Group are designated as profit oriented entities for financial reporting purposes.

Measurement base

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets as identified in specific accounting policies below.

Critical accounting estimates

The preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined in note 4.

(b) Group financial statements

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Methven Limited as at balance date and the results of all subsidiaries for the year then ended.

Subsidiaries are all those entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries which form part of the Group are consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

The excess of the consideration transferred and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are eliminated unless the transaction provides evidence of the impairment of the asset transferred. Subsidiaries’ accounting policies have been changed where necessary to ensure consistency with the policies adopted by the Group.


37

2 Summary of significant accounting policies (CONTINUED)

(c) Segment reporting

An operating segment is a component of an entity that engages in business activities which earns revenue and incurs expenses and for which the chief operating decision maker (CODM) reviews the operating results on a regular basis and makes decisions on resource allocation. The Group has determined its CODM to be the Group Board of Directors, Group Chief Executive Officer and Group Chief Financial Officer on the basis that it is this group that determines the allocation of resources to segments and assesses their performance.

The reportable operating segments of the Group have been determined based on the components of the Group that the CODM monitors in making decisions about operating matters. Such components have been identified on the basis of internal reports that the CODM reviews regularly in order to allocate resources and to assess the performance of the entity.

A description of each operating segment within the Group is outlined in note 5.

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated and parent financial statements are presented in New Zealand dollars, which is the Company’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment hedges.

(iii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrateatthedateofthatbalancesheet;

• incomeandexpensesforeachincomestatementaretranslatedataverageexchangerates(unlessthisaverageisnotareasonableapproximationofthe cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions);and

• allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.

On consolidation, exchange differences arising from the translation of any net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of foreign entities are treated as assets and liabilities of the foreign entities and translated at the closing rate.

(e) Revenue recognition

Revenue comprises the fair value of the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown, net of goods and service tax, rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows:

(i) Sales of goods

Sales of goods are recognised when a Group entity has dispatched the goods sold. This is the point where risks and rewards associated with ownership of the goods have been transferred and collectibility of the related receivables is reasonably assured.

(ii) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

(iii) Royalty income

Royalty income is recognised on an accruals basis in accordance with the substance of the relevant agreements.

(iv) Dividend income

Dividend income is recognised when the right to receive payment is established.

(v) Management fees

Management fee income is recognised when the Company has provided the services.


38


(f) Inventories

Raw materials, work-in-progress and finished goods are stated at the lower of cost and anticipated net realisable value. Cost is determined using the first in, first out (FIFO) method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Costs of inventories includes the transfer from equity of any gains/losses on qualifying cash flow hedges.

(g) Property, plant and equipment

All property, plant and equipment are stated at historical cost less depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as separate assets, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the costs of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation of property, plant and equipment is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows:

Buildings 20 - 40 yearsMotor vehicles 5 - 10 yearsPlant and equipment 3 - 20 yearsFixtures, fittings and office equipment 3 - 13 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is less than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.

(h) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing. The allocation is made to those cash generating units that are expected to benefit from the business combination in which the goodwill arose. The Group allocates goodwill to the Australian, UK and the New Zealand entities (note 14).

(ii) Patents and trademarks

The registration cost of patents and trademarks are capitalised from the date of application. They have a definite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of patents and trademarks over their estimated useful lives (6 - 20 years). Capitalised costs relating to applications that are turned down are expensed immediately into the income statement.

(iii) Research and development

Research expenditure is recognised as an expense as incurred. Development costs are recognised as assets if they meet the recognition criteria. Otherwise, the costs of development activities are expensed as incurred. Development costs recognised as assets are amortised over their estimated useful lives (5 years) on a straight line basis.

(iv) Computer software

Acquired computer software and licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives (3 - 7 years) on a straight line basis. Costs associated with maintaining computer software programs are recognised as an expense when incurred.

(v) Customer relations

Customer relations acquired due to a business acquisition are capitalised based on the fair value of cash flows forecast to be derived from the relationship. The relationships are deemed to have a finite useful life and are carried at cost less accumulated amortisation and impairment. Amortisation is calculated using the straight line method to allocate the cost of the asset over its useful life (10 years).

(i) Impairment of non financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.


39


( j) Income tax

The income tax expense recognised for the period is the tax payable on the current period’s taxable income based on the income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments of operations where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

(k) Trade and other receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. An estimate is made for doubtful receivables based on a review of all outstanding amounts at period end. Bad debts are written off during the period in which they are identified. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision and any write off of trade receivables is recognised in the income statement within ‘Sales, distribution, marketing & brand development’.

(l) Cash and cash equivalents

Cash and cash equivalents includes cash in hand and at bank.

(m) Share capital

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.

(n) Interest bearing liabilities

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowing using the effective interest method.

Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates.

(o) Provisions

Provisionsarerecognisedwhen:theGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamounthasbeenreliablyestimated.

Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole.

i) Warranty

A liability is recognised for the expected value of claims on product sales that are still under warranty at balance date. Expected costs are based on historical data relating to product returns.

ii) Deferred maintenance

A liability was recognised to cover a contractual obligation to perform remedial work at the Auckland premises. The provision was based on third party quotations and was released as and when expenditure was incurred.


40


(p) Trade and other creditors

These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. Trade and other creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. The amounts are unsecured and are usually paid within 30 days of recognition.

(q) Goods and Services Tax (GST)

The income statement and statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the balance sheet are stated net of GST, with the exception of receivables and payables which include GST invoiced.

(r) Leases

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The rental obligations, net of finance charges, are recognised in the balance sheet. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term.

Leases where the lessor effectively retains substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases (net of any incentives from the lessor) are charged to the income statement on a straight line basis over the period of the lease.

(s) Investments

Investments in subsidiaries are stated at cost in the balance sheet of the Parent.

(t) Employee benefits

(i) Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave are recognised in the provision for employee benefits in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

(ii) Long service leave

Provision for long service leave is calculated and accrued from the date of employment to the extent that it is probable that the leave entitlement will vest. In addition, the provision for sick leave, being an accumulating compensated absence, is recognised based on the expectation the Group will pay sick leave as a result of the unused entitlement that has accumulated at the balance sheet date.

(iii) Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to a termination when the entity has a detailed formal plan to terminate the employment of current employees without possibility of withdrawal. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer. Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value.

(iv) Equity-settled share-based compensation

The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to 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.

(u) Dividends

Dividend distribution to the Company shareholders is recognised as a liability in the Company’s and the Group’s financial statements in the period in which the dividends are approved by the Directors and notified to the Company’s shareholders.

(v) Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company and Group by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.


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(w) Statement of cash flows

The following are the definitions of the terms used in the statement of cash flows:

(a) Operating activities include principle revenue producing activities and all transactions and other events that are not investing or financing activities.

(b) Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and investments. Investments can include securities not falling within the definition of cash.

(c) Financing activities are those activities that result in changes in the size and composition of the capital structure. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities.

(x) Financial instruments

Financial instruments comprise derivative financial instruments, trade and other receivables, cash and cash equivalents, intercompany loans, intercompany advances, interest bearing liabilities and trade creditors.

Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition financial instruments are measured as described below.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled. The carrying amount of financial instruments approximates their fair value.

Trade and other receivables are stated initially at fair value and subsequently measured at amortised cost less provision for impairment.

Interest-bearing borrowings are classified as other non-derivative financial instruments.

Trade and other creditors are stated initially at fair value and subsequently measured at amortised cost.

(y) Derivatives

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as hedges of risks associated with recognised liabilities and highly probable forecast transactions (cash flow hedges).

The Group documents at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

The fair values of various derivative financial instruments used for hedging purposes are disclosed in note 11. Movements in the cash flow hedging reserve in shareholders’ equity are shown in note 19.

(i) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss component of the statement of comprehensive income.

Amounts accumulated in equity are reclassified to the profit and loss component of the statement of comprehensive income in the periods when the hedged item affects the profit and loss component of the statement of comprehensive income (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a non-financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability.

When a hedging instrument expires or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the profit and loss component of the statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the profit and loss component of the statement of comprehensive income.

(ii) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

(iii) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting is recognised immediately in the income statement.


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(z) Government grants

Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. Other grants are recognised as deferred income when there is a reasonable assurance that they will be received and that the Group will comply with the conditions associated with the grant. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset.

(aa) Comparative Information

Certain comparatives have been restated to conform to current year presentation (refer note 10).

(ab) Standards, amendments and interpretations to existing standards that are not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 April 2011 or later periods:

• NZIFRS9‘FinancialInstruments’(effectivefrom1January2013).ThestandardreplacespartofNZIAS39andestablishestwoprimarymeasurementcategories for financial assets: amortised cost and fair value, with classification depending on an entity’s business model and the contractual cash flow characteristics of the financial asset. The Group is currently in the process of evaluating the potential effect of this standard.

• NZIAS24‘RelatedPartiesRevised’(mandatoryforperiodsbeginningonorafter1January2011).Furtherclarifiesthedefinitionofarelatedpartywhich may result in other related parties being identified. Management have reviewed the proposed clarification and no further related parties have been identified for the Group.

There are no other standards, amendments or interpretations to existing standards which have been issued, but are not yet effective, which are expected to impact the Company or Group.

The Group has not adopted any new standards, amendments or interpretations to existing standards for the year ended 31 March 2011.

3 Financial risk managementThe Group’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments such as foreign exchange contracts and interest rate swaps to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, ie not as trading or other speculative instruments.

Risk management is carried out based on policies approved by the Board of Directors. The Group treasury policy provides written principles for overall financial risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non derivative financial instruments. Operating units identify, evaluate and hedge financial risks within policy with review by Group Treasury.

(a) Capital risk management

The Group and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group is not subject to externally imposed capital requirements except in relation to debt covenants. During the year the Group did not breach any debt covenants.

The split between debt and equity is as follows:

CONSOLIDATED

NZ $000 2011 2010

Total interest bearing liabilities (note 16) 23,558 21,478Less: cash and cash equivalents (4,484) (4,032)

Net debt 19,074 17,446Total equity 50,547 53,309

Total capital 69,621 70,755


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3 Financial risk management (CONTINUED)

(b) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, including the purchase of stock in US dollars and Euro, and profit contribution in Great Britain pounds and Australian dollars.

Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities that are denominated in a currency that is not the transacting entity’s functional currency and net investments in foreign operations. The risk is measured using sensitivity analysis and cash flow forecasting.

The Board has approved a Group treasury policy which requires all operating units including the parent, to manage their foreign exchange risk against their functional currency. The operating units are required to hedge their foreign exchange risk exposure arising from future transactions and recognised assets and liabilities using forward contracts.

The Group’s treasury policy is to hedge between 80%-100% of committed cash flows, between 25%-75% of forecasted cash flows falling within 0-6 months and between 0%-50% of forecasted cash flows falling within 6-12 months. The Board may from time to time approve exceptions to this policy. The cash flows hedged are mainly purchases of inventory in any major currency for the subsequent 12 months.

The following table shows the fair value of the foreign exchange contracts and interest rate swaps held by the Group as derivative financial instruments at balance date:

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Forward exchange contracts by foreign curency (cash flow hedges)Buy USD / Sell NZD (85) (29) (85) (29)Sell AUD / Buy NZD (45) (31) (45) (31)Buy EUR / Sell NZD 5 (20) 5 (20)Buy USD / Sell AUD (718) (169) - -Buy USD / Sell GBP (106) 181 - -Buy EUR /Sell GBP 18 (4) - -

Interest rate swaps (refer (ii) below)GBP Swap (107) (281) - -NZD Swap (44) - (44) -

Total derivative financial instruments (1,082) (353) (169) (80)

(ii) Cash flow and fair value interest rate risk

The main interest rate risk arises from long term interest bearing liabilities. Interest bearing liabilities issued at variable rates expose the Group to cash flow interest rate risk. Group policy maintains that interest bearing liabilities and investments, where interest rates are fixed at the date of measurement for a period greater than three months, are to be considered fixed rate. All interest bearing liabilities that are repayable in less than three months and/or interest bearing liabilities and investments where the interest rate is to be reset or re-priced within three months from the date of measurement are to be considered floating rate.

Interest rate exposure is managed with the following parameters: fixed interest rate debt to total debt is to be 40% to 80% managed if interest bearing liabilities are less than 18 months and 0% to 60% between 18 and 36 months. Policy authorised hedging instruments such as interest rate swaps are to be used to manage the risk. During 2010 and 2011, the Group’s interest bearing liabilities at variable rate were denominated in New Zealand and Australian dollars and Great Britain pounds. Interest on the Group loan facility is based on variable base rates plus a fixed bank margin. Interest rate swaps denominated in Great Britain pounds and New Zealand dollars are used to fix the interest on a portion of the debt denominated in those currencies.

As at balance date, the Group had the following variable interest bearing liabilities:

31 March 2011 31 March 2010

Weighted average

interest rate %Balance

$000

Weighted average

interest rate %Balance

$000

Bank overdrafts and bank loans 6.1% 23,558 4.4% 21,478Interest rate swaps (notional principal amount) 3.0% (8,487) 3.3% (12,736)


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(iii) Summarised sensitivity analysis

The following tables summarise the sensitivity of the Group’s and Parent’s financial assets and financial liabilities to interest rate risk and foreign exchange risk. The Group’s primary foreign currency exposure is each operating unit’s functional currency versus the US dollar. While it is unlikely that an equal 10% movement in each operating unit’s functional currency would be observed against all currencies, an overall sensitivity of 10% is reasonable given the range trading over the last six months and market expectations for potential future movements.

A sensitivity of a 1% upward movement and 0.5% downward movement has been selected for interest rate risk. The sensitivity is based on reasonably possible changes over a financial year based on current announcements and market expectation.

CONSOLIDATED Interest rate risk Foreign exchange risk

31 March 2011 -0.5% +1% -10% +10%

NZ $000Carrying amount Profit Equity Profit Equity Profit Equity Profit Equity

Financial assetsCash and cash equivalents 4,484 - - - - 54 - (54) -Trade receivables 21,613 - - - - 128 - (128) -Interest rate swaps 29 (21) (15) 42 29 - - - -Derivatives - cash flow hedges* 37 - - - - - 376 - (307)

Financial liabilitiesDerivatives - cash flow hedges* 967 - - - - - 1,969 - (1,609)Trade and other payables 20,644 - - - - (870) - 870 -Interest bearing liabilities 23,558 118 - (236) - - - - -Interest rate swaps 181 (65) (55) 129 107 - - - -

Total increase/(decrease) 32 (70) (65) 136 (688) 2,345 688 (1,916)

CONSOLIDATED Interest rate risk Foreign exchange risk

31 March 2010 -0.5% +1% -10% +10%


Financial assetsCash and cash equivalents 4,032 - - - - 5 - (5) -Trade receivables 24,024 - - - - 122 - (122) -Derivatives - cash flow hedges* 197 - - - - - 475 - (389)Derivatives - options 285 - - - - 26 - (26) -

Financial liabilitiesDerivatives - cash flow hedges* 269 - - - - - 1,036 - (846)Trade and other payables 20,318 - - - - (749) - 749 -Interest bearing liabilities 21,478 107 - (215) - - - - -Interest rate swaps 281 (64) (77) 128 149 - - - -

Total increase/(decrease) 43 (77) (87) 149 (596) 1,511 596 (1,235)


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PARENT Interest rate risk Foreign exchange risk

31 March 2011 -0.5% +1% -10% +10%


Financial assetsCash and cash equivalents 216 - - - - 2 - (2) -Trade receivables 7,023 - - - - 101 - (101) -Derivatives - cash flow hedges* 8 - - - - - 96 - (78)Inter-company advances 20,071 - - - - - - - -

Financial liabilitiesDerivatives - cash flow hedges* 132 - - - - - 152 - (124)Trade and other payables 4,721 - - - - (86) - 86 -Interest bearing liabilities 13,988 70 - (140) - - - - -Interest rate swaps 45 (23) (21) 45 40 - - - -

Total increase/(decrease) 47 (21) (95) 40 17 248 (17) (202)

PARENT Interest rate risk Foreign exchange risk

31 March 2010 -0.5% +1% -10% +10%


Financial assetsCash and cash equivalents 528 - - - - 3 - (3) -Trade receivables 7,072 - - - - 87 - (87) -Derivatives - cash flow hedges* 11 - - - - - 82 - (67)Derivatives - options 285 - - - - 26 - (26) -Inter company advances 13,057 - - - - - - - -

Financial liabilitiesDerivatives - cash flow hedges* 91 - - - - - (2) - 1Trade and other payables 4,429 - - - - (75) - 75 -Interest bearing liabilities 7,086 35 - (71) - - - - -

Total increase/(decrease) 35 - (71) - 41 80 (41) (66)

* There is no expected profit and loss sensitivity as forward exchange contracts are hedge accounted and 100% effective.

The Group and the parent entity hold no direct investments in equities or commodities and are therefore not subject to price risk for any recognised financial assets.


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(c) Financial instruments by category

Assets as per balance sheet NZ $000

Derivatives used for hedging

Assets at fair value through profit or loss

Loans and receivables Total

CONSOLIDATEDAt 31 March 2011Cash and cash equivalents - - 4,484 4,484Trade receivables - - 21,613 21,613Derivative financial instruments 66 - - 66

66 - 26,097 26,163At 31 March 2010Cash and cash equivalents - - 4,032 4,032Trade receivables - - 24,024 24,024Derivative financial instruments 197 285 - 482

197 285 28,056 28,538

PARENTAt 31 March 2011Cash and cash equivalents - - 216 216Trade receivables - - 7,023 7,023Derivative financial instruments 8 - - 8Inter-company advances - - 20,289 20,289

8 - 27,528 27,536At 31 March 2010Cash and cash equivalents - - 528 528Trade receivables - - 7,072 7,072Derivative financial instruments 11 285 - 296Inter-company advances - - 13,281 13,281

11 285 20,881 21,177


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Liabilities as per balance sheet NZ $000

Derivatives used for hedging

Other financial liabilities Total

CONSOLIDATEDAt 31 March 2011Trade and other payables - (20,644) (20,644)Derivative financial instruments (1,148) - (1,148)Interest bearing liabilities - (23,558) (23,558)

(1,148) (44,202) (45,350)At 31 March 2010Trade and other payables - (20,318) (20,318)Derivative financial instruments (550) - (550)Interest bearing liabilities - (21,478) (21,478)

(550) (41,796) (42,346)

PARENTAt 31 March 2011Trade and other payables - (4,721) (4,721)Derivative financial instruments (177) - (177)Interest bearing liabilities - (13,988) (13,988)Inter-company payables - (218) (218)

(177) (18,927) (19,104)At 31 March 2010Trade and other payables - (4,429) (4,429)Derivative financial instruments (91) - (91)Interest bearing liabilities - (7,086) (7,086)Inter-company payables - (224) (224)

(91) (11,739) (11,830)

(d) Credit risk

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions. The maximum exposure to credit risk is represented by the carrying amount of these assets. For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are accepted. If customers are independently rated, these ratings are used in combination with management’s assessment of the credit quality of the customer, taking into account its financial position, past experience and other internal and external factors. Individual risk limits are set based on internal or external ratings. The compliance with credit limits by customers is regularly monitored by management.

There is a high concentration of market share and distribution reach in the buildings supply sector in our markets. This has implications for suppliers in terms of customer base concentration and credit risk. As at 31 March 2011 the Group had one customer balance greater than 10% of total trade receivables. This customer balance comprised 11% of Group trade receivables (2010: 12%). Refer note 9.


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Banks and financial institutions used by the Group have the following ratings and distribution of funds:

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Cash at bank and short-term bank depositsAA 1,716 2,191 216 528A 2,768 1,841 - -

4,484 4,032 216 528

Derivative financial assetsAA 8 16 8 11

A 58 181 - -

66 197 8 11

(e) Liquidity risk

Liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available.

Management monitors rolling forecasts of the Group’s liquidity reserve on the basis of expected cash flow.

At the reporting date, the Group held liquid assets of $4,484,000 (2010: $4,032,000) that are expected to readily generate cash inflows for managing liquidity risk.

The bank overdraft facilities may be drawn at any time and may be terminated by the bank without notice. At the reporting date the Group had overdraft facilities of New Zealand dollars 1.0m, Australian dollars 0.25m and Great Britain pounds 0.2m.

Currently term loans are drawn down in New Zealand dollars, Australian dollars or Great Britain pounds and have an average interest reset period of 3 months (2010: 3 months). The Group facility is reviewed every three years. Termination may result if terms of the facility agreement are breached. The Group’s bank facilities expire in August 2013.

Maturities of financial liabilities

The tables below analyse the Group’s and the parent entity’s financial liabilities into relevant maturity groupings. The Group’s derivative foreign exchange financial instruments are gross settled and interest rate swaps are net settled. These derivatives are categorised into relevant maturity groupings based on the contractual maturity dates. The amounts disclosed in the tables below are the contractual undiscounted cash flows inclusive of interest payments. The Group’s interest rates are reset monthly and as a result the contractual interest payments below have been calculated based on interest rates and debt levels that existed at balance date.


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CONSOLIDATED At 31 March 2011

NZ $000Less than 6 months

6 - 12 months

Between 1 and 2 years


Over 5 years

Total contractual cash flows

Carrying Amount

liabilities

Non-derivativesInterest bearing liabilities (404) (404) (808) (23,872) - (25,488) (23,558)Trade and other payables (20,644) - - - - (20,644) (20,644)

Total non-derivatives (21,048) (404) (808) (23,872) - (46,132) (44,202)

DerivativesNet settled (interest rate swaps) (72) (65) (2) (13) - (152) (152)Gross settled (foreign exchange contracts)- inflow 28,685 2,674 - - - 31,359 31,359- (outflow) (29,571) (2,718) - - - (32,289) (32,289)

Total derivatives (958) (109) (2) (13) - (1,082) (1,082)

CONSOLIDATED At 31 March 2010


6 - 12 months



Over 5 years


Carrying Amount

liabilities

Non-derivativesInterest bearing liabilities (19,924) (1,624) - - - (21,548) (21,478)Trade and other payables (20,318) - - - - (20,318) (20,318)

Total non-derivatives (40,242) (1,624) - - - (41,866) (41,796)

DerivativesNet settled (interest rate swaps) (78) (26) (177) - - (281) (281)Gross settled (foreign exchange contracts)- inflow 15,976 257 - - - 16,233 197- (outflow) (16,049) (256) - - - (16,305) (269)

Total derivatives (151) (25) (177) - - (353) (353)


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PARENT At 31 March 2011


6 - 12 months



Over 5 years


Carrying Amount

liabilities

Non-derivativesInterest bearing liabilities (315) (315) (631) (14,251) - (15,512) (13,988)Trade and other payables (4,721) - - - - (4,721) (4,721)

Total non-derivatives (5,036) (315) (631) (14,251) - (20,233) (18,709)

DerivativesNet settled (interest rate swaps) - - (32) (13) - (45) (45)Gross settled (foreign exchange contracts)- inflow 3,619 400 - - - 4,019 4,019- (outflow) (3,735) (408) - - - (4,143) (4,143)

Total derivatives (116) (8) (32) (13) - (169) (169)

PARENT At 31 March 2010


6 - 12 months



Over 5 years


Carrying Amount

liabilities

Non-derivativesInterest bearing liabilities (7,123) - - - - (7,123) (7,086)Trade and other payables (4,429) - - - - (4,429) (4,429)

Total non-derivatives (11,552) - - - - (11,552) (11,515)

DerivativesGross settled (foreign exchange contracts)- inflow 3,050 257 - - - 3,307 11- (outflow) (3,131) (256) - - - (3,387) (91)

Total derivatives (81) 1 - - - (80) (80)

(f) Fair value estimation

Effective 1 April 2009, the group adopted the amendment to IFRS 7 for financial instruments that are measured in the balance sheet at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

• Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(level1).

• Inputsotherthanquotedpricesincludedwithinlevel1thatareobservablefortheassetorliability,eitherdirectly(thatis,asprices)orindirectly(thatis, derived from prices) (level 2).

• Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatis,unobservableinputs)(level3).


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For the years ended 31 March 2011 and 31 March 2010 the Group’s and Parent’s assets and liabilities that are measured at fair value were all included in level 2 or 3. The level 2 assets and liabilities were all derivatives used for hedging, being interest rate swaps and forward exchange contracts, as described in note 11.

The level 3 assets and liabilities consist of an option to purchase product patents, as described in notes 11 and 24.

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments are included in level 1.

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

• Quotedmarketpricesordealerquotesforsimilarinstruments.

• Thefairvalueofinterestrateswapsiscalculatedasthepresentvalueoftheestimatedfuturecashflowsbasedonobservableyieldcurves.

• Thefairvalueofforwardforeignexchangecontractsisdeterminedusingforwardexchangeratesatthebalancesheetdate,withtheresultingvaluediscounted back to present value.

• Othertechniques,suchasdiscountedcashflowanalysis,areusedtodeterminefairvaluefortheremainingfinancialinstruments.

4 Critical accounting estimates and judgmentsThe preparation of financial statements in conformity with NZ IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

(i) Goodwill impairment

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates, refer note 2h(i). Refer to note 14 for details of these assumptions and the potential impact of changes to the assumptions.

(ii) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the worldwide provision in income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination are made. Refer to note 8.

(iii) Customer relations

The valuation of the customer relations which were acquired in the United Kingdom business combination were determined based on future sales and margins expected to be generated from the customer relations. These calculations require the use of estimates. Customer relations are tested for impairment when there is an indication of a trigger event. Refer to note 14.

(iv) Business combination - option valuation

ThevaluationoftheoptiontoacquiretheassetsofJEMAustraliaPtyLimitedwasdeterminedbasedonfuturesalesandmarginsexpectedtobegeneratedfromproductsalesincorporatingtheJEMpatenttechnology.Thesecalculationsrequiretheuseofestimates.Refertonote24.

(v) Trade Receivables

The Group records trade receivables net of provisions for doubtful debts. In determining the provision for doubtful debts the Group assesses whether objective evidence of impairment exists for trade receivables. Objective evidence includes specific customers entering significant financial difficulty, entering bankruptcy or other financial reorganisation, and broader factors such as economic conditions that correlate with defaults on trade receivables. Where objective evidence exists and recoveries are uncertain, judgements are used to determine the amount of trade receivables to be provided for. Refer to note 9.


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5 Segment information

(a) Description of segments

The Group operates in one industry segment, being the design and supply of shower, tapware and water control valves. Inter-segment sales are on an arm’s length basis.

Management has determined the operating segments based on the reports reviewed by the Group Board of Directors, Group Chief Executive Officer and Group Chief Financial Officer collectively for the purpose of allocating resources, assessing performance and making strategic decisions.

New Zealand

The home country of the Parent is the base for new design and technology development, strategic and management support, sales and marketing of shower and tapware and water control valves in New Zealand and Pacific Islands.

Products are both manufactured in New Zealand and sourced from China.

Australia

Comprises sales and marketing operations in Australia supplying shower and tapware and domestic water control valves.

Products are sourced from both China and New Zealand.

United Kingdom

Comprises sales and marketing operations in the United Kingdom and the Middle East, supplying shower and tapware.

Products are sourced from both China and New Zealand.

Other

Comprises:

• ChinaoperationprovidingqualitycontrolandsourcingservicesinAsiafortheGroup,

• AdministrationcostsoftheUnitedStatesofAmericaoperation(nontrading).

Sales and marketing costs associated with the Shower Skincare (previously Homespa) beauty range are now reported within their associated geographic regions and are no longer reported in the “other” segment. Comparatives have been restated accordingly.

Once a reportable segment becomes material and enhances the evaluation of business activities in the Group, the segment will be reported separately.

Profit is before inter segmental dividends as this is the way it is viewed by the chief operating decision maker.


53

5 Segment information (CONTINUED)

2011

NZ $000New

Zealand Australia UK Other

Total continuing operations

Inter -segment

eliminations/unallocated Total

Sales revenue from external trade customers 38,062 52,673 30,839 513 122,087 - 122,087Inter-segmental revenue 1,192 187 - - 1,379 (1,379) -

Total sales revenue 39,254 52,860 30,839 513 123,466 (1,379) 122,087

Adjusted EBITDA * 9,367 4,924 (2,101) 48 12,238 105 12,343Non-operating foreign exchange gain/(loss) 64 - - - 64 14 78

Earnings before interest, tax, depreciation, amortisation, impairment & option revaluation 9,431 4,924 (2,101) 48 12,302 119 12,421Impairment of customer relations - - (579) - (579) - (579)Revaluation loss on business acquisition option (311) - - - (311) - (311)Depreciation and amortisation (1,813) (748) (906) (39) (3,506) - (3,506)Interest received/(paid) 21 (267) (990) - (1,236) - (1,236)

Profit before income tax 7,328 3,909 (4,576) 9 6,670 119 6,789

Income tax (expense) / credit (2,240) (1,183) 1,424 (5) (2,004) (36) (2,040)

Profit for the year 5,088 2,726 (3,152) 4 4,666 83 4,749

Other segmental items

Assets 72,465 26,846 47,387 630 147,328 (47,329) 99,999Liabilities 20,322 19,702 30,444 145 70,613 (21,161) 49,452Acquisitions of property, plant and equipment and intangibles 2,488 763 375 33 3,659 - 3,659

* Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, impairment, non-operating foreign exchange gain/(loss) and the revaluation of the business acquisition option.


54


2010

NZ $000New

Zealand Australia UK Other

Total continuing operations

Inter -segment

eliminations/unallocated Total

Sales revenue from external trade customers 40,013 45,958 43,719 132 129,822 - 129,822Inter-segmental revenue 3,037 - - - 3,037 (3,037) -

Total sales revenue 43,050 45,958 43,719 132 132,859 (3,037) 129,822

Adjusted EBITDA * 9,821 2,957 3,555 179 16,512 186 16,698Non-operating foreign exchange gain/(loss) (1,049) - - - (1,049) 1,013 (36)

Earnings before interest, tax, depreciation, amortisation and impairment 8,772 2,957 3,555 179 15,463 1,199 16,662Impairment of customer relations - - (688) - (688) - (688)Impairment of property, plant & equipment (103) - - - (103) - (103)Depreciation and amortisation (1,801) (821) (1,128) (85) (3,835) - (3,835)Interest received/(paid) 183 (285) (907) - (1,009) - (1,009)

Profit before income tax 7,051 1,851 832 94 9,828 1,199 11,027

Income tax expense (2,230) (520) (96) (2) (2,848) (359) (3,207)

Profit for the year 4,821 1,331 736 92 6,980 840 7,820

Other segmental items

Assets 65,507 23,293 51,735 568 141,103 (40,145) 100,958Liabilities 13,607 16,314 31,561 310 61,792 (14,143) 47,649Acquisitions of property, plant and equipment and intangibles 1,715 430 44 20 2,209 - 2,209

* Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation, impairment, non-operating foreign exchange gain/(loss) and the revaluation of the business acquisition option.


55


(b) Notes to and forming part of the segment information

The UK segment generated $294,000 (2010: $628,000) of reported revenue in the Middle East.

Revenue from the Group’s top 5 customers comprises 39% (2010: 40%) of the total Group revenue. Revenue from the top 5 customers is spread across our three main segments of New Zealand, Australia & the United Kingdom. The Group’s largest customer accounts for 11% of the Group’s revenue (2010: 14%) and is spread across the New Zealand and Australia segments.

The total non-current assets, other than financial instruments and deferred tax assets, located in New Zealand is $38,027,000 (2010: $37,062,000), Australia $3,234,000 (2010: $2,387,000) and the UK $31,520,000 (2010: $32,223,000).

Significant items included in the inter-segment elimination of assets were the elimination of parent investments in subsidiaries of $27,937,000 (2010: $27,701,000) and elimination of parent advances to subsidiaries $20,289,000 (2010: $13,281,000).

Significant items included in the inter-segment elimination of liabilities were the elimination of advances from the parent of $20,289,000 (2010: $13,281,000).

6 Revenue

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Sale of goods 122,087 129,822 39,255 43,050

Other incomeInterest 40 20 710 518Dividends (note 23) - - 2,547 3,286Royalty income (note 23) - - 1,108 884

40 20 4,365 4,688


56

7 Expenses

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Depreciation (note 12) 2,342 2,669 1,477 1,647Amortisation (note 14) 1,164 1,166 336 154Impairment of customer relations (note 14) 579 688 - -Impairment loss on property, plant & equipment (note 12) - 103 - 103

Inter-group fee charged (note 23) - - 42 650 Loss on asset disposal 60 24 - 13

Foreign exchange (gains) losses (206) 164 (231) 1,049Revaluation loss on business acquisition option (note 24) 311 - 311 -

Finance costsInterest and finance charges paid/payable 1,239 940 652 246Cost of debt amortisation 37 89 37 89

Rental expense relating to operating leasesMinimum lease payments 1,419 1,527 630 622

Sundry expensesDonations 16 - 12 -Directors' fees (note 23) 189 162 189 162Bad and doubtful debts expense (note 9) 1,995 89 - 11

Employee benefit expenseWages, salaries and short term benefits 26,016 26,314 9,229 9,541Termination benefits 743 541 188 -Share options granted to directors and employees (note 19) - 36 - 36

Remuneration of auditorsAudit fees- PricewaterhouseCoopers 202 169 89 84Tax compliance and consultancy services- PricewaterhouseCoopers 77 23 36 23Other services - PricewaterhouseCoopers 60 137 60 137

For the year ended 31 March 2011 fees totalling $60,000 were paid to PricewaterhouseCoopers in relation to advice on assessing requirements for changes in IT vendors and licensing of financial reporting software. For the year ended 31 March 2010 fees totalling $137,000 were paid to PricewaterhouseCoopers NewZealandinrelationtoadviceonassessingrequirementsforchangesinITvendors,taxadvicerelatingtoanagreementwithJemAustraliaPtyLtd(note 24) and licensing of financial reporting software.

FollowingtheAnnualGeneralMeetingheldon22July2010theDirectorsimplementedanauditorindependencepolicy.Thepolicyrequiresthatinafinancial year, fees paid to the Group’s external audit provider for non-audit related services should not exceed 25% of all fees paid to that provider. During the year ended 31 March 2011 fees paid to PricewaterhouseCoopers for non-audit related services were 40% of total fees paid due to spend committed before the policy was implemented. Excluding these committed one-off items, which related to advice on changes in IT vendors and simplifying the structure of the Methven UK entities, the non-audit fees for the year were 18% of all fees paid. The Group expects to be within policy limits in the next financial year.

The Group received funding from the Foundation for Research Science and Technology in New Zealand during the year to reimburse for expenses incurred in relation to two approved projects. The Group and Parent recognised a credit of $59,092 (2010: $605,982) in relation to a project that ceased on 31 May 2010, and a further credit of $70,043 in relation to a project that commenced on 11 October 2010 and runs until 10 February 2012. These credits are accounted for as a reduction in Research, design & engineering expenses.


57

8 Income tax expense

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

(a) Income tax expenseCurrent tax expense:Current tax 2,812 3,674 1,947 2,172Adjustment for prior year (66) 93 (68) 30

2,746 3,767 1,879 2,202

Deferred tax expense (note 13):Origination and reversal of temporary differences (610) (279) 282 62Reduction in company tax rates (12) - 11 -Adjustment for prior year (84) (281) 68 (34)

(706) (560) 361 28

Income tax expense 2,040 3,207 2,240 2,230

(b) Numerical reconciliation of income tax expense to prima facie tax payableProfit before income tax expense 6,789 11,027 9,875 10,336

Tax at 30% 2,037 3,308 2,963 3,101Tax effect of amounts which are not deductible (taxable) in calculating taxable income: 74 120 30 120Difference in overseas tax rates 91 (33) - -Adjustment for prior year (150) (188) - (5)Tax exempt income - - (764) (986)Reduction in company tax rates (12) - 11 -

Income tax expense 2,040 3,207 2,240 2,230

The weighted average effective tax rate for the Group was 30.0% (2010: 29.1%).

With effect from 1 April 2011, the company tax rate for the Parent reduced from 30% to 28%, the effect of which is shown above.


58

9 Current assets - Trade receivables

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Trade receivables* 23,448 24,549 7,023 7,072Provision for doubtful receivables (1,835) (525) - -

21,613 24,024 7,023 7,072

The fair value of trade receivables approximates their carrying value. No interest has been charged on trade receivables.

*Within parent trade receivables are current related party receivables of $1,051,000 (2010: $708,000) as per note 23.

Receivables past due date

As at 31 March 2011 Group trade receivables of $1,714,000 (2010: $1,488,000) were past due but not considered doubtful. These relate to a number of accounts for which there is no recent history of default.

The ageing of these receivables is as follows:

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

1 to 6 months 1,703 1,457 1,254 705Over 6 months 11 31 11 31

1,714 1,488 1,265 736

As at 31 March 2011, Group trade receivables of $1,835,000 (2010: $525,000) were considered doubtful and provided for. These are mainly due to debtors who are experiencing financial difficulties or outstanding disputes. $1,288,000 of these doubtful trade receivables relates to Focus (DIY) Limited (refer note 26). A further amount of $627,000 relating to a bad debt in Australia was written off during the year. As this was written off before 31 March and was not previously provided for it is not reflected in the doubtful trade receivables or the provision movement below.

The ageing analysis of these doubtful trade receivables is as follows:

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

1 to 6 months 1,757 410 - -Over 6 months 78 115 - -

1,835 525 - -

Movements in the provision for doubtful receivables are shown below:

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Opening balance 525 514 - -Provision for doubtful receivables 1,374 100 - 11Receivables written off during the year (64) (89) - (11)

1,835 525 - -

The creation and release of the provision for doubtful receivables has been included in ‘sales and distribution expenses’ in the income statement. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash.

The maximum exposure to credit risk at the reporting date is the fair value of receivables mentioned above. The Group does not hold any collateral as security.

The Group’s exposure to a concentration of credit risk is reduced due to the geographical spread of the Group’s operations and customers. Credit insurance is taken where economically available to cover material exposure of the Group’s offshore and domestic receivables.


59

10 Current assets - Inventories

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Raw materials and components 3,684 4,282 3,685 4,282Consumables 35 40 35 40Work in progress 95 110 95 110Finished goods 25,070 21,409 3,084 2,550Provision for inventory obsolescence (3,142) (1,728) (546) (626)

Net inventories 25,742 24,113 6,353 6,356

Inventories recognised as an expense in the income statement (within cost of sales) during the year ended 31 March 2011 amounted to $58,046,000 (2010: $62,867,000).

Inventory adjustments are provided at year end for stock obsolescence.

The Group recognised a net increase of $1,414,000 (2010: release of $27,000) in respect of the movement in provision for inventory obsolescence and adjustment of inventories to net realisable value. $776,000 of the increase relates to inventory associated with Focus (DIY) Limited as described further in note 26. The provision movements are included in ‘cost of sales’ in the income statement. No other movements have been recognised in the Income Statement in respect of inventory written down to net realisable value.

Components have been reclassified out of ‘Work in progress’ to ‘Raw materials and components’. This resulted in a reclassification of $1,192,000 for the comparative period in both the Parent and Group figures, affecting only this disclosure note.

11 Derivative financial instruments

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Current assetsForward foreign exchange contracts ((ii)) 37 197 8 11

Total current derivative financial instrument assets 37 197 8 11

Non-current assetsInterest rate swaps - cash flow hedges ((i)) 29 - - -Options ((iii)) - 285 - 285

Total non-current derivative financial instrument assets 29 285 - 285

Current liabilitiesForward foreign exchange contracts ((ii)) (967) (269) (132) (91)Interest rate swaps - cash flow hedges ((i)) (141) (104) (5) -

Total current derivative financial instrument liabilities (1,108) (373) (137) (91)

Non-current liabilitiesInterest rate swaps - cash flow hedges ((i)) (40) (177) (40) -

Total non-current derivative financial instrument liabilities (40) (177) (40) -

Total derivative financial instruments (1,082) (68) (169) 205


60

11 Derivative financial instruments (CONTINUED)

Instruments used by the Group

The Group is party to derivative financial instruments in the normal course of business in order to hedge exposure to fluctuations in interest rates and foreign exchange rates in accordance with the Group’s financial risk management policies (note 3).

(i) Interest rate swap contracts - cash flow hedges

Bank loans of the Group carried an average variable interest rate of 6.1%. It is Group’s policy to protect part of the loans from exposure to increasing interest rates. Accordingly, the Group has entered into interest rate swap contracts under which it is obliged to receive interest at variable rates and to pay interest at fixed rates.

Swaps currently in place cover approximately 36% (2010: 64%) of the loan principal outstanding.

The contracts require settlement of net interest receivable or payable quarterly. The settlement dates coincide with the dates on which interest is payable on the underlying debt. The contracts are settled on a net basis.

The gain or loss from remeasuring the hedging instruments at fair value is deferred in equity in the hedging reserve, to the extent that the hedge is effective, and reclassified into profit and loss when the hedged interest expense is recognised. Any ineffective portion is recognised in the income statement immediately. There has been no ineffectiveness during the current or prior year.

(ii) Forward exchange contracts - cash flow hedges

In order to protect against exchange rate movements, the Group has entered into forward exchange contracts and options to purchase foreign currency.

These contracts and options are hedging highly probable forecasted purchases for the ensuing financial year. These financial instruments are timed to mature when payments for major shipments of component parts are scheduled to be made.

The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised directly in equity. When the cash flows occur, the Group adjusts the initial measurement of the component recognised in the balance sheet by the related amount deferred in equity. Any ineffective portion is recognised in the income statement immediately. There has been no ineffectiveness hedging during the current or prior year.

(iii) Options

Duringtheyearended31March2010,theParententeredintoanagreementwithJEMAustraliaPtyLimitedinvolvinganoptiontopurchaseitsproductpatents. It elected to disclose the option as a derivative financial instrument with any gain or loss from remeasuring the option at fair value to be recognised in the income statement. The option was revalued to nil at 31 March 2011 (note 24).


61

12 Non-current assets - Property, plant and equipment

CONSOLIDATED

NZ $000Capital work in progress

Plant, fixtures, fittings and equipment

Motor vehicles Total

At 1 April 2009Cost 24 18,521 213 18,758Accumulated depreciation - (10,232) (82) (10,314)

Net book amount 24 8,289 131 8,444

Year ended 31 March 2010Opening net book amount 24 8,289 131 8,444Effect of movement in exchange rates - 68 7 75Additions 838 987 - 1,825Transferred completed work in progress (341) 341 - -Impairment charge recognised in cost of sales - (103) - (103)Depreciation charge - (2,630) (39) (2,669)Disposals - (34) (3) (37)

Closing net book amount 521 6,918 96 7,535

At 31 March 2010Cost 521 18,956 183 19,660Accumulated depreciation - (12,038) (87) (12,125)

Net book amount 521 6,918 96 7,535

Year ended 31 March 2011Opening net book amount 521 6,918 96 7,535Effect of movement in exchange rates - 115 3 118Additions 664 1,211 28 1,903Transferred completed work in progress (877) 877 - -Depreciation charge - (2,309) (33) (2,342)Disposals - (177) (10) (187)

Closing net book amount 308 6,635 84 7,027

At 31 March 2011Cost 308 19,016 204 19,528Accumulated depreciation - (12,381) (120) (12,501)

Net book amount 308 6,635 84 7,027

There are no finance leased assets included within property, plant and equipment at 31 March 2011 or 31 March 2010.


62

12 Non-current assets - Property, plant and equipment (CONTINUED)

PARENT

NZ $000Capital work in progress

Plant, fixtures, fittings and equipment Total

At 1 April 2009Cost 24 12,631 12,655Accumulated depreciation - (7,185) (7,185)

Net book amount 24 5,446 5,470

Year ended 31 March 2010Opening net book amount 24 5,446 5,470Additions 674 684 1,358Transferred completed work in progress (193) 193 -Impairment charge recognised in cost of sales - (103) (103)Depreciation charge - (1,647) (1,647)Disposals - (43) (43)

Closing net book amount 505 4,530 5,035

At 31 March 2010Cost 505 13,424 13,929Accumulated depreciation - (8,894) (8,894)


Year ended 31 March 2011Opening net book amount 505 4,530 5,035Additions 573 317 890Transferred completed work in progress (770) 770 -Depreciation charge - (1,477) (1,477)Disposals - (114) (114)

Closing net book amount 308 4,026 4,334

At 31 March 2011Cost 308 13,856 14,164Accumulated depreciation - (9,830) (9,830)


During the year ended 31 March 2011 no property, plant and equipment impairment losses were recognised (2010: $103,000). The 2010 impairment related to an item of plant that became obsolete during the year and was included in cost of sales in the income statement. The item was recorded at fair value less costs to sell and was based on external market value indications.


63

13 Non-current deferred tax

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

(a) The balance comprises temporary differences attributable to:Depreciation 21 81 (93) (46)Provisions and accruals 1,659 1,042 252 449Customer relations (1,131) (1,710) - -Other 251 463 36 156

Net deferred tax asset / (liability) 800 (124) 195 559

(b) Movements:Opening balance at 1 April (124) (1,586) 559 437Credited (charged) to the income statement (note 8) 706 560 (361) (28)Credited (charged) to equity 210 492 23 136Movement between current and deferred tax balance (26) 14 (26) 14Foreign exchange differences 34 396 - -

Closing balance at 31 March 800 (124) 195 559

(c) Income/(expense) recognised in income statements:Depreciation (66) (9) (46) (2)Provisions and accruals (304) (55) (197) (21)Customer relations 578 472 - -Other 498 152 (118) (5)

706 560 (361) (28)

In respect of each temporary difference the table above summarises the amount of income/(expense) recognised in the income statements.

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Deferred tax asset to be recovered after more than 12 months 1,223 443 - 316Deferred tax asset to be recovered within 12 months 989 1,143 288 243

Total deferred tax assets 2,212 1,586 288 559

Deferred tax liability to be recovered after more than 12 months (1,155) (1,480) (74) -Deferred tax liability to be recovered within 12 months (257) (230) (19) -

Total deferred tax liabilities (1,412) (1,710) (93) -

Net deferred tax assets / (liabilities) 800 (124) 195 559


64

14 Non-current assets - Intangible assets

CONSOLIDATED

NZ $000 Goodwill SoftwarePatents &

trademarksCustomer relations Total

At 1 April 2009Cost 36,599 567 963 10,221 48,350Accumulated amortisation - (315) (485) (1,618) (2,418)

Net book amount 36,599 252 478 8,603 45,932

Year ended 31 March 2010Opening net book amount 36,599 252 478 8,603 45,932Effect of movement in exchange rates (4,900) 5 1 (1,262) (6,156)Additions - 157 227 - 384Impairment charge recognised in income statement - - - (688) (688)Amortisation charge - (116) (99) (951) (1,166)

Closing net book amount 31,699 298 607 5,702 38,306

At 31 March 2010Cost 31,699 718 1,130 8,615 42,162Accumulated amortisation - (420) (523) (2,913) (3,856)

Net book amount 31,699 298 607 5,702 38,306

At 31 March 2010Methven Limited 3,504 231 591 - 4,326Methven Australia Pty Limited 1,884 65 16 - 1,965Methven UK Limited 26,311 - - 5,702 32,013Methven (Xiamen) Trading Company Limited - 2 - - 2

Net book amount 31,699 298 607 5,702 38,306

Year ended 31 March 2011Opening net book amount 31,699 298 607 5,702 38,306Effect of movement in exchange rates (8) 9 (1) (4) (4)Additions - 1,614 142 - 1,756Impairment charge recognised in profit and loss (note 26) - - - (579) (579)Amortisation charge - (268) (128) (768) (1,164)

Closing net book amount 31,691 1,653 620 4,351 38,315

At 31 March 2011Cost 31,691 2,360 1,217 8,611 43,879Accumulated amortisation - (707) (597) (4,260) (5,564)

Net book amount 31,691 1,653 620 4,351 38,315

At 31 March 2011Methven Limited 3,504 1,468 614 - 5,586Methven Australia Pty Limited 1,887 183 6 - 2,076Methven UK Limited 26,300 - - 4,351 30,651Methven (Xiamen) Trading Company Limited - 2 - - 2

Net book amount 31,691 1,653 620 4,351 38,315

Software additions during the year ended 31 March 2011 include the implementation of an ERP system in the New Zealand business.


65

14 Non-current assets - Intangible assets (CONTINUED)

PARENT

NZ $000 Goodwill SoftwarePatents &

trademarks Total

At 1 April 2009Cost 3,504 416 807 4,727Accumulated amortisation - (252) (352) (604)

Net book amount 3,504 164 455 4,123

Year ended 31 March 2010Opening net book amount 3,504 164 455 4,123Additions - 131 226 357Amortisation charge - (64) (90) (154)

Closing net book amount 3,504 231 591 4,326

At 31 March 2010Cost 3,504 530 963 4,997Accumulated amortisation - (299) (372) (671)

Net book amount 3,504 231 591 4,326

Year ended 31 March 2011Opening net book amount 3,504 231 591 4,326Additions - 1,456 142 1,598Amortisation charge - (218) (118) (336)Disposal - - - -

Closing net book amount 3,504 1,469 615 5,588

At 31 March 2011Cost 3,504 1,996 1,165 6,665Accumulated amortisation - (527) (550) (1,077)

Net book amount 3,504 1,469 615 5,588

(a) Impairment test for customer relations

At balance date the Group has assessed the recoverable amount of intangible assets attributable to Customer Relations which were acquired through The Deva Tap Company Limited on 31 August 2007. The recoverable amount has been determined on a value in use basis and has resulted in an impairment charge for the year of £273,000 or NZ$579,000 (2010: £324,000 or NZ$688,000). The impairment charge has been recorded in the Income Statement within sales, distribution, marketing & brand development. The Group considered a reassessment of the recoverable amount was required due to on-going difficult economic conditions experienced in the United Kingdom, the potential loss of a key customer relationship as described in note 26, and the follow on impact of these events to demand for shower and tapware products.

The recoverable amount uses cash flow projections based on management forecasts through to March 2014. The basis for using these forecasts is they reflect management’s experience of past performance adjusted for the expectations of future events, including expectations of future market conditions. Cash flows beyond March 2014 are extrapolated using estimated growth rates of 3% (2010: 3%) for the balance of the valuation model. The key assumptions in the forecasts are growth through:

• HighersalesvolumesofshowerwareutilisingvalueendDIYproductandthebenefitsofMethvenproprietaryproduct

• Pullthroughsalesstrategytohotelandothercommercialinstitutionsthroughtheexistingcustomerrelationships

• Overheadcostreductions

A discount rate used of 9.2% (2010: 8.5%) has been used in the impairment test of customer relationships. This assumption was calculated with reference to externally sourced market information specific to the United Kingdom.

The customer relations value at balance date of $4.4m (2010: $5.7m) is amortised on a straight line basis with a remaining amortisation period of 6 years and 5 months.


66

14 Non-current assets - Intangible assets (CONTINUED)

(b) Impairment tests for goodwill

The recoverable amount of the assets attributable to goodwill is determined based on value in use calculations for each Cash Generating Unit (CGU) that the intangible asset relates to. The CGUs equate to the segments in the table below. The calculations use cash flow projections based on management forecasts to March 2014. The forecasts are based on past performance adjusted for expectations of future events, including expectations of future market conditions. The key inputs in these forecasts relate to forecast revenue, margin and operating cost levels. Cash flows beyond March 2014 are extrapolated using an estimated growth rate of 3%. The growth rates have been derived with reference to externally sourced growth forecasts of GDP and CPI specific to each region. The discount rates used have been calculated with reference to externally sourced market information specific to each region. The tests did not indicate any impairment as at 31 March 2011. No impairment has been recognised in any of the prior periods presented.

Management does not expect a reasonably possible change in key assumptions would reduce the recoverable amount of any cash generating unit below its carrying amount.

A cash generating unit level summary of the goodwill allocation is presented below.

2011 New Zealand Australia UK Total

Goodwill NZ$000 3,504 1,887 26,300 31,691Terminal growth rate 3% 3% 3%Discount rate 10.6% 10.4% 9.2%

2010 New Zealand Australia UK Total

Goodwill NZ$000 3,504 1,884 26,311 31,699Terminal growth rate 3% 3% 3%Discount rate 10.3% 9.8% 8.5%

15 Current liabilities - Provisions

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Service warranties 166 222 142 200Deferred maintenance - 155 - 155

166 377 142 355

(a) Service warranties

Provision is made for the estimated warranty claims in respect of products sold which are still under warranty at balance date. These claims are expected to be settled in the next financial year but this may be extended into the following year if claims are made late in the warranty period and are subject to confirmation by suppliers that component parts are defective. Management estimates the provision based on historical warranty claim information and any recent trends that may suggest future claims could differ from historical amounts.

(b) Deferred maintenance

A liability had been recognised to cover a contractual obligation to perform remedial work at the Parent’s Auckland premises. All remedial work was completed during the year.


67

15 Current liabilities - Provisions (CONTINUED)

(c) Movements in provisions

Movements in each class of provision during the financial year are set out below:

CONSOLIDATED

NZ $000Warranty provisions

Deferred maintenance Total

2011Carrying amount at start of year 222 155 377Additional provisions recognised 207 - 207Provision used during the period (263) (155) (418)

Carrying amount at end of year 166 - 166

2010Carrying amount at start of year 254 217 471Additional provisions recognised 4 36 40Provision used during the period (36) (98) (134)

Carrying amount at end of year 222 155 377

PARENT

NZ $000Warranty provisions

Deferred maintenance Total

2011Carrying amount at start of year 200 155 355Additional provisions recognised 184 - 184Provision used during the period (242) (155) (397)

Carrying amount at end of year 142 - 142

2010Carrying amount at start of year 236 217 453Additional provisions recognised - 36 36Provision used during the period (36) (98) (134)

Carrying amount at end of year 200 155 355


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16 Interest bearing liabilities

CONSOLIDATED PARENT

Current Non-current Current Non-current

CurrencyFacility limit

(000's) Expiry NZ $000 NZ $000 NZ $000 NZ $000

As at 31 March 2011

Bank facility - BNZ loan NZD $19,750 Aug 2013 - 13,988 - 13,988Bank facility - Yorkshire Bank loan GBP £5,500 Aug 2013 22 9,548 - -

Total interest bearing liabilities 22 23,536 - 13,988

CONSOLIDATED PARENT

Current Non-current Current Non-current

CurrencyFacility limit

(000's) Expiry NZ $000 NZ $000 NZ $000 NZ $000

As at 31 March 2010Bank facility - Yorkshire Bank invoice finance GBP £3,500 Dec 2010 1,624 - - -Bank facility - BNZ loan NZD $9,000 Aug 2010 7,086 - 7,086 -Bank facility - Yorkshire Bank loan GBP £9,000 Aug 2010 12,768 - - -

Total interest bearing liabilities 21,478 - 7,086 -

Both the BNZ and the Yorkshire Bank are part of the National Australia Bank Group.

Security

The bank facilities are secured by way of a general security agreement over the Parent’s assets with supporting guarantees from all material subsidiaries, and have been advanced to the Group subject to compliance with the following financial covenants:

(a) the interest cover ratio for the Group shall not be less than 2.5 times. As at 31 March 2011 the Group complied with this covenant with an interest cover of 7.9 times (31 March 2010: 14.8 times).

(b) the gearing ratio for the Group (net debt divided by EBITA) shall not exceed 3.5 times. As at 31 March 2011 the Group complied with this covenant with a gearing ratio of 1.9 times (31 March 2010: 1.5 times).

(c) the Guaranteeing Group holds not less than 95% of total assets and earns not less than 95% of total revenue and EBITDA. As at 31 March 2011 the Group complied with this covenant with 99% of total assets, 100% of total revenue and 100% of EBITDA (31 March 2010: 100% of total assets and total revenue, 99% of EBITDA). The Guaranteeing Group comprises the Parent and all subsidiaries excluding Methven (Xiamen) Showers & Taps Co., Limited.

Group compliance has been maintained during the financial year and prior year.

Interest rates

The weighted average effective interest rate on borrowings was 6.13% (2010: 4.38%).


69

17 Imputation credits

Through shareholding in parent company

NZ $000 2011 2010

Imputation credit accountBalance at beginning of year 621 1,828Tax payments, net of refunds 2,296 1,933Credits attached to dividend distributions (2,791) (3,140)

Balance at end of year 126 621

18 Share capital

CONSOLIDATED AND PARENT Number of shares Share capital

2011 2010 2011 2010Shares Shares NZ $000 NZ $000

Opening and closing balance of ordinary shares issued 66,606,265 66,606,265 46,986 46,986

All shares on issue are fully paid. All ordinary shares rank equally with one vote attached to each fully paid ordinary share and have equal dividend rights.


70

19 Reserves and retained earnings

RESERVES CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Hedging reserve - cash flow hedges (769) (249) (121) (56)Share-based payments reserve 10 81 10 81Foreign currency translation reserve (5,122) (5,458) - -

(5,881) (5,626) (111) 25

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Hedging reserve - cash flow hedgesBalance 1 April (249) 869 (56) 261Fair value movement (730) (1,610) (88) (453)Deferred tax 210 492 23 136

Balance 31 March (769) (249) (121) (56)

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Share-based payments reserveBalance 1 April 81 180 81 180Share-based payment expense - 36 - 36Transfer to retained earnings (71) (135) (71) (135)

Balance 31 March 10 81 10 81

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Foreign currency translation reserveBalance 1 April (5,458) (1,348) - -Currency translation differences arising during the year 336 (4,110) - -

Balance 31 March (5,122) (5,458) - -

(a) Nature and purpose of reserves

(i) Hedging reserve - cash flow hedges

The hedging reserve is used to record gains or losses on a hedging instrument in a cash flow hedge. The amounts are recognised in the income statement when the associated hedged transactions affect profit or loss, as described in note 2(y).

(ii) Share-based payments reserve

The share-based payments reserve is used to recognise the fair value of options issued but not exercised. The fair value of options that expired during the year have been transferred to retained earnings.

(iii) Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations into New Zealand dollars, as described in note 2(d).


71

19 Reserves and retained earnings (CONTINUED)

(b) Retained earnings

Movements in retained earnings were as follows:

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Balance 1 April 11,949 11,321 4,889 3,975Net profit for the year 4,749 7,820 7,635 8,106Dividends (note 20) (7,327) (7,327) (7,327) (7,327)Transfer from share-based payments reserve 71 135 71 135

Balance 31 March 9,442 11,949 5,268 4,889

20 Dividends

GROUP AND PARENT

2011 Cents

per share

2010 Cents

per share2011

NZ $0002010

NZ $000

Interim dividend for the year ended 31 March 2011 5.5 - 3,663 -Final dividend for the year ended 31 March 2010 5.5 - 3,664 -Interim dividend for the year ended 31 March 2010 - 5.5 - 3,663Final dividend for the year ended 31 March 2009 - 5.5 - 3,664

11.0 11.0 7,327 7,327

The interim dividend for the year ended 31 March 2011 was imputed at a rate of 25%. All other dividends prior to this have been fully imputed.

Supplementary dividends of $62,175 (2010: $82,978) were also provided to shareholders not tax resident in New Zealand, for which the Group received a Foreign Investor Tax Credit entitlement.

21 ContingenciesAs at 31 March 2011 the Parent and the Group had no contingent liabilities or assets (2010: Nil).

22 CommitmentsAs at 31 March 2011 the Parent and Group had no capital commitments (2010:$Nil).

(i) Operating leases

The Group has operating leases for premises, vehicles, plant and equipment. There are no options to purchase in respect of these leases.

There are no sub-leases from the above. The future aggregate minimum lease payments under the non-cancellable operating leases are as follows:

CONSOLIDATED PARENT

2011 2010 2011 2010

Within one year 1,671 1,469 587 649One to two years 1,368 1,259 557 536Two to five years 1,707 1,524 1,124 1,014Later than five years - - - -

4,746 4,252 2,268 2,199

(ii) Finance leases

For the year ended 31 March 2011 the Group has no finance leases (2010: Nil).


72

23 Related party transactions

(a) Equity interests in subsidiaries

Subsidiaries over which the Group has the power to govern as described in note 2(b) are disclosed in note 25.

(b) Key management personnel compensation

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Salaries and other short term employee benefits 1,976 1,813 1,194 1,134Termination benefits 406 - 46 -Share options benefits - 36 - 36Director fees 189 162 189 162

2,571 2,011 1,429 1,332

Key management personnel did not receive and are not entitled to receive any post employment or long term benefits.

(c) Other parties

Transactions between the Group and related parties

CONSOLIDATED

NZ $000 2011 2010

RoyaltiesRoyalties paid to X Valve Technologies Pty Limited * 22 8Website developmentWebsite development fees paid to Top Click Limited ** 40 19

62 27

* Graeme Crichton, director of Methven Australia Pty Limited, has a relevant interest in X-Valve Technologies Pty Limited. ** An immediate family member of the Chairman of Methven Limited has a relevant interest in Top Click Limited.

All transactions between the Group and related parties were in the normal course of business and provided on commercial terms. There are no outstanding balances at year end (2010: Nil).

(d) Transactions between the parent and subsidiaries

The Parent has entered into certain transactions in the form of recharging of expenses and overheads with its subsidiaries and the transfer of inventory. In presenting the financial statements of the Group, the effect of transactions and balances between subsidiaries and those with the Parent have been eliminated.

Related party loans are unsecured advances from the Parent to its wholly owned subsidiaries, representing funding for no fixed term and bear interest rates between 4% and 8%. These have been classified as current in the balance sheet as they can be called at any time.

All transactions between the Parent and related parties were in the normal course of business and provided on commercial terms.

Movements in loans to related parties during the year include Parent advances to Methven UK Limited to repay external debt and Parent advances to (or repayment from) Methven Australia Pty Limited to fund working capital requirements. Repayments of advances were also made by Methven USA Inc to the Parent.


73

23 Related party transactions (CONTINUED)

PARENT

NZ $000 2011 2010

Sales of goods and servicesSale of inventory to Methven Australia Pty Limited 702 2,914Sales of inventory to Methven UK Limited 490 -Sales of inventory to Methven USA Inc - 57

RoyaltiesRoyalties paid by Methven Australia Pty Limited 1,108 884

Marketing support and service feesMarketing support fees paid to Methven USA Inc 42 339Service fees paid to Methven (Xiamen) Showers & Taps Co., Limited - 311

42 650

Loans to related partiesMethven Australia Pty Limited 6,123 5,605Methven UK Limited 14,057 7,482Methven USA Inc 109 195

20,289 13,282

Interest incomePaid by Methven Australia Pty Limited 280 278Paid by Methven UK Limited 409 220

689 498

Dividend revenuePaid by Methven UK Limited - 3,286Paid by Methven Australia Pty Limited 2,547 -

2,547 3,286

Current receivables / (payables) (sales of goods and services)Methven Australia Pty Limited 762 708Methven UK Limited 289 -Methven (Xiamen) Showers & Taps Co., Limited (218) (224)

833 484

No provisions for doubtful debts have been raised in relation to any outstanding balances, and no expense has been recognised in respect of bad or doubtful debts due from related parties.


74

24 Business combinations

Summary of acquisition

On1February2010,theParententeredintoaseriesofagreementswithJEMAustraliaPtyLimitedanditssoleshareholder.TheagreementsineffectgiveMethventheexclusiverighttomarketanddistributethepatentedproductsofJEMAustraliaPtyLimited.Theagreementsalsoincludeanoptionto purchase the product patents within a period of 18 months from the date of the agreements. In addition, the Parent entered into employment and contractoragreementswiththekeyemployeesofJEMAustraliaPtyLimitedandacquiredtheexistingstockofthepatentedproducts.Thesepatentsrelateto valve devices that control and balance the flow of water entering or within tapware.

This has been treated as a business combination as Methven has gained effective control of a business. Due to the integrated development of the business proposition of the patented products acquired in combination with Methven product, it is not practical to separately disclose the revenue and profit of the combined activity.

The value of what was acquired at the inception of the arrangement was ascribed to the option component of the arrangement. The fair value of the option was determined by comparing the assessed fair value of the assets anticipated to be acquired, which is primarily comprised of patent assets, to the fair value of consideration anticipated to be paid to the seller of the business. The difference between asset value and consideration to be paid through the option term is discounted to balance date using a discount rate of 9.8% (2010: 9.5%). The resulting option value as at 31 March 2011 is nil (2010: A$228,297). The adjustment to the option value is recognised in the income statement within ‘Sales, distribution, marketing & brand development’.

ThefairvalueoftheassetswasassessedbasedonanincomebasedvaluationoftheprojectedcashinflowsfromtheJemproductbusinesspostexercise.The fair value of the consideration was based on the present value of probable cash outflows to the seller. The key assumptions in the valuations include a discount rate of 9.8%, tax rate of 30% and an estimated economic useful life of the patent assets through 2019. The discount rate of 9.8% has been calculated with reference to externally sourced market information specific to each region in which cash inflows and outflows are derived or incurred.

25 Investments in subsidiariesThe consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 2(b):

Name of entityCountry of incorporation Activities Equity holding

2011

%2010

%

Methven Australia Pty Limited Australia Shower and tapware supplier 100 100

Methven Hotel Solutions Pty Limited (formerly Methven Voumard Pty Limited) Australia Non-trading 100 100

Methven UK Limited UK Shower and tapware supplier 100 100

The Deva Tap Company Limited(formerly Windsor Water Fittings Limited) UK Dormant 100 100

Windsor Water Fittings Limited(formerly The Deva Tap Company Limited) UK In Liquidation 100 100

Howard Bird & Company Limited UK Dormant 100 100

Methven (Xiamen) Showers & Taps Co., Limited(formerly Methven (Xiamen) Trading Co., Limited) China

QualitycontrolandsourcingShower and tapware supplier 100 100

Methven USA Inc USA Non-trading 100 100

Equity interests in subsidiaries

NZ $000 PARENT

2011 2010

Methven Australia Pty Limited 3,840 3,840Methven USA Inc. 1 1Methven UK Limited 23,439 23,439Methven (Xiamen) Showers & Taps Co., Limited 657 421

27,937 27,701

All subsidiaries have a balance date of 31 March.


75

26 Events occurring after the reporting periodThe following events have occurred subsequent to 31 March 2011:

• theBoardofDirectorsresolvedtopayafinaldividendof4.5centspershareor$3.0million.Thedividendwillbepaidon30June2011toallshareholdersontheCompany’sregisteratthecloseofbusinesson24June2011.

• MethvenUKLimited’slargestcustomer,Focus(DIY)Limitedwhichrepresents16%ofUnitedKingdomrevenueand5%ofGrouprevenue,wentintoadministration on 6th May 2011. The financial implications included in the results for the year ended 31 March 2011 include a reduction of net profit after tax of $2.0m which includes the provision for the receivable owed by Focus (DIY) Limited to Methven UK Limited (refer note 9), the inventory associated with Focus (DIY) Limited (refer note 10) and the impairment of customer relations (refer note 14).

• Onthe12thMay2011UKmanagementcommencedanimmediaterestructureoftheUKbusinessasaresultofthelossofFocus(DIY)Limitedasacustomer. This is targeted to recover the majority of the lost margin, including estimated restructuring costs of $350,000.

There have been no other events occurring after balance date which would materially affect the accuracy of these financial statements.

27 Reconciliation of profit after income tax to net cash inflow from operating activities

CONSOLIDATED PARENT

NZ $000 2011 2010 2011 2010

Profit for the year 4,749 7,820 7,635 8,106Depreciation 2,342 2,669 1,477 1,647Amortisation of intangible assets 1,164 1,166 336 154Impairment of customer relations 579 688 - -Impairment loss on property, plant & equipment - 103 - 103Employee share options amortisation - 36 - 36Net loss on disposal of assets 60 24 - 13Derivative financial instruments movement 285 27 285 -Cost of debt amortisation 37 89 37 89Net exchange differences - - 51 718Impact of changes in working capital items

Trade receivables 2,960 390 49 (1,065)Inventories (1,022) 6,413 2 (108)Prepayments and other assets (213) (224) 47 (170)Trade creditors 2,654 (767) 1,031 (149)Employee accruals 284 878 (197) 381Provisions and other creditors & accruals (3,249) (1,587) (953) 248Inter-company advances/loans - - 42 637Tax (payable) / receivable (542) (1,076) (365) 84Deferred income tax (669) (208) 387 14

Net cash inflow from operating activities 9,419 16,441 9,864 10,738


76

28 Earnings per share

CONSOLIDATED PARENT

2011 2010 2011 2010

(a) Basic earnings per share Net profit attributable to shareholders ($000) 4,749 7,820 7,635 8,106Weighted average number of ordinary shares on issue 66,606,265 66,606,265 66,606,265 66,606,265Basic earnings per share (cents) 7.1 11.7 11.5 12.2

(b) Diluted earnings per shareNet profit attributable to shareholders ($000) 4,749 7,820 7,635 8,106Weighted average number of ordinary shares for diluted earnings per share 66,606,265 66,606,265 66,606,265 66,606,265Diluted earnings per share (cents) 7.1 11.7 11.5 12.2

Basic earnings per share is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares on issue during the year.

Diluted earnings per share is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares on issue during the year adjusted to assume conversion of dilutive potential of ordinary shares as a result of the issue of share options when the average market price of ordinary shares during the period exceeds the exercise price of the share option.

29 Share-based payments

(a) Methven Share Option Schemes

The Group operates share option schemes for eligible senior staff. At balance date the company has on issue 43,434 (2010: 352,302) options under the following terms:

• Oneoptionentitlestheemployeetopurchaseonefullypaidordinaryshare.

• TheGroupcurrentlyhas3shareoptionschemes.Scheme1expiredon29Nov2009andalloptionswithinthisschemehaveexpired.

• Anexercisepricewillapplyforoptionholderswishingtoexercisetheirseniorstaffoptions.Theexercisepricewillbecalculatedastheofferprice (1Sept2007;$2.15forscheme2and3)plus7.5%perannum,compoundedfromtheofferdate.

• Optionscanonlybeexercisedwithinanexerciseperiodcommencingtwoyearsaftertheofferdateandhasathreeyearexerciseperiod(althoughthecompany may permit earlier exercise in certain extraordinary circumstances).

• TheoptionswilllapseiftheyarenotexercisedbytheendoftheexerciseperiodoriftheseniorstaffmemberceasestobeemployedwithintheGroupor if certain other circumstances exist.

• Inadditiontheseniorstaffoptionsarenotabletobeexercisedunlesscertainconditionsaremet.InparticularMethven’ssharesmusthavebeenquoted on the NZX for at least one day in the period prior to the commencement of the exercise period.

• Optionholdersmayexerciseeitherallorpartoftheirseniorstaffoptionsbuttheminimumnumberthatmaybeexercisedonanyoneoccasionisthelesser of 1,000 or the balance of senior staff options then remaining.

• Paymentmustbemadeinfullonthedatetheoptionsareexercised.


77

29 Share-based payments (CONTINUED)

Movements in option plans:

CONSOLIDATED AND PARENT 2011

Grant Date Expiry date Exercise price

Balance at start of the year

Granted during the

year

Exercised during

the year

Expired / Forfeited

during the year

Balance at end of the year

Exercisable at end of the year

Scheme 1

30 Nov 2004

29 Nov 2009

$1.65 plus 7.5% p.a.

- - - - - -

Scheme 2

31 Aug 2007

31 Aug 2012

$2.48 plus 7.5% p.a.

42,000 - - (42,000) - -

Scheme 3

31 Aug 2007

31 Aug 2012

$2.48 plus 7.5% p.a.

310,302 - - (266,868) 43,434 43,434

Total 352,302 - - (308,868) 43,434 43,434

Average exercise price $2.48 $2.48 $2.67 $2.67

CONSOLIDATED AND PARENT 2010

Grant Date Expiry date Exercise price

Balance at start of the year

Granted during the

year

Exercised during

the year

Expired / Forfeited

during the year

Balance at end of the year

Exercisable at end of the year

Scheme 1

30 Nov 2004

29 Nov 2009

$1.65 plus 7.5% p.a.

15,493 - - (15,493) - -

Scheme 2

31 Aug 2007

31 Aug 2012

$2.48 plus 7.5% p.a.

85,950 - - (43,950) 42,000 42,000

Scheme 3

31 Aug 2007

31 Aug 2012

$2.48 plus 7.5% p.a.

670,302 - - (360,000) 310,302 310,302

Total 771,745 - - (419,443) 352,302 352,302

Average exercise price $2.64 $2.45 $2.48 $2.48

308,868 options were forfeited during the year all due to the cessation of employment.


78

29 Share-based payments (CONTINUED)

Fair value of options granted

No new options were granted during the year ended 31 March 2011 (2010: nil). The assessed fair value if options had been granted during the year ended 31 March 2011 was 23 cents per option for schemes 2 and 3. The fair value at grant date is determined using a Black Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.

The model inputs for the options granted are included below:

(a) options are granted for no consideration and have a three year life.

(b) grant date: scheme 1 - 29 November 2004 scheme 2 - 31 August 2007 scheme 3 - 31 August 2007

(c) share price at grant date: scheme 1 - $1.43 scheme 2 - $2.15 scheme 3 - $2.15

(d) exercise price: scheme 1 - $1.43 plus 7.5% per annum scheme 2 - $2.15 plus 7.5% per annum scheme 3 - $2.15 plus 7.5% per annum

(e) expiry date: scheme 1 - 29 November 2009 scheme 2 - 31 August 2012 scheme 3 - 31 August 2012

(f) expected price volatility of the company’s shares: 25%

(g) expected dividend yield: 5.19%

(h) risk free interest rate: 6.75%.

The expected price volatility is based on the historic volatility, adjusted for any expected changes to future volatility due to publicly available information.

79

geneRal DIsclosUres

DIRECTORS’ REMUNERATION

Remuneration and other benefits received, or due and receivable during the year by the Directors of Methven Limited was as follows:

31 March 2011 $000

Phil Lough Independent Chairman 72Rick Fala Executive 386Gary Nel Executive 280Richard Cutfield Independent 36Peter Stanes Independent 45David Mair Independent 36

DIRECTORS OF SUBSIDIARIES

All directors of subsidiaries are employees of the Methven Group. No employee appointed as a director of a subsidiary receives any remuneration or other benefits in his role as a director of that subsidiary. The remuneration of such employees that receive more than $100,000 as a result of employee remuneration (and other benefits) is included in the Remuneration of Employees table on page 80.

ENTITY CURRENT DIRECTORS APPOINTMENTS AND RESIGNATIONS

Methven Australia Pty Limited Rick Fala, Graeme Crichton, Matthew Crichton

Methven Hotel Solutions Pty Limited (formerly Methven Voumard Pty Limited)

Rick Fala, Graeme Crichton, Matthew Crichton

Methven USA Inc. Rick Fala

Methven UK Limited Rick Fala, Steve Lee, Nigel Darbyshire, Matthew Crichton

Robert Pryde resigned 18/11/10Paul Eatock resigned 29/04/10Steve Lee appointed 06/12/10Matthew Crichton appointed 7/12/10

Deva Tap Company Limited (formerly Windsor Water Fittings Limited, Dormant Company)

Rick Fala, Nigel Darbyshire Robert Pryde resigned 18/11/10Paul Eatock resigned 30/04/10

Windsor Water Fittings Limited (formerly Deva Tap Company Limited, in Liquidation)

Rick Fala, Nigel Darbyshire Robert Pryde resigned 18/11/10Paul Eatock resigned 29/04/10Steve Rothwell resigned 16/12/10

Howard Bird & Company Limited (Dormant Company) Rick Fala, Nigel Darbyshire Robert Pryde resigned 18/11/10Paul Eatock resigned 29/04/10

Methven (Xiamen) Showers & Taps Co., Limited (formerly Methven (Xiamen) Trading Company Limited)

Rick Fala, Maggie Zheng, Matthew Crichton

Robert Pryde resigned 25/03/10Frank Mcloughlin resigned 25/03/10Maggie Zheng appointed 25/03/10Matthew Crichton appointed 25/03/10

80

DIRECTORS’ SHAREHOLDINGS IN METHVEN LIMITED

31 March 2011 31 March 2010

Directors of Methven LimitedRick Fala* 2,887,271 2,887,271Gary Nel* 2,724,238 2,724,238Phil Lough* 86,301 64,336Richard Cutfield* 125,000 125,000Peter Stanes* 50,000 -

Directors of SubsidiariesMatthew Crichton* 642,577 1,042,577Graeme Crichton* 572,120 554,620Stephen Lee 300,000 -Robert Pryde (ceased directorship 18 November 2010) 372,390 372,390Nigel Darbyshire 72,390 72,390Paul Eatock (ceased directorship 29 April 2010) 72,390 72,390

*Each director’s interest in the Company’s shares is held through a personal discretionary trust of which that director is a potential beneficiary. Phil Lough, Richard Cutfield, Rick Fala, Gary Nel, Peter Stanes, Matthew Crichton and Graeme Crichton are also trustees of their relevant trusts.

DIRECTORS’ INSURANCE

The Group has arranged Directors’ and Officers’ Liability insurance, which ensures that Directors will incur no monetary loss as a result of actions undertaken by them as Directors provided they act within the law.

REMUNERATION OF EMPLOYEES

The number of employees (not being Directors of Methven Limited) in the Group whose annual remuneration and the value of other benefits exceeded $100,000 is as follows:

$000 2011 $000 2011 $000 2011

100 - 110 7 170 - 180 5 270 – 280 1110 - 120 5 180 - 190 2 280 - 290 1120 - 130 6 190 - 200 2 300 - 310 2130 - 140 6 210 - 220 4 310 - 320 1140 - 150 6 230 - 240 1 490 - 500 1150 - 160 3 250 - 260 1

OffshoreremunerationhasbeenconvertedintoNewZealanddollarsattheaverageexchangerateusedfortranslatingtheoperatingresults,specifically;Australia 0.775 and UK 0.4716.

SHARE DEALINGS BY DIRECTORS

During the year the Board received disclosures of acquisitions or disposals of relevant interests in the Company from the following directors:

Director Notice dateShares

purchased Shares sold Rights sold NZ$000

Graeme Crichton 07/02/11 17,500 29Stephen Lee 28/01/11 300,000 500Peter Stanes 29/07/10 50,000 75Phil Lough 10/12/10 13,370 22Phil Lough 03/12/10 8,595 14Matthew Crichton 28/06/10 400,000 656

81

DISCLOSURE OF INTERESTS BY DIRECTORS

The Directors named below have made a general disclosure of interest to the Board and have entered the interest in the Company’s interest register.

Phil Lough Director and Chairman ofDirector of

Director and shareholder ofShareholder in*

QuotableValueLimitedLivestock Improvement Corporation LimitedPort Nelson LimitedDairy Equities LimitedMethven Limited

Rick Fala Director ofAdvisory Board MemberTrusteeShareholder in*

Better By DesignUniversity of Auckland Business SchoolYouthline - AucklandMethven Limited

Richard Cutfield Director of

Shareholder in*

Phil and Teds Most Excellent Buggy Company LimitedPhil and Teds Europe BVPhil & Teds USA Inc.Most Excellent Holdings LimitedFormway Design Studio LimitedMethven Limited

Peter Stanes Director and Chairman of

Shareholder in*

Rembrandt Suits LimitedHigh Society LimitedMethven Limited

Gary Nel Shareholder in* Methven Limited

David Mair Director and Chairman of Director & Acting CEO of

Director and shareholder of

Stainless Design LimitedSkellerup Holdings LimitedA2 Corporation LimitedDJDManagementLimited

Graeme Crichton Director and shareholder of

Shareholder in*

G&JCrichtonPtyLimitedCrilacy Pty LimitedCrilacy Sheetmetal Pty LimitedTritech International Pty LimitedX-Valve Technologies Pty LimitedMethven Limited

Matthew Crichton Director and shareholder of

Shareholder in*

Crilacy Pty LimitedTritech Investment Holdings Pty LimitedMethven Limited

Nigel Darbyshire Shareholder in Methven Limited

*Each director’s interest in the Company’s shares is held through a discretionary trust of which that director is a potential beneficiary. Phil Lough, Richard Cutfield, Rick Fala, Gary Nel, Peter Stanes, Matthew Crichton and Graeme Crichton are also trustees of the relevant trust.

82

SHAREHOLDER INFORMATION

The details set out below were as at 27 May 2011.

Principal shareholders Ordinary shares %

Accident Compensation Corporation 6,460,622 9.70AMP Investment Strategic Equity Growth Trust Fund 4,661,961 6.99Richardson Moses Fala & Megan Rae Fala-Smith & Lance Hurst 2,887,271 4.33Gary Zirk Nel & Denise Hamilton Melville-Nel & Warwick Richard Ayres 2,724,238 4.09New Zealand Superannuation Fund Nominees Limited 2,460,099 3.69Stuart George Gray & Fiona Elizabeth Gray & Clarke Craw Limited 2,056,250 3.09Guardian Nominees Limited 1,915,756 2.88Superlife Trustee Limited 1,889,383 2.84NZGT Nominees Limited 1,507,367 2.26BT NZ Unit Trust Nominees Limited 1,371,346 2.06Forsyth Barr Custodians Limited 1-33 A/c 764,296 1.15Custodial Services Limited – 3 A/c 754,506 1.13Custodial Services Limited – 5 A/c 658,077 0.99National Nominees New Zealand Limited 606,250 0.91Crilacy Pty Limited 572,120 0.86FNZ Custodians Limited 540,034 0.81Forsyth Barr Custodians Limited 1-17.5 A/c 506,522 0.76Hubbard Churcher Trust Management Limited 500,000 0.75Custodial Services Limited – 4 A/c 439,980 0.66Custodial Services Limited – 2 A/c 346,112 0.52

Size of holding Number of holders % Securities % Issued Capital

1 – 1,000 242 7.48 181,690 0.27 1,001 – 5,000 1,436 44.38 4,248,148 6.385,001 – 10,000 778 24.04 5,713,657 8.5810,001 – 100,000 742 22.93 16,629,127 24.97100,001 and Over 38 1.17 39,833,643 59.81

3,236 100.00 66,606,265 100.00

SUBSTANTIAL SECURITY HOLDERS

Pursuant to section 26 of the Securities Markets Act 1988, the following shareholders have filed notices with the Company that they are Substantial Security Holders in the Company as at 27 May 2011 (there being a total of 66,606,265 shares on issue at that date):

Ordinary shares

Accident Compensation Corporation 5,979,181AMP Investment Strategic Equity Growth Trust Fund 9,086,814

DIRectoRy

REGISTERED OFFICE OF METHVEN LIMITED

Private Bag 19996AvondaleAuckland 1746New Zealand

447 Rosebank RoadAvondaleAuckland 1026New ZealandTelephone +64 9 829 0429Facsimile +64 9 829 0439www.methven.com

METHVEN AUSTRALIA PTY LIMITED

PO Box 404AbbotsfordVictoria 3067Australia

16 Gipps StreetCollingwoodVictoria 3066AustraliaTelephone +61 3 9496 1300Facsimile +61 3 9496 1390

METHVEN USA INC.

c-/ Private Bag 19996AvondaleAuckland 1746New ZealandTelephone +64 9 829 0429Facsimile +64 9 829 0439

METHVEN UK LIMITED

Brooklands MillEnglish StreetLeighLancashire WN7 3EHUKTelephone +44 1942 687 209Facsimile +44 1942 680 190

METHVEN (XIAMEN) SHOWERS & TAPS CO., LIMITED

Room 2ANo. 12 Xiangxing Third RoadBonded Logistics ZoneXiamen 361006ChinaTelephone +86 592 508 5212Facsimile +86 592 561 5531

AUDITORS

PricewaterhouseCoopersPricewaterhouseCoopers Tower188QuayStreetPrivate Bag 92 162Auckland 1142New Zealand

SOLICITORS

Simpson GriersonLumley Centre88 Shortland StreetPrivate Bag 92 518Auckland 1141New Zealand

SHARE REGISTRY

Link Market Services138 Tancred StreetPO Box 384Ashburton 7740New Zealand

BANKERS

Bank of New ZealandDeloitte Centre80QueenStreetPrivate Bag 92 208Auckland 1142New Zealand

Yorkshire Bank1st Floor, The Chancery 58 Spring GardensManchester M2 1YBUK

National Australia BankLevel 1/99 Bell StreetPrestonMelbourneVictoria 3072Australia

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WWW.METHVEN.COM

contents...group financial performance group npat down 39.3% from $7.8m to $4.7m, after impact of...

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