17 August 2020

ASX On-Line

Manager Company Announcements

Australian Securities Exchange

Dear Sir

Financial Results for the Year Ended 30 June 2020

We enclose the following documents for immediate release to the market.

  • Appendix 4E Preliminary Final Report
  • Chairman's Review
  • Managing Director's Review of Operations
  • Directors' Report (including Remuneration Report)
  • Annual Financial Report

On 17 August 2020 at 10:00am (AEST), GWA will be hosting a webcast of its FY20 results briefing. The webcast is accessible via the GWA website at www.gwagroup.com.au.

This announcement has been authorised for release to the ASX by the GWA Board of Directors.

Yours faithfully

R J Thornton

Executive Director

GWA GROUP LIMITED

ABN: 15 055 964 380

Appendix 4E

Preliminary final report - 30 June 2020

Results for announcement to the market

2019

For the year ended 30 June

2020 Restated(1)

  1. The results and balances for the year ended 30 June 2019 have been restated for the impact of the adoption of AASB
  1. Leases. The results for the year ended 30 June 2019 include the results from Methven Limited from 10 April 2019 (date of gain of control).

Reported Results ($'000)

Total Revenue from ordinary activities

Up

4%

to

398,704

381,730

Total EBIT from ordinary activities

Down

-41%

to

70,297

119,440

Total NPAT from ordinary activities

Down

-53%

to

43,886

94,044

Continuing Operations (Normalised2) ($'000)

Revenue from continuing operations

Up

4%

to

398,704

381,730

EBIT from continuing operations excluding transaction &

integration costs

Down

-8%

to

71,840

78,117

NPAT from continuing operations excluding transaction &

integration costs

Down

-12%

to

44,923

50,839

2 Normalised results excludes transaction and integration costs incurred during the period in relation to the acquisition of Methven Limited - FY19 $8.7m ($7.6m post tax) and FY20 $1.5m (1.0m post tax).

Continuing Operations ($'000)

Revenue from continuing operations

Up

4%

to

398,704

381,730

EBIT from continuing operations

Up

1%

to

70,297

69,380

NPAT from continuing operations

Up

1%

to

43,886

43,242

Discontinued Operations3 ($'000)

Revenue from discontinued operations

-

-

EBIT from discontinued operations

-

50,060

NPAT from discontinued operations

-

50,802

3 Discontinued operations include the Door & Access Systems' business (comprising of Gainsborough Hardware

Limited and API Services and Solutions Ltd) that was sold with an effective date of 3 July 2018 (date of loss of control).

Dividends (cents per share)

Final ordinary dividend4 - 100% franked

3.5

9.5

Interim ordinary dividend - 100% franked

8.0

9.0

4 The record date for determining entitlements to the final ordinary 2020 dividend is 9 September 2020 and the dividend is payable on 16 October 2020.

Net tangible asset and net asset backing (cents per share)

Net tangible asset backing

(53.6)

(51.3)

Net asset backing

106.0

108.6

Brief explanation of the figures reported above

Refer to the attached Media Release and Managing Director's Review of Operations.

The attached Annual Financial Report has been audited by GWA's independent statutory auditors.

Chairman's Report

Financial Results

Normalised1 Group Net Profit After Tax from Continuing Operations was $44.9 million compared to $50.8 million for the prior year. Revenue increased by 4 per cent to $398.7 million while Normalised EBIT declined by 8 per cent to $71.8 million. Continuing Operations normalised results include the full year contribution from Methven in FY20. For FY19 Methven results are included only from the effective date of acquisition - 10 April 2019.

GWA's reported Net Profit After Tax for the period was $43.9 million which includes significant items (after tax) of $1.0 million relating to integration costs associated with the acquisition of Methven in FY20.

The Company's balance sheet and cash flow generation remain strong.

In line with the Company's dividend policy, the Board determined a final dividend of 3.5 cents per share, bringing the full-year dividend to 11.5 cents per share fully-franked, compared with 18.5 cents per share for the prior year. The full year dividend represents a reported dividend payout ratio of 69 per cent.

The Company's Dividend Reinvestment Plan will be offered to shareholders for the final dividend at a 1.5 per cent discount2.

COVID-19 Response

As the COVID-19 pandemic emerged in the second half of the year, GWA responded with our priority being to ensure the health and safety of all our staff and visitors to our sites as we continued our role as an essential supplier of products and services to the plumbing and construction sectors.

In response to the lockdown restrictions in the United Kingdom and New Zealand, 112 staff were furloughed during those periods. The fixed remuneration of the Board and Group Executive was reduced by 20 per cent for the period 1 April 2020 to 30 June 2020.

GWA has maintained its existing sources of supply and is in a strong position to supply all key products to our customers.

GWA will continue to closely monitor and adjust its business operations as required and in accordance with the latest Government and regulatory health and safety advice.

Financial Strength

GWA retains a strong balance sheet to manage through the current challenging environment while maintaining investments to support the strategy for medium term growth.

  1. Continuing Operations normalised results (excludes significant items) includes the full year contribution from Methven in FY20. For FY19 Methven results are included only from the effective date of acquisition - 10 April 2019
  2. 1.5% discount to the volume weighted average market price (VWAP)

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We enhanced our near-term liquidity by securing an additional $33 million in facilities through members of our current banking syndicate.

Total Group facilities at 30 June 2020 are $283 million, comprising a multicurrency revolving facility of $243 million which matures in October 2022 and a $40 million short-term revolving bilateral facility which is due to mature in October 2020.

The Group remains in a strong financial position. Net debt as at 30 June 2020 was $144.8 million which was broadly in line with the prior year's total of $141.9 million.

GWA's financial metrics, including leverage, gearing and interest cover ratios remain solid.

Sustainability

GWA is committed to sustainable practices throughout its operations and we work with our key stakeholders and communities to deliver on that commitment.

Workplace Health and Safety (WHS)

The Group made significant progress in implementing its workplace health and safety strategy this year.

That strategy focuses on leadership and behavioural aspects of safety and identifies and mitigates physical risks in its operations.

A major achievement was the integration of all Methven sites across New Zealand, China and the United Kingdom into the GWA safety system, SafetyOne. It was a significant task to standardise operating procedures to deliver a consistent and measurable approach to safety across the Group.

Our workplace health and safety engagement programme, (Homecoming) is now into its third year and continues to be rolled out to all employees across Australia and New Zealand. The roll-out into China and the United Kingdom was delayed due to the pandemic.

The implementation of our WHS programme has resulted in an improvement in lead and lag safety metrics for FY20. GWA recorded a material decrease in the Total Injury Frequency Rate from 6.2 in FY19 to 0.9 in FY20. The FY19 data did not include the Methven business which has been captured in the FY20 data.

The decrease is a significant improvement, particularly in the context of an increase in manufacturing activity and Methven's manufacturing sites being included in the FY20 data.

Workplace Diversity

We are committed to promoting diversity and inclusion through the implementation of policies and initiatives to achieve a diverse workforce.

Females comprised 42 per cent of GWA's overall workforce for the reporting period, up from 39 per cent for the prior year.

We will publish our second stand-alone Sustainability Report in September 2020 which provides further details on our policies and initiatives.

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That Report will also detail how we are operating in a sustainable manner across our business and continue to leverage our leading position to provide a range of products and systems that make life better through superior water saving solutions for the built environment.

Executive Remuneration

During the year, the changes from the FY19 review of the executive remuneration structure were implemented. The review was designed to ensure our structure remains aligned with the Board's remuneration strategy and market practice. The changes mainly relate to our long-term incentive plan to reflect current market practice and alignment of the Managing Director's incentive opportunity with peer company CEOs.

As outlined at last year's AGM, the review concluded that the Group's remuneration framework is fit for purpose and aligned with our growth strategy and market practice. The details of the changes as a consequence of the review are outlined in the Remuneration Report.

The Board seeks to remunerate executives on a fair basis that is sufficient to attract and retain a high-quality management team with the requisite experience, knowledge, skills and judgement required to grow the business.

In order to achieve this objective, the key principle is that fixed remuneration for executives varies between the median and third quartiles relative to companies of comparable size and scope.

There were no short-term incentive payments for all executives for FY20 as the financial gateways were not achieved due to the weaker market activity and the negative impact of the pandemic on revenue and earnings for the Group.

Conclusion

Your Board believes GWA is well equipped to manage through the current challenging market conditions. The business has been repositioned significantly over recent years, including increased traction in key market segments, improvements in supply chain efficiency, enhancements to our customer experience and the acquisition of Methven which brings further geographic diversity and scale to the Group.

Investments we have made in product and systems innovation, including our intelligent bathroom system, Caroma Smart Command® are also key drivers of our growth strategy.

The Board remains committed to leveraging the Company's strategy to generate shareholder value over the medium term.

On your behalf and on behalf of the Board, I acknowledge and congratulate our Managing Director and CEO Tim Salt, our executive leadership team and employees across the Group for their significant contribution over the year.

In particular, I want to thank and acknowledge our employees for their ongoing efforts during the COVID-19 pandemic in managing a difficult operating environment by supporting each other and our customers.

To our shareholders, thank you for your continuing support of GWA.

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Managing Director's Review of Operations

Summary

In a very challenging year, with significant uncertainty and a strong focus on the health and wellbeing of our people, GWA delivered a disciplined result in FY20.

Revenue was significantly impacted by lower construction activity in the residential new build and renovation and replacement segments, merchant destocking in the first half and the impact of the COVID-19 pandemic in the last quarter of the year.

GWA's pro forma1 revenue declined year on year by $55.1 million (12.1) per cent.

The year on year EBIT1 decline was $12.1 million (14.3) per cent. The continuous focus on operational and cost discipline across the business resulted in a resilient EBIT margin1 of 18.0 per cent compared to 18.5 per cent in the prior year.

At the same time, the Company continued to execute its strategy for medium term growth.

We continued our investment in growth and cost-out initiatives which have strengthened the Company's competitive position for when market conditions improve.

The Company remains well capitalised to manage through the current challenging conditions and continues to generate strong operating cashflow.

The implementation of our superior water solutions strategy and ongoing investment in revenue enhancing initiatives means GWA has a very solid foundation and increased leverage to improve revenue and earnings momentum when market conditions improve.

Focus in FY20 - "Controlling the Controllables"

As expected, market conditions were difficult in FY20 but this was compounded by the unforeseen impact of COVID-19. Our focus continues to be on controlling those elements within our control. Specifically, that relates to:

  • working more collaboratively with our key customers to leverage mutual growth opportunities in our core markets;
  • improving engagement with consumers, with an increased focus on digital to enable us to respond to changing consumer buying dynamics; and
  • optimising our cost base and supply network to drive operational efficiencies and improve customer experience across the business.

We made good progress in each of these areas.

We continued to build stronger engagement with our key customers through our joint business planning initiative.

That collaboration has resulted in enhanced ranging of Caroma, Clark and Methven brands in-store and behind our merchant customers' trade counters and importantly, strong traction in specific growth segments such as aged care.

1 Continuing Operations pro forma normalised results (excludes significant items) include a comparison for the prior year, including GWA results and the management accounts for Methven

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We continue to drive growth in commercial segments through increased collaboration with our customers to capture segment opportunities including aged care and commercial renovation and replacement.

These initiatives have resulted in GWA maintaining its market share in the Australian market.

Our commercial forward order book remains strong and ahead of the same period last year.

Our intelligent bathroom system, Caroma Smart Command®, continues to represent a growth opportunity. Caroma Smart Command® includes a set of Bluetooth-enabled, touchless bathroom products which enable monitoring and management of water usage in commercial buildings.

The system has been successfully installed in 49 sites with a solid bank of additional projects in the pipeline. The anticipated roll-out into other sites during the second half of FY20 was delayed by the impact of COVID-19, including the temporary closure of key airport and retail sites where installations were expected for FY20.

Market support for Caroma Smart Command®, continues to be positive, not only surrounding the system's sustainability benefits but also increasingly on its enhanced hygiene and touchless applications as commercial building owners and managers adjust to new operational procedures and protocols due to COVID-19.

We continued our consumer engagement strategy with the launch of new products such as the Caroma Elvire range and brand building initiatives through traditional and social media. Digital consumer engagement continues to increase with Caroma website traffic increasing by 23 per cent in the second half of FY20.

In response to the weaker market conditions, we accelerated cost-out and efficiency improvements across the business.

We successfully delivered $5 million in cost savings and are on track to deliver the overall $9-12mcost-out programme by FY21. In addition, we implemented further short-term actions which delivered an additional $10.5 million of cost savings to partially mitigate the reduction in revenue caused by the weaker market conditions and merchant destocking in FY20. Not all these further cost savings will be repeatable in FY21.

Meanwhile, we continued to invest in our Australian distribution network and consolidated to four key distribution centres in New South Wales (NSW), Queensland, Victoria and Western Australia which complements the investment previously made at Prestons, NSW. This consolidation has enabled us to integrate Methven products into GWA systems and enhance customer service through an increase in the number of Methven and Caroma orders with a single invoice and single order delivery. In addition, we anticipate improved operating efficiencies from FY21.

The integration of Methven remains on track. The new integrated sales structure has been successfully implemented which is providing improved ranging of Methven products in the Australian merchant channel.

In addition, the world leading Methven shower IP will be used in Caroma new shower launches taking place in FY21.

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We had good sales momentum in Methven in the first half which continued until the COVID-19 restrictions were implemented in New Zealand and the United Kingdom. The enhanced geographic diversification that Methven provides continues to be a strategic growth opportunity for the Group.

Methven cost synergies are in line with our increased target. On acquisition we expected NZ$5 million in cost synergies by the end of FY21. We realised A$3 million in FY20 and remain on track to deliver ahead of the initial target with at least A$6 million in cost synergies by the end of FY21.

GWA continued to make solid improvements in our sustainability agenda in FY20. We recorded a material reduction in our Total Injury Frequency Rate (TIFR) from

6.2 in FY19 to 0.9 in FY20 while we maintained a MTIFR (Medically Treated Injury Frequency Rate) at zero for FY20.

These results have been achieved from a continued focus on our health and safety culture and behavioural change at all sites across the GWA network. Our enhanced focus on preventative measures, including hazard reduction and near miss reporting at individual sites is also helping to drive cultural change in the way we interact at our sites.

We continued to implement our employee engagement strategy with 90 per cent of our people completing our "Making Life Better" employee survey. Our Group engagement score increased 9 percentage points (ppts) to 61 per cent, which is above the median for companies in Australia and New Zealand.

Meanwhile, our commitment to promoting diversity and inclusion in our workplace was reflected in an increase in female participation from 39 per cent to 42 per cent in FY20.

GWA is committed to designing and developing new products and systems in Australia for Australian and New Zealand consumers and performance that exceeds stringent local standards and contributes to water efficiency in the built environment.

As part of its commitment to sustainable product design, Caroma announced during FY20 that its market-leading product warranty has now been extended to 20 years. For over 75 years, Caroma has been at the forefront of innovation and design of quality bathroom and kitchen products and this new, extended warranty is our sustainable promise to customers that Caroma products will stand the test of time.

In November 2020, Caroma Smart Command® will launch the Sustainable Water Summit, which will be a forum for industry leaders across Australia to discuss what the future in sustainable water management in the built environment looks like and what our pathway to success is through data and innovation. At this event we will showcase various case studies which demonstrate the water saving benefits of Caroma Smart Command® and discuss various other benefits such as hygiene, wellness and maintenance.

Market conditions in FY20

GWA estimates that its Australian addressable market declined by approximately

  1. per cent for FY20 compared to FY19. The significant merchant destocking experienced in the first half of FY20 did not continue into the second half; however,

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due to the market uncertainty, the anticipated uplift in revenue we normally experience, as some customers pursue year end incentives, did not eventuate in June 2020.

The overall market slowdown was driven primarily by the reduction in activity in the residential new build segment and a reduction in residential renovation activity. Weak consumer sentiment impacted retail spending and, coupled with house price declines and lower housing turnover, contributed to the market decline over the year.

For FY20 in Australia the market declined in total by (10) per cent:

  • Renovations and Replacements market segment declined by approximately
    (8) per cent.
  • Detached House completions decreased by approximately (20) per cent.
  • Medium and High-Density dwelling completions decreased by approximately (18) per cent.
  • On a value of work done basis, Commercial building activity decreased by approximately (4) per cent.

The New Zealand and United Kingdom markets were both impacted significantly as COVID-19 restrictions were implemented. However, GWA grew share in the United Kingdom and maintained share in New Zealand.

Impact and response to COVID-19

In response to COVID-19, GWA's primary focus has been to ensure the ongoing health and safety of our employees and, the financial sustainability of our business, while maintaining investment on our strategic growth agenda.

During the pandemic we are providing enhanced safety protection including sanitiser, masks, temperature checks and increased cleaning at our work sites. All our office-based staff have been supported to work remotely. At our warehouses, we have implemented shift management and social distancing protocols including staggered break times to limit personal interactions.

In 2H FY20 we activated business continuity plans internally and with our suppliers to minimise disruption to the business and our customers. During the pandemic GWA has been able to maintain continuity of supply while continuing to honour agreed payment terms.

The COVID-19 pandemic impacted the Company, primarily in the final quarter of the year.

The shutdowns in New Zealand and the United Kingdom from April 2020 resulted in disruption to the business. GWA recorded negligible revenue in New Zealand during the period of level 4 restrictions and significantly reduced revenue in the United Kingdom during the shutdowns. Together, these markets comprised 20 per cent of GWA's Group revenue2.

In the United Kingdom and New Zealand 112 staff were furloughed during the lockdown periods. GWA enabled staff to utilise their leave entitlements and supported them in accessing relevant government support, where available, during the period. Despite significantly reduced revenue in these markets, GWA

2 GWA's Revenue before the impact of COVID-19

Page | 4

continued to incur a number of costs (fixed costs and a number of staff not being stood down as they were involved in future-focused development activity).

In acknowledgement of employees being furloughed in New Zealand and the United Kingdom, fixed remuneration of the Board and Group Executive was reduced by 20 per cent for the period Q4 FY20.

Lockdown restrictions in Australia (79 per cent of Group revenue)2 were less severe than in New Zealand and the United Kingdom, with trading for the fourth quarter at approximately 90 per cent of expected levels.

GWA estimates that COVID-19 impacted Group Revenue by approximately $22.2 million and Group EBIT by approximately $8.6 million in FY20.

We continue to closely monitor and adjust our business operations as required and in accordance with the latest Government and regulatory health and safety advice.

FINANCIAL RESULTS

Continuing Operations (pro forma) normalised - excludes significant items

Continuing Operations pro forma normalised results (excludes significant items) include a comparison for the prior year, including GWA results and the management accounts for Methven.

A$ million

FY19

FY20

%

(Excludes Significant Items)

Includes

Includes

change

Methven for

Methven for

full year

full year

Revenue

453.8

398.7

(12)%

EBITDA

102.2

92.2

(10)%

EBIT

83.9

71.8

(14)%

EBIT Margin (%)

18.5%

18.0%

(0.5)ppts

NPAT

53.8

44.9

(17)%

Net sales declined by 12.1 per cent to $398.7 million reflecting the continued decline in residential new build and renovation construction activity in Australia, the impact of merchant destocking in the first half and COVID-19 restrictions in the second half, particularly in New Zealand and the United Kingdom.

The slowdown in residential construction, merchant destocking in Australia and the impact of COVID-19 impacted Group pro forma revenue by $(55.1) million and EBIT by $(27.6) million.

GWA was able to successfully offset $18.5 million of the EBIT impact through a continued strong focus on operational discipline and SG&A efficiencies ($5 million), Methven synergies ($3 million) and short-term cost reductions of $10.5 million.

These initiatives assisted GWA to maintain EBIT margin of 18.0 per cent compared to 18.5 per cent for the prior year.

Page | 5

ROFE was five percentage points lower on the prior corresponding period at 16.4 per cent. This reflects the revenue decline and EBIT margin dilution, as expected, due to Methven.

Strong financial metrics enable GWA to determine 3.5 cent final dividend

The Board determined a final dividend of 3.5 cents per share, bringing the full- year dividend to 11.5 cents per share, fully-franked compared with 18.5 cents per share for the prior year.

The record date for entitlement to receive the final dividend will be 9 September 2020 with the payment date of 16 October 2020.

This FY20 dividend represents a payout ratio of reported profit of 69 per cent. This is consistent with policy to pay dividends in the range of 65-85 per cent of net profit after tax. The Board believes the level of dividends is appropriate and strikes the right balance between immediate returns to shareholders and maintaining the Company's financial position for current conditions and continued investment for future growth.

As part of the Company's capital management approach, the Dividend Reinvestment Plan (DRP) will be offered to shareholders for the FY20 final dividend at a 1.5 per cent discount3. The DRP is not underwritten.

Ongoing strong financial position

GWA's balance sheet metrics remain strong, enabling the Company to manage through the current challenging conditions and remain well positioned as markets improve.

Net debt as at 30 June 2020 was $144.8 million which was broadly in line with the prior year's total of $141.9 million.

In October 2019, GWA successfully completed the refinance of its syndicated banking facility. In April 2020, the Group also secured an additional $33 million in facilities through members of its current banking syndicate. The increase in facilities will provide further liquidity should it be required and importantly it also provides the Group with the flexibility to take advantage of any opportunities that may arise.

Total Group facilities are $283 million, comprising a multicurrency revolving facility of $243 million which matures in October 2022 and a $40 million revolving bilateral facility which is due to mature in October 2020. The bilateral facility is a short- term working capital facility which the Company plans to extend in Q1 FY21.

GWA's credit metrics remain solid. The Company's gearing ratio (net debt / net debt plus equity) was 28.4 per cent compared to 27.5 per cent at 30 June 2019 and leverage ratio (net debt / EBITDA) of 1.9 times compared to 1.6 times at 30 June 2019.

GWA's interest cover ratio (EBITDA / net interest) was 13.6 times at 30 June 2020.

3 1.5% discount to the volume weighted average market price (VWAP)

Page | 6

Solid cash generation

GWA continues to generate strong operating cashflow, notwithstanding the weaker market conditions.

Pro forma cashflow from operations in FY20 was $88.6 million compared to $107.7 million in the prior year.

Cash conversion remains strong with a cash conversion ratio of 96 per cent from Continuing Operations.

GWA remains focused on debtor management to ensure no deterioration as a result of COVID-19. Day Sales Outstanding (DSO) at 30 June was consistent with the prior year.

Capital expenditure was $12.3 million in FY20 which is towards the lower end of the guidance provided at the half year result, reflecting the Company's prudent approach to cash management as COVID-19 restrictions were implemented.

The Group's capital expenditure programme is focused on growth initiatives to drive revenue enhancing opportunities and cost efficiencies including further investment in Caroma Smart Command®, warehouse and office consolidation and further investment in IT systems.

FY21 Market Outlook

Trading in the first six weeks of FY21 has been slightly ahead of the same period in the prior year. However, trading is expected to remain very challenging in FY21 due to weak construction market conditions further exacerbated by the uncertainty surrounding the effects of COVID-19 across all regions and as highlighted by the rapidly evolving situation in Victoria.

Lead indicators such as residential building approvals, housing turnover and lower consumer confidence, increased unemployment and lower net migration point to a reduction in GWA's overall addressable market for FY21.

GWA expects this decline will be driven predominantly by the residential new build segment in multi-residential and detached housing with the decline in the residential renovation and replacement segment to be less pronounced.

The timing and extent of any potential longer-term benefit from government stimulus measures, such as homebuilder, remains uncertain as to whether it will bring building work forward or generate incremental business.

While Commercial renovation and new build activity is expected to moderate, GWA's forward order book remains solid and is higher than at the corresponding period last year.

In FY21 we will continue to execute our focused customer and consumer initiatives to generate share growth.

These initiatives include agreed business plans with primary merchant customers targeting specific product and segment categories, ongoing collaboration with key secondary customers in core segments such as aged care and increased focus on digital consumer engagement.

We will leverage the market leading Caroma and Methven brands with new product development and range launches in sanitaryware, tap and showerware to build further consumer engagement in core categories.

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We will continue to drive further growth of Caroma Smart Command® both in Australia / New Zealand and in International markets. We will continue to leverage Methven's presence in the United Kingdom and Asia.

To mitigate input cost inflation GWA has announced price increases to be implemented from August 2020 across Australia / New Zealand in conjunction with other cost saving initiatives, including Methven cost synergies, and the final year of the Company's $9-12 million cost savings target by FY21.

Approximately 70 per cent of US dollar exposure is hedged to 30 June 2021 at US$0.67 cents.

GWA expects to provide a further update on trading at the Company's Annual General meeting on 30 October 2020.

While markets remain challenging, GWA has demonstrated its ability to deliver a disciplined result in FY20. We executed well by focusing on the elements within our control to respond to the short term challenges.

As a result, we have created a strong platform for growth as market conditions improve with enhanced operational leverage supported by an ongoing strong financial position.

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APPENDIX - GROUP RESULTS FOR FY20

Continuing Operations normalised result (excludes significant items)

Continuing Operations normalised result includes the full year contribution from Methven in FY20. For FY19 Methven results are included only from the effective date of acquisition - 10 April 2019.

A$ million

FY19

FY20

%

(Excludes Significant Items)

Includes

Includes

change

Methven from

Methven for

10 April

full year

Revenue

381.7

398.7

+4%

EBITDA

93.0

92.2

(1)%

78.1

71.8

(8)%

EBIT

EBIT Margin (%)

20.5%

18.0%

(2.5)ppts

NPAT

50.8

44.9

(12)%

Normalised Continuing Operations EBIT (excluding significant items) was $71.8 million compared to $78.1 million for the prior year.

Continuing Operations normalised EBIT margin was 18.0 per cent compared to

20.5 per cent for the prior year, reflecting the full-year inclusion of Methven's lower margin earnings in FY20 which dilute the overall group EBIT margin and the impact of COVID-19.

Group Reported Results - Continuing and Discontinued Operations

The Group reported result for FY20 includes the full year contribution from Methven in FY20. For FY19 Methven results are included only from the effective date of acquisition - 10 April 2019. FY19 also includes the profit on sale from the Door & Access Systems' business which was sold on 3 July 2018.

A$ million

FY19

FY20

% change

Includes

Includes

Methven

Methven for

from 10 April

full year

Revenue

381.7

398.7

+4%

EBITDA

134.4

90.7

(33)%

EBIT

119.4

70.3

(41)%

NPAT

94.0

43.9

(53)%

Earnings Per Share (cents)

35.6c

16.6c

(19.0)c

GWA's reported net profit after tax for the period was $43.9 million.

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Group reported results include significant items. In FY20 these included net costs associated with the acquisition and integration of Methven of $(1.0) million (after tax).

Significant items in FY19 included the after-tax profit on sale of the Door & Access Systems' business of $50.8 million and $(7.6) million of transaction costs (after tax) incurred for the acquisition of Methven.

The results and balances for the year ended 30 June 2019 have been restated for the impact of the adoption of AASB 16 Leases. This has resulted in an adjustment to FY19 NPAT down $(0.9) million and FY19 EBIT up $1.0 million.

Page | 10

Directors' Report as at 30 June 2020

Your directors present their report on the consolidated entity of GWA Group Limited (the Group) and the entities it controlled during FY20.

Directors

The following persons were directors of the Group during the financial year and up to the date of this report unless otherwise stated.

D D McDonough, Chairman and Non-Executive Director

J F Mulcahy, Deputy Chairman and Non-Executive Director

T R Salt, Managing Director and Chief Executive Officer

P A Birtles, Non-Executive Director

  1. M McKellar, Non-Executive Director S T Goddard, Non-Executive Director A J Barrass, Non-Executive Director
    R J Thornton, Executive Director and Company Secretary

Details of the directors' qualifications, experience and special responsibilities are outlined in the director profiles in the Annual Report.

Details of the directorships of other listed companies held by each director in the three years prior to the end of FY20, and the period for which each directorship has been held, are outlined in the director profiles in the Annual Report.

Company Secretary

Mr R J Thornton was appointed Company Secretary of GWA Group Limited in 2003. Mr Thornton continued in his role as Company Secretary following his appointment as Executive Director in May 2009. Details of Mr Thornton's qualifications and experience are outlined in the director profiles in the Annual Report.

Directors' Interests

The relevant interest of each director in the share capital of the Group as notified by the directors to the Australian Securities Exchange in accordance with Section 205G(1) of the Corporations Act 2001 as at the date of this report is:

Director

Ordinary Shares

D D McDonough

150,000

J F Mulcahy

40,950

T R Salt*

512,570

P A Birtles

38,650

J M McKellar

3,054

S T Goddard

10,000

A J Barrass

-

R J Thornton*

229,577

Total**

984,801

Notes:

  • The executive directors, Mr T R Salt and Mr R J Thornton, are holders of Performance Rights under the GWA Group Limited Long Term Incentive Plan. For details of the Performance Rights held, please refer to section 7.2.1 of the Remuneration Report.
  • Section 7.3.3 of the Remuneration Report sets out the number of shares held directly, indirectly or beneficially by key management personnel or their related entities at balance date as prescribed in Accounting Standard AASB 124, this being 1,194,301 shares (2019: 855,301 shares).

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Directors' Meetings

The number of meetings of directors (including meetings of Committees of directors) held during FY20 and the number of meetings attended by each director is outlined in the following table:

Board

Audit and

Nomination

Board

Director

Risk

and

Committee

Committee

Remuneration

COVID-191

Committee

A

B

A

B

A

B

A

B

D D McDonough

11

11

4

4

6

6

4

3

J F Mulcahy

11

11

-

-

6

6

4

3

T R Salt

11

11

-

-

-

-

4

4

P A Birtles

11

11

4

4

-

-

4

4

J M McKellar

11

11

-

-

6

6

4

4

S T Goddard

11

11

4

4

-

-

4

4

A J Barrass

11

10

-

-

-

-

4

4

R J Thornton2

11

11

-

-

-

-

4

4

Notes:

A - Number of meetings held during the time the director held office during the year

B - Number of meetings attended

  1. The Board established a Committee to provide oversight and support to management in dealing with the impacts of the COVID-19 pandemic during April and May 2020. In addition, the Chairman of the Board and Chairman of the Audit and Risk Committee met weekly with management as part of the oversight measures put in place during this time.
  2. R J Thornton attends Committee meetings as Company Secretary.

Principal Activities

The principal activities during the year of the consolidated entity were the research, design, manufacture, import and marketing of building fixtures and fittings to residential and commercial premises and the distribution of these various products through a range of distribution channels in Australia, New Zealand, United Kingdom and China.

There have been no significant changes in the nature of the activities of the consolidated entity during the year.

Operating and Financial Review

The Operating and Financial Review for the consolidated entity during FY20 is provided in the Managing Director's Review of Operations, and forms part of this Directors' Report.

Dividends

Dividends paid or declared by the Group to shareholders since the end of the previous financial year were:

Declared and paid during FY20

Dividends

Cents per

Total Amount

Franked

Date of Payment

share

$'000

Final 2018/19

9.5

25,075

Fully Franked

4 September 2019

Ordinary

Interim 2019/20

8.0

21,116

Fully Franked

4 March 2020

Ordinary

Franked dividends declared and paid during the year were franked at the corporate tax rate of 30%.

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Determined after end of FY20

After the balance date the following dividend was determined by the directors. The dividend has not been provided and there are no income tax consequences at 30 June 2020.

Dividend

Cents per

Total Amount

Franked

Date of Payment

share

$'000

Final 2019/20

3.5

9,238

Fully Franked

16 October 2020

Ordinary

The financial effect of the final dividend has not been brought to account in the financial statements for FY20 and will be recognised in subsequent financial reports.

The record date for the final dividend is 9 September 2020 and the dividend payment date is 16 October 2020. The Dividend Reinvestment Plan (DRP) will be offered to shareholders for the final dividend and a discount of 1.5% to the volume weighted average market price (VWAP) will apply to shares subscribed for under the DRP. The record date for DRP participation is 9 September 2020.

Events Subsequent to Reporting Date

The directors' continue to assess the uncertain and evolving impact of the COVID-19 pandemic on the Group's operations.

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Group, to affect significantly the operations of the consolidated entity, the results of those operations, or the state of affairs of the consolidated entity, in future financial years.

Likely Developments

Likely developments and expected results of the operations of the consolidated entity are provided in the Managing Director's Review of Operations.

Further information on likely developments and expected results of the operations of the consolidated entity have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity.

Environmental Issues

The Group's operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a State or Territory.

Indemnification and Insurance of Directors and Officers

Indemnification

The Group's constitution provides that, to the extent permitted by the law, every current (and former) director or secretary of the Group shall be indemnified out of the assets of the Group against all costs, expenses and liabilities which result directly or indirectly from facts or circumstances relating to the person serving (or having served) in their capacity as director or secretary of the Group, but excluding any liability arising out of conduct involving a lack of good faith or conduct known to the person to be wrongful or any liability to the Group or related body corporate.

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Insurance Premiums

The Group has paid premiums in respect of insurance contracts which provide cover against certain liabilities of every current (and former) director and officer of the Group and its controlled entities. The contracts of insurance prohibit disclosure of the total amount of the premiums paid, or the nature of the liabilities covered under the policies.

Premiums were paid in respect of every current (and former) director and officer of the Group and controlled entities, including the directors named in the Directors' Report, the Chief Financial Officer and all persons concerned or taking part in the management of the Group and its controlled entities.

Non-Audit Services

During the year KPMG, the consolidated entity's auditor, did not perform any non-audit services.

The Board has considered the non-audit services provided during the year and in accordance with written advice provided by resolution of the Audit and Risk Committee, is satisfied that the provision of those non-audit services during the year is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

  • all non-audit services were subject to the corporate governance procedures adopted by the consolidated entity and have been reviewed by the Audit and Risk Committee to ensure they do not impact the integrity and objectivity of the auditor; and
  • the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.

Details of the amounts paid to the auditor of the consolidated entity, KPMG, and its network firms for audit and non-audit services provided during the year are outlined in Note 22 of the financial statements.

Lead Auditor's Independence Declaration

The Lead Auditor's Independence Declaration is set out in the Annual Report and forms part of the Directors' Report for FY20.

Rounding

The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 relating to the rounding of amounts in the Directors' Report. Amounts in the Directors' Report have been rounded in accordance with that Instrument to the nearest thousand dollars, unless otherwise stated.

Remuneration Report

Introduction

The Directors of GWA Group Limited present this Remuneration Report for the period ended 30 June 2020. The Remuneration Report outlines the Group's remuneration strategy and principles, explains how the Group's FY20 performance has driven executive remuneration outcomes, and provides the details of specific remuneration arrangements that apply to Key Management Personnel (KMP) in accordance with section 300A of the Corporations Act 2001 (Cth) (Corporations Act) and applicable accounting standards.

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The structure of the Remuneration Report is outlined below:

  1. Message from the Remuneration and Nomination Committee;
  2. Key Management Personnel;
  3. Board role in setting remuneration strategy and principles;
  4. Relationship between remuneration policy and Group performance;
  5. Description of non-executive director remuneration;
  6. Description of executive remuneration;
  7. Details of director and executive remuneration; and
  8. Key terms of employment contracts.

1. Message from the Remuneration and Nomination Committee (RNC)

The RNC is pleased to present shareholders with the FY20 Remuneration Report. This report outlines GWA's approach to remuneration for its executives and in particular, the link between GWA's strategy and its remuneration framework and the link between performance and executive reward.

GWA delivered a disciplined result in FY20 in challenging market conditions and with the negative impacts of COVID-19 on revenue and earnings. GWA responded to these short-term challenges with a focus on operational and cost discipline and made significant progress against its strategic objectives which have strengthened the company's competitive position for when market conditions improve.

The decline in earnings for FY20 was disappointing but the company remains in strong financial health to navigate through these uncertain times. The incentive outcomes for the Managing Director and other Executive Leadership Team (ELT) members for FY20 reflected the lower profitability and shareholder returns. While market conditions were difficult, management responded quickly to the unforeseen impact of COVID-19 in ensuring the health and safety of staff and taking immediate actions to control costs. The Board and executives took a 20% pay reduction in Q4 FY20 to support cost management plans due to COVID-19.

This report outlines how GWA's performance has driven the remuneration outcomes for executives. The RNC had oversight of the performance and remuneration arrangements of the Managing Director and the other ELT members during FY20, together with the Group's remuneration framework and incentive plans. The RNC ensures that the financial reward for executives is aligned with performance and shareholders' interests.

GWA's remuneration framework reflects our approach on providing remuneration which is fair and equitable to attract and retain talented individuals necessary to deliver our strategy, while aligning the interests of executives and shareholders.

At the centre of our remuneration framework are:

  • challenging financial and non-financial measures to assess performance and focus executives on key operational and strategic objectives critical to GWA's long-term success;
  • incentive plans that align reward for executives to shareholder wealth creation over the short and medium term;
  • ability for the Board to exercise its discretion to adjust or 'clawback' executive reward where business and operational risks have not been adequately managed; and
  • best practice governance in determining remuneration arrangements and outcomes that are fair and reasonable taking into consideration community and shareholder expectations.

During FY19, the RNC completed a review of the executive remuneration structure which confirmed that the remuneration framework is fit for purpose and aligned with our strategy. As a result of the review we implemented some changes to our approach for FY20 to better align with market practice. Most of the changes relate to our Long-Term Incentive plan and

Page | 5

alignment of the Managing Director's incentive opportunity with peer company CEO's based on market benchmarking data provided by an independent adviser.

Further details on the changes made in FY20 are outlined in section 3.2.

As a result of COVID-19 the Board will be conducting a further review of GWA's remuneration framework during FY21 to ensure it remains fit for purpose and aligned with our strategy. Any changes from the review will be outlined in the FY21 Remuneration Report.

2. Key Management Personnel

The names and titles of the Group's KMP for FY20, being those persons having authority and responsibility for planning, directing and controlling the activities of the entity, are set out below.

Name

Position

Term as KMP

Non-Executive Directors

D McDonough

Chairman and Non-Executive Director

Full year

J Mulcahy

Deputy Chairman and Non-Executive Director

Full year

P Birtles

Non-Executive Director

Full year

J McKellar

Non-Executive Director

Full year

S Goddard

Non-Executive Director

Full year

A Barrass

Non-Executive Director

Full year

Executive Directors

T Salt

Managing Director and Chief Executive Officer

Full year

R Thornton

Executive Director and Company Secretary

Full year

Other Executive KMP1

P Gibson

Group Chief Financial Officer

Full year

C Reil

Group General Manager - People &

Full year

Performance

Note:

1. C Norwell, General Manager Sales was previously included as Other Executive KMP for FY19 but does not meet the definition of KMP for FY20 based on his delegated authorities.

3. Board role in setting remuneration strategy and principles

The Board has overall responsibility for reviewing, approving and monitoring GWA's remuneration strategy and outcomes including for the directors and executives. The strategy is designed to provide remuneration that is fair and equitable, and is designed to attract and retain directors and management with the experience, knowledge, skills and judgement required for success.

The Board also engages with all stakeholders to continuously refine and improve director and executive remuneration policies and practices.

The Board delegates some aspects of the review and monitoring process to the Nomination and Remuneration Committee. The charter for the Nomination and Remuneration Committee is available on the Company's website at www.gwagroup.com.auunder Corporate Governance Policies.

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3.1 GWA's Remuneration Governance Framework

3.2 Executive remuneration structure review

During FY19 the Remuneration and Nomination Committee engaged an independent remuneration consultant to review the executive remuneration structure to ensure that it remains aligned with its remuneration strategy and market practice. The review concluded that the Group's remuneration framework is fit for purpose, with the following changes implemented in FY20 to better align with market practice:

  • The clawback provisions under the Long-Term Incentive (LTI) plan have been strengthened so that the Board may reduce or 'clawback' benefits under the LTI plan (including Performance Rights, shares, proceeds of shares or cash amounts) if the Board considers that is justified by the performance of the Group, any member of the Group, any business, area or team, or the conduct, capability or performance of the executive;
  • The LTI plan has been revised to provide flexibility for executives in the timing of exercise of vested Performance Rights, by providing that a Performance Right is not deemed to be exercised automatically upon vesting, but rather may be exercised by the executive at any time from vesting until expiry of the Performance Right 7 years after the date of grant;
  • The LTI plan has been revised to provide the Group with the flexibility, at the discretion of the Board, to settle vested and exercised Performance Rights in cash to executives as an alternative to shares;
  • The LTI plan has been revised to provide the Board with broader discretion to determine whether some or all of the Performance Rights lapse, vest, are exercised or settled in shares or cash in the event that the Group is the subject of a successful takeover bid or acquisition by scheme of arrangement. The treatment for unvested rights will be determined by the Board in its absolute discretion. Vested rights will be automatically exercised unless the Board determines otherwise;

Page | 7

  • Under the Short-Term Incentive (STI) plan for FY20 there has been an increased focus on the measurability of personal KPIs and the inclusion of role specific non-financial KPIs for executives that reflect how the financial goals have been achieved during the period with an increased focus on customer outcomes;
  • The remuneration mix for the Managing Director between fixed and variable components for FY20 has been adjusted to reflect a higher variable component. The Managing Director's STI opportunity for FY20 was increased to 50% at target performance and 75% at stretch performance (previously 40% at target and 50% at stretch) and the LTI opportunity was increased to 100% (previously 60%). This is in line with the market benchmarking data provided by an independent adviser during FY19 which indicated that peer company CEO's typically have a higher variable opportunity for STI and LTI plans;
  • The Managing Director's fixed remuneration has remained unchanged for FY20 (excluding the pay reduction of 20% during Q4 FY20 to assist in managing costs during COVID-19) and has not changed since his appointment during FY16. There were no changes to the variable components for the other executives for FY20.

4. Relationship between remuneration policy and Group performance

Remuneration is linked to performance by:

  • Applying challenging financial and non-financial measures to assess performance;
  • Ensuring that these measures focus management on operational and strategic business objectives that create shareholder value while balancing short-term and medium / longer term shareholder value creation.

GWA measures performance on the following key corporate measures:

  • Earnings before interest and tax (EBIT);
  • Return on funds employed (ROFE);
  • Total shareholder return (TSR).

The Board has the discretion to normalise the EBIT and ROFE measures where they are unduly distorted by significant or abnormal events, and in order to ensure that the measures reflect underlying trading performance. Examples include the impact of restructuring costs or other non-recurring expenses or income to ensure management is not discouraged from undertaking initiatives in the long-term interests of shareholders.

Any adjustments to normalise the EBIT and ROFE measures, and the reasons for any adjustments, will be disclosed. There were no STI payments made to executives in respect of FY20 performance. This is reflected in the Remuneration Tables in section 7.1.

For the FY18 LTI grant (performance period for the 3 years to 30 June 2020) to be tested in August 2020, the impact of the adoption of the May 2020 IFRS Interpretation Committee decision (refer Note 1c of the financial statements) will be excluded from ROFE i.e. the resulting deferred tax liability (DTL) will be added back to net assets. This ensures there is no unintended benefit for the executives with the testing of the ROFE hurdle.

Remuneration for all executives varies with performance on the key EBIT, ROFE and TSR measures together with achievement of their measurable personal KPI objectives, which underpin delivery of the financial outcomes, and are linked to the Group's performance review process.

The following graph shows the Group's relative TSR performance over the five-year period from 1 July 2015 to 30 June 2020 compared to the ASX 200 Accumulation Index. The ASX 200 Accumulation Index comprises the top 200 stocks on the Australian Securities Exchange based on liquidity and size, and is recognised as the benchmark for the Australian equity market. In the second half of FY20 there was significant volatility in both the equity markets and GWA's share price due to the COVID-19 pandemic.

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The following is a summary of key statistics for the Group over the last five years:

Financial Year

EBIT(a)

EPS(a)

Total DPS

Share Price

Market Capitalisation

($m)

(cents)

(cents)(c)

(30 June) ($)

(30 June)

($m)

2015/16(b)

78.3

19.0

16.0

2.09

551.7

2016/17

80.6

20.3

16.5

3.15

831.4

2017/18(d)

76.2

19.0

18.0

3.40

897.4

2018/19(d)(e)

78.1

19.3

18.5

3.42

902.7

2019/20(e)(f)

71.8

17.0

11.5

2.77

731.1

Notes:

  1. excludes significant items
  2. excludes the discontinued operations of Gliderol, Dux and Brivis
  3. includes ordinary and special dividends
  4. FY18 and FY19 represent continuing operations and exclude the discontinued operations of the Door & Access Systems' business (including the gain on sale) which was sold on 3 July 2018. FY16 and FY17 include the results of the Door & Access Systems' business
  5. FY19 and FY20 includes the results of Methven Limited from the date of acquisition (10 April 2019)
  6. FY20 performance was negatively impacted by COVID-19 resulting in business interruption and challenging market conditions across all regions. GWA recorded negligible revenue in New Zealand during the period of level 4 restrictions and significantly reduced revenue in the United Kingdom during the shutdowns. Together, these markets comprised 21 per cent of GWA's revenue (before the impact of COVID-19). Lockdown restrictions in Australia (79 per cent of Group revenue before COVID-19) were less severe than in New Zealand and the United Kingdom, with trading for the fourth quarter at approximately 90 per cent of expected levels

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The remuneration and incentive framework aims to focus executives on sustaining short-term operating performance coupled with investment in long-term strategic growth in the markets in which the business operates.

The Group's Normalised1 profit performance for Continuing Operations2 declined in FY20 due to weaker market activity and the negative impact of COVID-19 on revenue and earnings for the Group. The focus on operational and cost discipline during FY20 ensured the company was able to manage through the short-term challenges and continue to invest in its growth strategy.

The company is in a strong financial position to manage through the current challenging environment. The earnings performance for FY20 enabled the Board to pay a full year fully franked dividend of 11.5 cents per share for FY20 representing a dividend pay-out ratio of reported profit of 69% which is in line with the company's dividend policy.

The Group has continued its progress in FY20 against its strategic objectives to enhance the operating performance of the business, to continue to grow market share and to maximise returns to shareholders over time. The progress against the strategy is outlined in the Managing Director's Review of Operations.

The successful execution of the Group's strategy was included in executives' measurable personal goals and reflected in the financial performance targets under the STI and LTI plans for FY20; refer sections 6.3 Short-Term Incentive and 6.4 Long-Term Incentive.

The remuneration and incentive framework has focused executives on responding appropriately to the challenging market conditions in FY20 which included the impacts of COVID-19. It has encouraged management to respond quickly and make long-term decisions to sustain competitiveness ensuring that the Group is well placed to maximise returns through the market cycle.

5. Description of non-executive director remuneration

Fees for non-executive directors are fixed and are not linked to the financial performance of the Group to ensure that non-executive directors maintain their independence.

At the 2018 Annual General Meeting, shareholders approved an increase in non-executive director fees to an annual maximum aggregate amount of $1,350,000 including statutory superannuation. This increase was to allow for new director appointments over time in accordance with the Board succession plans.

The actual fees paid to the non-executive directors are outlined in the Remuneration Tables in section 7.1 and are based on the following:

  • Board Chair $280,000 (including superannuation);
  • Other non-executive directors $120,000 (including superannuation); and
  • Committee Chair $10,000 (including superannuation).

There have been no changes to these amounts since FY16. The non-executive directors took a 20% pay reduction in Q4 FY20 to support cost management plans due to COVID-19. This is reflected in the Remuneration Tables in section 7.1.

Non-executive director remuneration comprises base fees and statutory superannuation, plus an additional fee for chairing a Board Committee (where applicable). The payment of committee fees recognises the additional time commitment required by a chair of a Board

  1. Normalised is before $1 million in significant items (after tax) relating primarily to integration costs associated with the acquisition of Methven in FY20.
  2. Continuing Operations include the revenue and earnings contribution from Methven from the effective date of acquisition, 10 April 2019.

Page | 10

committee. Non-executive directors are not able to participate in the executive incentive schemes.

The Nomination and Remuneration Committee obtains market benchmarking data from an external remuneration adviser to ensure that the level and allocation of non-executive director remuneration is market based and fairly represents the responsibilities and time spent by the directors on Group matters.

Retirement benefits other than statutory superannuation are not available for non-executive directors.

The Board does not require its non-executive directors to hold GWA shares, however the holding of shares is actively encouraged. For details of the non-executive director shareholdings, please refer to section 7.3.3.

6. Description of executive remuneration 6.1 Executive remuneration structure

Executive remuneration has a fixed component and a component that varies with performance. The variable component comprises a short-term incentive (STI) plan which provides rewards for performance over a 1-year period, and a long-term incentive (LTI) plan which provides rewards for performance over a 3-year period. The maximum total remuneration that can be provided to an executive is capped, with incentive payments expressed as a percentage of total fixed remuneration. Total fixed remuneration for the purposes of incentives includes superannuation and non-monetary benefits.

The remuneration structure implemented for executives, including the Managing Director, recognises the short-term challenges posed by operating in the cyclical housing industry, ability to sustain competitiveness, deliver value and growth in mature markets and maintain operating cash flows for dividends.

As outlined in section 3.2, during FY19 the Board engaged an independent remuneration consultant to review the executive remuneration structure to ensure it remains aligned with the Board's remuneration strategy and market practice. The changes following the review were implemented in FY20.

6.1.1 GWA's Executive Remuneration Structure for FY20

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The Board is of the view that a combination of EBIT, ROFE and TSR performance measures are an effective basis for STI and LTI targets as they are currently key metrics used in the business and aligned with the Group's strategy.

ROFE is an appropriate target, both over the one-year horizon, for STI purposes, and over the three-year horizon, for LTI purposes. The Board is cognisant that in any one year or longer period ROFE can be impacted by the timing of investments in growth, e.g. acquisitions, capital spend, where benefits (EBIT) may accrue in subsequent periods, thereby depressing ROFE in the current year. By setting a longer term ROFE target the Board is also able to incentivise executives for achievement of the ROFE target above the cost of capital over time and to ensure that management make decisions aligned with shareholders' interests over time, notwithstanding, that in the short-term, investments in future growth may detract from headline ROFE numbers.

6.1.2 Managing Director and other executives' remuneration mix

The components of remuneration for the Managing Director and other executives' for FY20 at 'target' and 'stretch' performance are provided in the following table:

6.1.3 Managing Director variable remuneration structure

The FY20 incentives structure for the Managing Director is provided in the following table:

Managing Director

Maximum STI as % of

Maximum LTI as % of

Maximum total

fixed remuneration

fixed remuneration

performance pay as %

(grant date fair value)

of fixed remuneration

FY20

75%

100%

175%

The FY20 STI components for the Managing Director are provided in the following table:

Managing

Financial

Personal Goals

Maximum STI

Director

Targets as

as maximum

as % of fixed

maximum % of

% of fixed

remuneration

fixed

remuneration

remuneration

FY20

50

25

75

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6.1.4 Other Executives' variable remuneration structure

The FY20 incentives structure for other executives is provided in the following table:

Other Executives

Maximum STI as % of

Maximum LTI as % of

Maximum total

fixed remuneration

fixed remuneration

performance pay as %

(grant date fair value)

of fixed remuneration

FY20

50

30

80

The FY20 STI components for other executives are provided in the following table:

Other

Financial

Personal Goals

Maximum STI

Executives

Targets as

as maximum

as % of fixed

maximum % of

% of fixed

remuneration

fixed

remuneration

remuneration

FY20

30

20

50

6.2 Fixed remuneration

Fixed remuneration is the sum of base salary, non-monetary benefits and superannuation.

The level of fixed remuneration is set:

  • to retain proven performers who possess difficult to source experience;
  • to attract external recruits with depth and breadth of expertise usually acquired while working with larger companies;
  • in recognition of the short-term challenges posed by cyclical factors and the focus on conserving market leadership, cash flow and dividends where opportunities for outperformance and subsequent incentive payments are more limited.

The Board targets the setting of fixed remuneration for executives between the median and third quartiles or higher if warranted by superior performance and relative to companies of comparable size and operational scope to GWA. The comparator companies are primarily from the Consumer Discretionary, Industrial and Material sectors.

Based on a market benchmarking report provided by an independent adviser for the FY20 executive remuneration review, the fixed remuneration for most executive positions at GWA are comparable to market benchmark levels for companies of comparable operational scope and size to GWA, having regard to market capitalisation and revenue. The 19 listed peer companies included in the survey provided reliable and robust statistical remuneration benchmarking and shared some common attributes with GWA, however, few direct competitors and good position matches exist for precise remuneration positioning. The Nomination and Remuneration Committee therefore exercised judgement in determining appropriate remuneration levels, having regard to the background and experience of the individuals.

While market levels of remuneration are monitored on a regular basis, there is no contractual requirement that pay will be adjusted each year. Where these levels are above the 75th percentile, fixed remuneration will either be frozen or increases will be below market levels.

For FY20, the Board made no adjustment to the Managing Director's fixed remuneration which was at the median of the comparator group based on the independent benchmark data. The Managing Director's fixed remuneration has remained unchanged since his appointment during FY16. In addition, the Managing Director and the other executives took a pay reduction of 20% during Q4 FY20 to assist in managing costs during COVID-19. This is reflected in the Remuneration Tables in section 7.1.

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6.3 Short-Term Incentive (STI) 6.3.1 STI overview

The STI plan provides for an annual payment that varies with performance measured over the Group's financial year to 30 June 2020. The STI is aligned to shareholder interests as executives will only become entitled to the majority of payments if profitability improves (relative to peers in the cyclical housing industry), with maximum incentive payments above the target level linked directly to shareholder value creation. As noted in section 6.1, the maximum STI that can be earned is capped.

Financial gateways are in place to ensure a minimum level of financial performance is achieved before any STI payments (both financial and personal goals) are awarded to executives. The gateways represent 95% of at target Revenue and EBIT. If both gateways have not been achieved, then the executives are not eligible for an STI payment of either component - 'financials' and 'personal goals'.

The STI payment is made in cash after finalisation of the annual audited financial statements. 50% of the financial target component of the STI is deferred for executives that achieve their STI financial targets. The deferred component is subject to further testing by the Board to confirm the integrity of the achievement of the STI financial targets following finalisation of the following year's audited financial statements. If the Board is satisfied the deferred component will be paid to executives together with nominal interest at market rates. However, if the Board is not satisfied the deferred component will be subject to forfeiture.

6.3.2 STI performance requirements 6.3.2.1 Financial Performance Targets

For FY20, STI financial performance targets are based on Earnings Before Interest and Tax (EBIT) and Return On Funds Employed (ROFE) targets as determined by the Nomination and Remuneration Committee. The use of EBIT and ROFE as the basis of STI financial targets is aimed at ensuring executives are accountable for delivering both profit and return on funds improvements.

The Board is of the view that a combination of EBIT and ROFE targets are an effective basis for STI targets as they are currently key metrics used in the business and ROFE is a key target in driving returns on capital employed in excess of the cost of capital. The EBIT and ROFE targets are weighted equally for divisional and corporate executives, and adjusted for normalisation if applicable; refer section 4.

The 'target' and 'stretch' STI financial targets are determined by the Nomination and Remuneration Committee at the beginning of the financial year following approval of the divisional and corporate budgets by the Board.

The budget performance levels are taken into consideration in setting the financial targets but different targets may be set (either higher or lower than budget) that ensure management is motivated while reflecting the degree of difficulty in achieving the budget. Performance between the 'target' and 'stretch' levels is rewarded on a straight line basis between 'target' achievement and 'stretch' achievement.

The Board retains the right to vary from policy if required. However, any variation from policy and the reasons for it will be disclosed. There was no variation from policy in setting the STI financial performance targets for FY20.

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6.3.2.1.1 FY20 STI Financial Performance Outcomes

For FY20, due to the weaker market conditions and negative impact of COVID-19 the financial gateways were not achieved and therefore, the executives were not eligible for an STI payment (both financial and personal goals).

The following table provides an overview of the STI metrics for FY20 and outcomes:

Financial Metric

Gateway

FY20 STI

Outcomes

Net Sales

Not Achieved

-

EBIT

Not Achieved

Nil

ROFE

-

Nil

The STI performance outcomes for FY20 were aligned with shareholders' interests as it reflected the lower profitability and shareholder returns for the period.

This outcome is reflected in the Remuneration Tables in section 7.1.

The deferred component of the STI incentive payments for FY19 for executives was tested by the Board in August 2020 to confirm the integrity of the achievement of the STI financial targets in FY19. Following satisfaction with the testing, the Board approved the payment of the deferred component to executives together with interest at nominal market rates.

6.3.2.2 Personal Goals

The personal goals set for each executive include achievement of key milestones to improve or consolidate the Group or business unit's strategic position. The personal goals vary with the individual's role, risks and opportunities and are aligned with the Group's strategic plan and corporate priorities. Achievement of personal goals accounts for a maximum of 25% for the Managing Director and 20% of the other executives' fixed remuneration.

The achievement of personal goals reinforces the Group's leadership model for improved performance management through achieving measurable personal goals established during the performance review process at the beginning of the financial year. Strict criteria have been established by the Nomination and Remuneration Committee for the setting of personal goals in order for them to be approved. The goals can be drawn from a number of areas specific to individual roles but must be specific, measurable, aligned, realistic and time based. Weightings are allocated to the personal goals based on their importance to the individual's role and the Group.

Personal goals include both measurable financial and business improvement goals. The measurable financial goals are financial outcomes which the individual aims to achieve through their effort and that of their team and influence on the wider business. Examples may include achieving working capital reductions, sales/margin targets or cost reduction targets. The measurable business improvement goals are outcomes which drive sustainable business improvement and which may or may not have an immediate financial outcome but will improve the business in the short to medium term. Examples may include improved safety and environmental performance, enhancing sustainability, delivering a major project on time and budget, market share and productivity improvements or implementing a significant change or strategic initiative.

Assessment of the personal goals STI component is determined following a formal performance review process for each executive. The performance reviews for executives are conducted semi-annually by the Managing Director with the annual outcomes reviewed and approved by the Nomination and Remuneration Committee. The personal goals for executives for the following year are established at the performance reviews, and reviewed and approved by the Nomination and Remuneration Committee.

Page | 15

The Managing Director's performance review is conducted semi-annually by the Chairman following input from the Board and with the outcomes reviewed and approved by the Nomination and Remuneration Committee. An assessment of the Managing Director's key performance goals subject to STI incentive payments for FY20 is provided in section 6.3.2.2.1. As outlined in section 6.3.2.1.1 the financial gateways were not achieved for FY20 and therefore, there were no STI payments made to the Managing Director and other executives. This is reflected in the Remuneration Tables in section 7.1.

The inclusion of personal goals in the remuneration structure ensures that executives can be recognised for improved business performance, including periods where troughs in the housing industry cycle mean financial performance is consequently weaker across the sector. The reward for achievement of personal goals provides specific focus on responding to changes in the economic cycle, as well as on continuous performance improvement. Hence the personal goals are a key part of the Group's performance management process.

6.3.2.2.1 Managing Director's key performance goals and outcomes

An assessment of the Managing Director's key performance goals and financial targets subject to STI incentive payments for FY20 is provided in the following table.

FY20 Goals

Performance

Assessment

Personal Objectives

Achieve leading workplace health and safety

During FY20 the Group made substantial progress

On target

(WHS) performance with the aim of an injury

on implementing our safety strategy. This strategy

free workplace.

focuses on leadership and behavioural aspects of

Measures:

safety together with identifying and mitigating

Safety initiatives to reduce risk

physical risks in our operations.

This continued

Leading safety indicators (Safety

focus on safety has resulted in a significant

Interactions, Hazards Reported,

improvement in the Group's performance in both

Actions Closed)

lead and lag safety indicators. The Group recorded

Lagging safety measures (MTIFR,

a material decrease in TIFR from 6.2 in FY19 to 0.9

LTIFR, TIFR)

in FY20. The Methven sites across NZ, China and

the UK have been integrated into the GWA safety

system, SafetyOne, with the standardisation of

operating procedures to deliver a consistent and

measurable approach to safety across the Group.

The Group ensured staff were safe and well during

COVID-19 through its well established practice of

supporting flexible work which enabled all office

based staff to work from home. A number of

measures were implemented to ensure employees

could work safety at their work sites. Ownership

and accountability for safety exists at all levels in

the business with "Caring For Each Other" central

to the Group's cultural pillars and with employee

engagement on safety increasing 2 percentage

points to 89% which is above the Australia/NZ top

quartile based on our 2019 engagement survey.

Executing and delivering FY20 business plan

Long-term growth plans have been developed for

On target

including the integration of Methven. Deliver the

the Group in order to accelerate growth and

growth strategy in accordance with the horizon

improve shareholder

returns.

The plans

outline

plans.

growth initiatives to strengthen the core business,

Measures:

build emerging businesses and create growth

Integration of Methven

options into the future in line with the Group's

Improvement in market share

superior water solutions strategy.

The integration

Growth strategy development and

of Methven remains on track with cost synergies in

execution including increased

line with expectations and with improved ranging

installations of Caroma Smart

of Methven products in Australia. The Group

Command®

maintained market

share

in

FY20

during

Page | 16

challenging market conditions with the impact of

COVID-19 in the last quarter of the year. The

Group responded to the weaker market conditions

in FY20 by accelerating cost-out and efficiency

improvements, whilst continuing to implement our

growth strategy. Solid progress was achieved with

our consumer engagement strategy and growth in

commercial segments. The number of installations

of Caroma Smart Command® (CSC) increased to

49 sites in FY20 with a solid bank of additional

projects in the pipeline. CSC continues to represent

a significant growth opportunity for the Group.

Build employee engagement and culture and

The Group continues to implement programs to

On target

embed purpose and values to deliver the

drive a high performance culture and to encourage

strategy. Continue to increase diversity with a

staff to perform their best while upholding GWA's

focus on increasing female representation.

Cultural Pillars. There is an active Culture Council

Measures:

which is led by the Managing Director who

Culture and engagement surveys

champions programs aligned to GWA's Cultural

Gender diversity

Pillars. An employee engagement survey was

conducted during FY20 in partnership with

Kincentric (formerly Aon). The overall engagement

score was 61% which is above the Australia/NZ

average. Increasing the diversity of the Group's

talent continues to be a focus and the percentage

of female employees increased to 43% globally. In

Australia, the percentage of women increased to

42%, and 60% of all promotions were awarded to

women, as reported in the Group's 2020 Workplace

Gender Equality Report which is available on the

Group's website at www.gwagroup.com.auunder

Gender Equality Reporting. The Group received

notification during August 2020 that it is compliant

with the Workplace Gender Equality Act 2012.

Financial targets

STI financial performance targets

Due to the weaker market conditions and negative

Below target

Measures:

impact of COVID-19 in FY20, the STI financial

Revenue and EBIT financial gateways

gateways were not achieved. As a result there

EBIT and ROFE financial targets

were no STI payments (both financial and personal

goals) to the Managing Director and other

executives for FY20. This outcome is reflected in

the Remuneration Tables in section 7.1.

Key

Above target

On target

Below target

6.4 Long-Term Incentive (LTI) 6.4.1 LTI overview

Executives participate in a LTI plan. This is an equity-based plan that provides for a reward that varies with Group performance over three year periods. Three years is considered to be the maximum time period over which financial projections and detailed business plans can reasonably be made, and reflects what the Board considers is a reasonable period to require and test the sustainability of earnings accretion from investments and given the nature of the business.

Page | 17

The LTI is provided as Performance Rights, with each right entitling the holder to an ordinary share in the Group, subject to meeting financial performance hurdles and the holder remaining in employment with the Group until the nominated vesting date.

If the vesting conditions and performance hurdles are achieved, the participants may exercise the Performance Rights at no cost before their expiry seven years after the grant date. Until that time, the participants have no right to dividends or voting rights on unvested Performance Rights. If the performance hurdles are not met then the Performance Rights are cancelled. The LTI plan rules do not allow for re-testing of the performance hurdles after the initial performance period.

The performance hurdles for the LTI are selected by the Nomination and Remuneration Committee. The basis of the grants of Performance Rights to executives is as follows:

  • 50% of the Performance Rights are subject to a Total Shareholder Return (TSR) hurdle (which is a relative performance requirement); and
  • 50% of the Performance Rights are subject to a Return On Funds Employed (ROFE) hurdle (which is an absolute performance requirement).

Both TSR and ROFE are key measures on which the Group's strategic plan is focused. Therefore, ensuring LTI rewards are contingent on these measures is consistent with the Board approved strategy.

For the FY20 LTI grant, a participant may not dispose of the ordinary shares issued under the LTI until Board approval has been obtained and the shares are subject to a holding lock upon issue. This was to ensure that executives retain a suitable shareholding in the Group. In considering an application from a participant to dispose of the shares, the Board will consider whether the sale is in the best interests of the Group, relevant policies and regulations, the extent of the executive's Group shareholdings as a multiple of fixed remuneration, and such other factors as it considers relevant to the application. No applications from participants to dispose of the shares were received by the Board in FY20.

In accordance with the LTI plan rules, the executives are prohibited from entering into hedging transactions or arrangements which reduce or limit the economic risk of holding unvested Performance Rights.

In the event of a change of control, the Board will determine in its discretion the extent to which outstanding Performance Rights granted to executives will vest and be exercised into ordinary shares. In exercising its discretion the Board will consider whether the vesting conditions are unlikely to be satisfied and the outstanding Performance Rights cancelled. If the Board makes the decision that not all outstanding Performance Rights will vest on a change of control, then all remaining Performance Rights will be cancelled.

For the FY20 LTI grant, the proportion of Performance Rights that can vest will be calculated and the shares will vest in August 2022 subject to achieving the performance hurdles. If the performance hurdles are not met the Performance Rights will be cancelled.

As outlined in section 3.2, the clawback provisions under the LTI plan rules were strengthened following an independent external review conducted in FY19. The clawback provisions enable the Board to reduce or 'claw back' benefits under the LTI (including unvested Performance Rights, shares, proceeds of shares or cash amounts) if the Board considers that action is justified in the circumstances. This includes where an executive has committed an act of fraud, defalcation or gross misconduct.

The maximum number of outstanding Performance Rights granted to executives must not exceed 5% of the total number of shares on issue by the Group. The total number of outstanding Performance Rights granted to executives at 30 June 2020 was 1,741,500 which represents 0.7% of the Group's total issued shares.

Page | 18

6.4.2 LTI performance requirements

For the FY20 LTI grant, the performance hurdles continue to provide for vesting scales graduated with performance and demanding performance hurdles.

6.4.2.1 TSR hurdle

The performance hurdles and vesting proportions for the TSR performance measure that applies to the FY20 LTI grant are outlined in the following table:

TSR of GWA Group Limited relative

Proportion of Performance Rights to

to TSRs of Comparator Companies

Vest if TSR hurdle is met

Less than the 50th percentile

0%

50th percentile

12.5%

Between the 50th percentile and 75th

Straight line vesting between 12.5% and

percentile

50%

75th percentile or higher

50% (i.e. 50% of total grant)

The group of comparator companies for the TSR hurdle includes a bespoke group of domestic ASX listed companies exposed to similar economic, market, and/or financial factors.

GWA and the comparator companies operate in a number of different sectors (e.g. Industrial, Material, Consumer Discretionary) and the choosing of one sector or industry will not provide a comprehensive list of related companies. To ensure an adequate number of comparator companies is included for the TSR hurdle, the Board has selected companies outside the building supplies and construction materials industry, but subject to similar external influences.

The group of comparator companies for the FY20 LTI grant is as follows:

James Hardie Industries PLC, Fletcher Building Ltd, Boral Ltd, Adelaide Brighton Ltd, Brickworks Ltd, Super Retail Group Ltd, CSR Ltd, ARB Corp Ltd, Bapcor Ltd, Breville Group Ltd, Asaleo Care Ltd, GUD Holdings Ltd, Cedar Woods Properties Ltd, Decmil Group Ltd, Simonds Group Ltd, Hills Ltd, Fleetwood Corp Ltd, Accent Group Ltd, Pact Group Holdings Ltd, Reece Ltd

The Board has discretion to adjust the comparator group to take into account events including, but not limited to, takeovers, mergers, de-mergers and similar transactions that might occur over the performance period. The Board reviews the comparator group on an annual basis to ensure they remain relevant and to ensure potential new peers are considered for inclusion.

6.4.2.2 ROFE hurdle

The performance hurdles and vesting proportions for the ROFE performance measure that applies to the FY20 LTI grant is outlined in the following table:

GWA Group Limited ROFE over three

Proportion of Performance Rights to

year performance period

Vest if ROFE hurdle is met

ROFE less than 16% per annum

0%

ROFE equal to 16% per annum

12.5%

ROFE between 16% and 19% per annum

Straight line vesting between 12.5% and

50%

ROFE equal to 19% or higher per annum

50% (i.e. 50% of total grant)

Page | 19

The ROFE performance hurdle is calculated by reference to the Group's audited accounts. Threshold performance is required to be above the Group's Weighted Average Cost of Capital (WACC), which takes into account the minimum return required by investors given the perceived risk of the investment.

The ROFE hurdle is calculated as earnings before interest and tax (EBIT) divided by funds employed and adjusted for normalisation if applicable; refer section 4. Funds employed is calculated as net assets minus cash plus borrowings and net AASB16 Leases balances.

The Board has discretion to make reasonable adjustments to the EBIT figure where it is unduly distorted by significant or abnormal events, and in order to ensure that it reflects underlying trading performance. The use of any discretion and the reasons for it will be disclosed.

For the FY18 LTI grant (performance period for the 3 years to 30 June 2020) to be tested in August 2020, the impact of the adoption of the May 2020 IFRS Interpretation Committee decision (refer Note 1c of the financial statements) will be excluded from ROFE i.e. the resulting deferred tax liability (DTL) will be added back to net assets. This ensures there is no unintended benefit for the executives with the testing of the ROFE hurdle.

7. Details of director and executive remuneration 7.1 Remuneration Tables

Details of the nature and amount of each element of remuneration for each director of the Group and other key management personnel (KMP) for the year ended 30 June 2020 are provided in the following Remuneration Tables.

Page | 20

Short-term

Long-term

Post-employment

Value of

Long

Super-

Proportion of

STI Cash

STI Cash

Salary &

STI Cash

Non-

Share-

Termination

remuneration

Bonus

Bonus

Service

annuation

Total

Fees

Bonus

Monetary

Based

Benefits

performance

vested in

forfeited in

Leave

Benefits

Awards

based

year

year

$(a)

$(b)

$(c)

$(d)

$

$

$

$

%

%

%

Non-Executive Directors (f)

D McDonough, Chairman

2020

244,997

-

-

-

-

21,003

-

266,000

-

-

-

2019

259,469

-

-

-

-

20,531

-

280,000

-

-

-

J Mulcahy, Deputy Chairman

2020

111,150

-

-

-

-

12,350

-

123,500

-

-

-

2019

117,650

-

-

-

-

12,350

-

130,000

-

-

-

P Birtles, Non-Executive Director

2020

102,600

-

-

-

-

11,400

-

114,000

-

-

-

2019

108,600

-

-

-

-

11,400

-

120,000

-

-

-

J McKellar, Non-Executive Director

2020

102,600

-

-

-

-

11,400

-

114,000

-

-

-

2019

108,600

-

-

-

-

11,400

-

120,000

-

-

-

S Goddard, Non-Executive Director

2020

111,150

-

-

-

-

12,350

-

123,500

-

-

-

2019

116,969

-

-

-

-

13,031

-

130,000

-

-

-

A Barrass, Non-Executive Director

2020

102,600

-

-

-

-

11,400

-

114,000

-

-

-

(Appointed 24 May 2019)

2019

12,769

-

-

-

-

1,213

-

13,982

-

-

-

Total - Non-Executive Directors

2020

775,097

-

-

-

-

79,903

-

855,000

2019

724,057

-

-

-

-

69,925

-

793,982

Executive Directors (g)

T Salt, Managing Director (e)

2020

967,514

-

4,277

676,736

-

25,000

-

1,673,527

40

-

100

2019

967,308

400,000

1,627

452,597

-

24,999

-

1,846,531

46

80

20

R Thornton, Executive Director

2020

369,520

-

4,254

110,404

6,344

21,003

-

511,525

22

-

100

2019

389,008

163,816

8,013

92,763

6,325

20,531

-

680,456

38

80

20

Total - Directors Remuneration

2020

2,112,131

-

8,531

787,140

6,344

125,906

-

3,040,052

2019

2,080,373

563,816

9,640

545,360

6,325

115,455

-

3,320,969

Page | 21

Short-term

Long-term

Post-employment

Value of

Long

Super-

Proportion of

STI Cash

STI Cash

Salary &

STI Cash

Non-

Share-

Termination

remuneration

Bonus

Bonus

Service

annuation

Total

Fees

Bonus

Monetary

Based

Benefits

performance

vested in

forfeited in

Leave

Benefits

Awards

based

year

year

$(a)

$(b)

$(c)

$(d)

$

$

$

$

%

%

%

Executives (g)

P Gibson, Group Chief Financial

2020

701,848

10,440

202,361

64,758

25,000

-

1,004,407

20

-

100

Officer

-

2019

733,654

300,000

8,289

170,188

-

24,999

-

1,237,130

38

80

20

C Reil, Group General Manager -

2020

373,012

-

4,792

112,948

-

25,000

-

515,752

22

-

100

People & Performance

2019

386,512

168,000

2,040

69,373

-

24,999

-

650,924

36

80

20

Total - Executives Remuneration

2020

1,074,860

-

15,232

315,309

64,758

50,000

-

1,520,159

2019

1,120,166

468,000

10,329

239,561

-

49,998

-

1,888,054

Total - Directors and Executives

2020

3,186,991

-

23,763

1,102,449

71,102

175,906

-

4,560,211

Remuneration

2019

3,200,539

1,031,816

19,969

784,921

6,325

165,453

-

5,209,023

Page | 22

Notes to the Remuneration Tables:

  1. Salary and fees represent base salary and includes the movement in annual leave provision.
  2. Due to the weaker market conditions and the negative impact of COVID-19 the financial gateways under the Short-Term Incentive (STI) plan were not achieved and therefore, the executives were not eligible for an STI payment (both financial and personal goals) for FY20 performance.
  3. The short-termnon-monetary benefits include insurance and other minor benefits including any applicable fringe benefits tax.
  4. The Long-Term Incentive (LTI) plan was approved by shareholders at the 2008 Annual General Meeting. The outstanding Performance Rights at 30 June 2020 were granted to executives in FY18, FY19 and FY20 (as applicable) and are subject to vesting conditions and the achievement of specified performance hurdles over the three year performance periods. During FY20, 100% of the Performance Rights granted to executives in respect of the FY17 LTI grant vested as the ROFE and TSR hurdles were fully achieved. The fair value of the Performance Rights granted in FY18, FY19 and FY20 were calculated using Black Scholes Model (ROFE hurdle) and Monte Carlo Simulation (TSR hurdle) valuation methodologies and allocated to each financial year evenly over the three year performance period. If the specified performance hurdles are not achieved, then no benefits will be received by the executives under the LTI plan and the Performance Rights are cancelled.
  5. For details of Mr Tim Salt's remuneration arrangements as Managing Director, please refer to section 8.1. The Managing Director's fixed remuneration for FY20 was at the median of the comparator group based on the market benchmark data provided by an independent adviser and has remained unchanged since his appointment during FY16 (excluding the pay reduction of 20% during Q4 FY20 to assist in managing costs during COVID-19).
  6. Non-executivedirector remuneration has remained frozen since FY16 (excluding the pay reduction of 20% during Q4 FY20 to assist in managing costs during COVID-19). The total non-executive director remuneration is within the annual aggregate maximum amount approved by shareholders. For details of non-executive director remuneration, please refer to section 5.
  7. For the actual remuneration received by the executives for FY20, please refer to the table in section 7.1.1.

Page | 23

7.1.1 Actual remuneration received by executives for FY20

The following table sets out the actual value of remuneration received by executives for FY20, derived from the various components of their remuneration during FY20. This table differs from the more detailed statutory remuneration disclosures in the Remuneration Tables in section 7.1 due to the exclusion of LTI amounts not vested or reversal of accounting expenses associated with LTI grants and is therefore unaudited.

Executives

Long-Term

FY20

Fixed

Short-Term

Incentive

Remuneration

Incentive

(Earned)

Total

$(a)

$(b)

$(c)

$

T Salt, Managing Director (d)

954,277

-

363,931

1,318,208

R Thornton, Executive Director

393,317

-

74,653

467,970

P Gibson, Group Chief Financial

Officer

722,940

-

136,580

859,520

C Reil, Group General Manager -

People & Performance

412,407

-

-

412,407

Total

2,482,941

-

575,164

3,058,105

Notes:

  1. Fixed remuneration represents amounts actually paid to executives during FY20 and includes base salary, non- monetary benefits and superannuation. It includes the 20% pay reduction in Q4 FY20 to support cost management plans due to COVID-19.
  2. Due to the weaker market conditions and the negative impact of COVID-19 the financial gateways under the Short- Term Incentive (STI) plan were not achieved and therefore, the executives were not eligible for an STI payment (both financial and personal goals).
  3. The performance hurdles for the FY17 LTI grant were tested during FY20 and fully achieved; refer section 7.2.1 Performance Rights. Excludes the value of any unvested LTI grants expensed or reversed during FY20.
  4. For details of Mr Tim Salt's remuneration arrangements as Managing Director refer to section 8.1.

Page | 24

7.2 Share based payments 7.2.1 Performance Rights

The following table shows details of the Performance Rights granted to key management personnel during the year ended 30 June 2020 and in prior years that affects compensation in this or future reporting periods.

Issue price

Fair value

used to

Year

Number of

%

%

of rights at

determine

of

rights

vested

forfeit

grant date

number of

grant

granted

Grant date*

in year

in year

$*

rights granted

Executive Directors

T Salt, Managing Director

2020

329,000

14 February 2020

-

-

1,036,350

3.04

2019

220,000

18 February 2019

-

-

566,500

2.73

2018

224,000

19 February 2018

-

-

427,358

2.68

2017

214,500

24 February 2017

100

-

363,931

2.80

R Thornton, Executive Director

2020

40,500

14 February 2020

-

-

127,575

3.04

2019

45,000

18 February 2019

-

-

115,875

2.73

2018

46,000

19 February 2018

-

-

87,761

2.68

2017

44,000

24 February 2017

100

-

74,653

2.80

Executives

P Gibson, Group Chief Financial

2020

74,000

14 February 2020

-

-

233,100

3.04

Officer

2019

83,000

18 February 2019

-

-

213,725

2.73

-

2018

84,000

19 February 2018

-

160,259

2.68

2017

80,500

24 February 2017

100

-

136,580

2.80

C Reil, Group General Manager -

2020

41,500

14 February 2020

-

-

130,725

3.04

People & Performance

2019

46,000

18 February 2019

-

-

118,450

2.73

2018

47,000

19 February 2018

-

-

89,669

2.68

2017

-

-

-

-

-

-

Note:

  • The issue price used to determine the number of Performance Rights offered to key management personnel during FY20 was $3.04 being the volume weighted average price of the Group's shares calculated over the 20 trading days after the Group's Annual General Meeting on 25 October 2019. The grant dates and corresponding fair values per right in the table have been determined in accordance with Australian Accounting Standards. Fair values have been calculated using the Black Scholes Model valuation methodology for the ROFE hurdle and Monte Carlo simulation for the TSR hurdle. The fair value of rights issued during the year under the ROFE hurdle was $3.54 per right and TSR hurdle was $2.71 per right.

All of the rights carry an exercise price of nil. The rights granted on 19 February 2018, 18 February 2019 and 14 February 2020 will vest on the date of the release to the Australian Securities Exchange of the Group's annual audited financial statements for the years 30 June 2020, 2021 and 2022 respectively, subject to the achievement of the performance hurdles. The rights granted to Mr Salt and Mr Thornton were approved by shareholders at the 2017, 2018 and 2019 Annual General Meetings in accordance with ASX Listing Rule 10.14.

Rights were forfeited where an employee ceased employment with the Group during the year in accordance with the rules of the LTI plan.

The number of rights outstanding at 30 June 2020 represents the balance yet to be tested.

Page | 25

7.2.2 Status and key dates of LTI awards

The following table shows the status and key dates for Performance Rights granted to key management personnel under the LTI plan.

Grant Date

Valuation Per Right1

Performance

Expiry Date (if

Performance Status2

Testing Windows

hurdle not met)

24 February 2017 Tranche A (TSR) $1.28

28

October 2016 to

19 August 2019

Tranche A (TSR): Performance

Tranche B (ROFE) $2.11

19

August 2019

condition met at 89th percentile

(Tranche A)

resulting in maximum 100%

1 July 2016 to 30

vesting of the grant.

June 2019

Tranche B (ROFE): Performance

(Tranche B)

condition met at an average of

20% per annum resulting in

maximum 100% vesting of the

grant.

19 February 2018 Tranche A (TSR) $1.43

27

October 2017 to

August 2020

Performance testing not yet

Tranche B (ROFE) $2.38

August 2020

commenced.

(Tranche A)

1 July 2017 to 30

June 2020

(Tranche B)

18 February 2019 Tranche A (TSR) $2.23

26

October 2018 to

August 2021

Performance testing not yet

Tranche B (ROFE) $2.92

August 2021

commenced.

(Tranche A)

1 July 2018 to

30

June 2021

(Tranche B)

14 February 2020 Tranche A (TSR) $2.71

25

October 2019 to

August 2022

Performance testing not yet

Tranche B (ROFE) $3.54

August 2022

commenced.

(Tranche A)

1 July 2019 to

30

June 2022

(Tranche B)

Notes:

  1. The value of performance rights at grant date calculated in accordance with AASB 2 Share-basedPayments. Valuations are performed by a third party, PWC for the 2017 and 2018 grants and Deloitte for the 2019 and 2020 grants.
  2. To ensure an independent TSR measurement, GWA engages the services of external organisation, Deloitte, to assist with determining performance under the TSR hurdle. In addition, GWA's external auditor, KPMG, is engaged to perform agreed upon procedures to assist with ROFE measurement and the accuracy of LTI vesting outcomes.

7.3 Key management personnel transactions

7.3.1 Loans to key management personnel and their related parties

No loans were made to key management personnel or their related parties during the year ended 30 June 2020 (2019: nil).

7.3.2 Other key management personnel transactions with the Group or its controlled entities

There were no other key management personnel transactions with the Group or its controlled entities during the year ended 30 June 2020 (2019: nil).

From time to time, key management personnel of the Group or its controlled entities, or their related entities, may purchase goods from the consolidated entity. These purchases are on the same terms and conditions as those entered into by other consolidated entity employees or customers and are trivial or domestic in nature.

Page | 26

7.3.3 Movements in shares

The movement during the reporting period in the number of ordinary shares in GWA Group Limited held, directly, indirectly or beneficially, by each key management person, including their related parties, is as follows:

Held at 1 July

Granted as

Purchases

Sales

Held at 30

2019

compensation

June 2020

Non-Executive Directors

D McDonough

150,000

-

-

-

150,000

40,950

-

-

-

40,950

J Mulcahy

38,650

-

-

-

38,650

P Birtles

3,054

-

-

-

3,054

J McKellar

10,000

-

-

-

10,000

S Goddard

-

-

-

-

-

A Barrass

Executive Directors

298,070

214,500

-

-

512,570

T Salt

185,577

44,000

-

-

229,577

R Thornton

Executives

129,000

80,500

-

-

209,500

P Gibson

-

-

-

-

-

C Reil

Held at 1 July

Granted as

Held at 30

2018

compensation

Purchases

Sales

June 2019

Non-Executive Directors

D McDonough

150,000

-

-

-

150,000

J Mulcahy

40,950

-

-

-

40,950

P Birtles

38,650

-

-

-

38,650

J McKellar

1,000

-

2,054

-

3,054

S Goddard

10,000

-

-

-

10,000

A Barrass (Appointed 24 May 2019)

n/a

-

-

-

-

Executive Directors

T Salt

36,070

262,000

-

-

298,070

R Thornton

120,577

65,000

-

-

185,577

Executives

P Gibson

10,000

119,000

-

-

129,000

C Reil

-

-

-

-

-

The relevant interest of each director in the share capital of the Group as notified by the directors to the Australian Securities Exchange in accordance with Section 205G(1) of the Corporations Act 2001 as at 30 June 2020 is listed in the Directors' Report under Directors' Interests.

During the FY20 reporting period, there were 339,000 shares vested to key management personnel as compensation (2019: 446,000). The aggregate number of shares held by key management personnel or their related parties at 30 June 2020 was 1,194,301 (2019: 855,301).

8. Key terms of employment contracts 8.1 Managing Director remuneration

The remuneration arrangements for Mr Tim Salt as Chief Executive Officer were determined by the Nomination and Remuneration Committee in FY16 following the provision of market data from an independent external adviser. Based on the benchmark data, Mr Salt's total remuneration was aligned with the then market median in relation to a group of 16 companies of comparable operational scope and size to GWA. The remuneration arrangements for Mr Salt were advised to the market on 27 November 2015 and his fixed remuneration has not changed since then (excluding the pay reduction of 20% during Q4 FY20 to assist in managing costs during COVID- 19). As mentioned in section 3.2, following a review of executive remuneration in FY19, the STI and LTI opportunity for Mr Salt were adjusted to be in line with market.

Page | 27

The following is a summary of Mr Salt's remuneration package for FY20:

  • Total Fixed Remuneration (TFR) comprising salary, superannuation and all other benefits other than incentive plans of $1,000,000;
  • Participation in GWA's Short-Term Incentive (STI) plan:
    1. STI opportunity of 50% of TFR based on Mr Salt meeting Board approved Key Performance Indicator (KPI) objectives, with provision for a maximum 75% of TFR for outperformance against these KPIs.
  • Participation in GWA's Long-Term Incentive (LTI) plan:
    1. LTI opportunity of 100% of TFR over a three year performance period and subject to achievement of performance hurdles in respect of growth in Return on Funds Employed (ROFE) and Total Shareholder Return (TSR).

For the FY20 executive remuneration review, the market benchmark data provided by an independent external adviser confirmed that the Managing Director's fixed remuneration was at the median level of the comparator group consisting of 19 companies with comparable operational scope and size to GWA.

8.2 Notice and termination payments

The specified executives in the Directors' Report including the Managing Director, Mr Tim Salt, are on open-ended contracts.

The employment contract for Mr Tim Salt provides that if either the Group or Mr Tim Salt wishes to terminate employment for any reason, no less than one year's written notice of termination is required. The Group retains the right to immediately terminate the employment contract of Mr Tim Salt by making payment equal to twelve months salary in lieu of providing notice.

For the other specified executives, the Group or the executives are required to give no less than three months notice of termination of employment for any reason. The Group retains the right to immediately terminate the employment contracts of the executives by making payment equal to three months salary in lieu of providing notice.

The executives are also entitled to receive on termination of employment their statutory entitlements of accrued annual and long service leave, together with any superannuation benefits.

The termination arrangements for the executives are specified in their employment contracts and any other termination payments require approval of the Nomination and Remuneration Committee. Shareholder approval is required for termination payments in excess of twelve months salary.

8.3 Treatment of incentives on termination

The following table shows the treatment of incentives on termination of employment in the various circumstances shown.

Circumstances

Short-term incentive1

Long-term incentive - unvested Performance

Rights

Immediate termination

No STI payable and clawback provisions

Performance Rights are forfeited

for cause

may apply (including deferred STI)

Resignation

Board discretion to award STI on a pro-

Performance Rights are forfeited unless Board

rata basis (including deferred STI)

determines otherwise

Notice by company, good

Board discretion to award STI on a pro-

Board discretion to allow awards to vest or remain

leaver, retirement,

rata basis (including deferred STI)

subject to performance hurdles after termination

redundancy, death or

on a pro-rata basis

permanent disability

Change of control

STI will be paid on a pro-rata basis

The Board has discretion to allow awards to vest

on a change of control of GWA (e.g. a takeover or

merger).

Notes:

1. Any STI payments will be paid according to the normal annual STI payment time frame (i.e. payment timing will not be accelerated).

Page | 28

The Directors' Report is made out in accordance with a resolution of the directors:

Darryl D McDonough

Tim R Salt

Chairman

Managing Director

17 August 2020

Page | 29

GWA Group Limited

and its controlled entities

ABN 15 055 964 380

Annual financial report

30 June 2020

GWA Group Limited and its controlled entities

Consolidated statement of profit or loss and other comprehensive income

For the year period ended 30 June

Note

In thousands of AUD

Profit or loss

Continuing operations

Sales revenue

4(a)

Cost of sales

4(c)

Gross profit

Other income

4(b)

Selling expenses

Administrative expenses

Other expenses

4(d)

Operating profit (excluding transaction & integration costs)

Transaction & integration costs on business combination(iii)

3

Operating profit

Finance income

4(f)

Finance expenses

4(f)

Net financing costs

Profit before tax

Income tax expense

5

Profit from continuing operations

Discontinued operations(iv)

Profit from discontinued operations, net of income tax

27

Profit for the period

Other comprehensive income

Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of foreign subsidiaries, net of tax Cashflow hedges, net of tax

Other comprehensive income, net of tax

Total comprehensive income for the period

Earnings per share (cents)

Total

- Basic

6

- Diluted

6

Continuing operations (excluding transaction & integration costs)

- Basic

6

- Diluted

6

Continuing operations

- Basic

6

- Diluted

6

2020 2019(i) Restated(ii)

398,704 381,730

(237,432) (218,801)

161,272 162,929

2,892 2,014

(53,781) (52,033)

(38,020) (34,771)

  1. (22)
    71,840 78,117
    (1,543) (8,737)
    70,297 69,380

156414

(8,800) (6,225)

(8,644) (5,811)

61,653 63,569

(17,767) (20,327)

43,886 43,242

  • 50,802
    43,886 94,044

(1,740) (1,238)

(3,120) (3,086)

(4,860) (4,324)

39,026 89,720

16.635.6

16.535.5

17.019.3

16.919.2

16.616.4

16.516.3

The consolidated statement of profit or loss and other comprehensive income is to be read in conjunction with the accompanying notes.

  1. The results for the year ended 30 June 2019 include the results from Methven Limited from the date of acquisition (10 April 2019). Refer to Note 3 for further information.
  2. Refer to Note 13 for information on the impact of the adoption of AASB 16 Leases, including restatement of comparatives.
  3. Transaction & integration costs are a form of 'other expenses' however disclosed separately due to their significance.
  4. The Door & Access Systems' business was sold with an effective date of 3 July 2018 and is classified as a discontinued operation in the above statement. Refer to Note 27 for further information.

2

GWA Group Limited and its controlled entities

Consolidated statement of financial position

As at

Note

30 June 2020

30 June 2019

1 July 2018

In thousands of AUD

Restated(i)

Restated(i)

Current assets

Cash and cash equivalents

7

32,359

39,637

27,860

Trade and other receivables

8

56,628

71,057

61,476

Inventories

9

78,782

75,262

70,029

Derivative financial instruments

19

-

1,656

4,777

Other

3,772

2,413

4,178

Assets classified as held for sale

27

-

-

61,912

Total current assets

171,541

191,790

228,467

Non-current assets

Deferred tax assets

10

15,990

15,512

10,666

Property, plant and equipment

11

24,830

20,804

14,906

Intangible assets

12

421,226

422,091

286,808

Right of use assets

13

67,833

48,288

47,549

Other

-

71

297

Total non-current assets

529,879

506,766

360,226

Total assets

701,420

698,556

588,693

Current liabilities

Trade and other payables

14

43,699

55,495

42,934

Loans and borrowings

17

27,000

-

-

Employee benefits

15

5,120

5,786

4,371

Income tax payable

5

137

947

6,532

Lease liabilities

13

11,458

8,325

8,555

Provisions

16

6,438

9,141

7,341

Derivative financial instruments

19

4,315

1,448

156

Liabilities classified as held for sale

27

-

-

12,025

Total current liabilities

98,167

81,142

81,914

Non-current liabilities

Deferred tax liability

10

102,846

102,842

85,247

Trade and other payables

14

696

659

718

Loans and borrowings

17

148,400

177,759

125,000

Lease liabilities

13

63,138

44,343

42,725

Employee benefits

15

4,310

3,884

4,427

Provisions

16

4,132

1,171

1,631

Total non-current liabilities

323,522

330,658

259,748

Total liabilities

421,689

411,800

341,662

Net assets

279,731

286,756

247,031

Equity

Issued capital

18

307,790

307,790

307,790

Reserves

(5,758)

(1,038)

4,451

Retained earnings

(22,301)

(19,996)

(65,210)

Total equity

279,731

286,756

247,031

The consolidated statement of financial position should be read in conjunction with the accompanying notes.

  1. Refer to Note 13 for information on the impact of the adoption of AASB 16 Leases, and Note 1(c)(i) for information on the impact of the adoption of the IFRS IC (Interpretation Committee) decision, including restatement of comparatives.

3

GWA Group Limited and its controlled entities

Consolidated statement of cash flows

2019(i)

For the year ended 30 June

Note

2020

Restated(ii)

In thousands of AUD

Cash flows from operating activities

461,319

Receipts from customers

424,661

Payments to suppliers and employees

(374,567)

(328,988)

Cash generated from operations

86,752

95,673

Interest and facility fees paid

(5,431)

(3,357)

Lease interest paid

(2,683)

(2,058)

Interest received

159

225

Income taxes paid

(17,845)

(22,853)

Net cash from operating activities

7(b)

60,952

67,630

Cash flows from investing activities

Proceeds from sale of property, plant and equipment

35

210

Acquisition of property, plant and equipment

(10,044)

(3,137)

Acquisition of intangible assets

(2,308)

(1,399)

Proceeds from business disposal, net of transaction costs

-

98,883

Acquisition of subsidiary, net of cash acquired

3

-

(108,671)

Net cash used in investing activities

(12,317)

(14,114)

Cash flows from financing activities

293,145

Proceeds from borrowings

193,759

Repayment of borrowings

(293,827)

(177,275)

Dividends paid

(46,191)

(48,830)

Repayment of lease liability

(8,384)

(11,452)

Net cash used in financing activities

(55,257)

(43,798)

Net (decrease) / increase in cash and cash equivalents

(6,622)

9,718

Cash and cash equivalents at the beginning of the year

39,637

29,070

Effect of exchange rate changes

(656)

849

Cash and cash equivalents at 30 June

32,359

39,637

The consolidated statement of cash flows is to be read in conjunction with the accompanying notes.

  1. The cashflows for the year ended 30 June 2019 include the cashflows from Methven Limited from the date of acquisition (10 April 2019). Refer to Note 3 for further information.
  2. Refer to Note 13 for information on the impact of the adoption of AASB 16 Leases, including restatement of comparatives.
  3. The Door & Access Systems' business was sold with an effective date of 3 July 2018 and is classified as a discontinued operation. The above cash flows are inclusive of discontinued operations. Refer to Note 27 for further information regarding discontinued operations including summarised cash flow information.

4

GWA Group Limited and its controlled entities

Consolidated statement of changes in equity

For the year ended 30 June 2020

In thousands of AUD

Equity

Share

Translation

Hedging

Compensation

Retained

Capital

Reserve

Reserve

Reserve

Earnings

Total

Balance as at 1 July 2019 - Restated(i)(ii)

307,790

(2,399)

149

1,212

(19,996)

286,756

Total comprehensive income

for the period

Profit for the period

-

-

-

-

43,886

43,886

Other comprehensive income

Exchange differences on translation of

foreign subsidiaries, net of tax

-

(1,740)

-

-

-

(1,740)

Cash flow hedges, net of tax

-

-

(3,120)

-

-

(3,120)

Total other comprehensive income

-

(1,740)

(3,120)

-

-

(4,860)

Total comprehensive income

-

(1,740)

(3,120)

-

43,886

39,026

Transaction with owners, recorded

directly in equity

Share-based payments, net of tax

-

-

-

140

-

140

Dividends paid

-

-

-

-

(46,191)

(46,191)

Total transactions with owners

-

-

-

140

(46,191)

(46,051)

Balance at 30 June 2020

307,790

(4,139)

(2,971)

1,352

(22,301)

279,731

For the year ended 30 June 2019

In thousands of AUD

Equity

Share

Translation

Hedging

compensation

Retained

capital

reserve

reserve

reserve

earnings

Total

Balance as at 1 July 2018

307,790

(1,161)

3,235

2,377

21,160

333,401

Transition impact of AASB 16 Leases (i)

-

-

-

-

(1,123)

(1,123)

Impact on adoption of IFRS IC decision(ii)

-

-

-

-

(85,247)

(85,247)

Balance as at 1 July 2018 restated

307,790

(1,161)

3,235

2,377

(65,210)

247,031

Total comprehensive income

for the period

Profit for the period

-

-

-

-

94,044

94,044

Other comprehensive income

Exchange differences on translation of

foreign subsidiaries, net of tax

-

(1,238)

-

-

-

(1,238)

Cash flow hedges, net of tax

-

-

(3,086)

-

-

(3,086)

Total other comprehensive income

-

(1,238)

(3,086)

-

-

(4,324)

Total comprehensive income

-

(1,238)

(3,086)

-

94,044

89,720

Transaction with owners, recorded

directly in equity

Share-based payments, net of tax

-

-

-

(1,165)

-

(1,165)

Dividends paid

-

-

-

-

(48,830)

(48,830)

Total transactions with owners

-

-

-

(1,165)

(48,830)

(49,995)

Balance at 30 June 2019

307,790

(2,399)

149

1,212

(19,996)

286,756

The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes.

  1. Refer to Note 13 for information on the impact of the adoption of AASB 16 Leases, including restatement of comparatives.
  2. Refer to Note 1(c)(i) for information on the impact of the adoption of the IFRS IC (Interpretation Committee) decision.

5

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section I: Overview

1. Significant accounting policies

GWA Group Limited (the 'Company') is a for-profit company domiciled in Australia. The consolidated financial report of the Company for the financial year ended 30 June 2020 comprises the Company and its subsidiaries (together referred to as the 'consolidated entity').

The principal activities of the consolidated entity during the year were the research, design, manufacture, import, and marketing of building fixtures and fittings to residential and commercial premises and the distribution of these various products through a range of distribution channels in Australia, New Zealand and selected international markets.

The financial report was authorised for issue by the directors on 17 August 2020.

  1. Statement of compliance
    The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards ('AASB') adopted by the Australian Accounting Standards Board ('AASB') and the Corporations Act 2001. The consolidated entity's financial report complies with International Financial Reporting Standards ('IFRS') adopted by the International Accounting Standards Board ('IASB').
  2. Basis of preparation
    The financial report is presented in Australian dollars which is the Company's functional currency and the functional currency of the majority of the consolidated entity.
    The financial report is prepared on the historical cost basis except for derivative financial instruments which are measured at fair value.
    The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Report) Instrument 2016/191 dated 24 March 2016 and in accordance with that Instrument, amounts in the financial report and Directors' Report have been rounded to the nearest thousand dollars, unless otherwise stated.
    The preparation of a financial report requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
    The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes:
    • Note 3 - valuation of identifiable assets and liabilities of businesses acquired
    • Note 12 - measurement of the recoverable amounts of intangible assets
    • Note 19 - valuation of financial instruments

The accounting policies set out in this consolidated financial report have been applied consistently to all periods presented. The accounting policies have been applied consistently by all entities in the consolidated entity. The entity has elected not to early adopt any accounting standards or amendments.

Certain comparative information included in note disclosures have been amended in these financial statements to conform to the current year presentation.

6

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section I: Overview (continued)

1. Significant accounting policies (continued)

  1. Changes in accounting policies, disclosures, standards and interpretations
  1. Standards and Interpretations affecting amounts reported in the current period
    The following new and revised Standards and Interpretations have been adopted by the consolidated entity for the first time for the year ended 30 June 2020:
    • AASB 16 Leases
    • IFRS Interpretations Committee Decision on Multiple Tax Consequences of Recovering an Asset
    • AASB Interpretation 23 Uncertainty over Income Tax Treatments
  • AASB 2018-1 Annual Improvements to IFRS Standards 2015-2017 Cycle Refer to Note 13 for the impact of adopting AASB 16 Leases.

In May 2020, the IFRS Interpretations Committee published its final agenda decision 'Multiple Tax Consequences of Recovering an Asset (IAS 12 Income Taxes)' which considers how an entity accounts for deferred taxes on an asset that has two distinct tax consequences over its life that cannot be offset (taxable economic benefits from use and capital gains on disposal or expiry). The IFRS Interpretations Committee concluded that in these circumstances an entity identifies separate temporary differences (and deferred taxes) that reflect these distinct and separate tax consequences of recovering the asset carrying amount.

The consolidated entity's accounting policy had been to consider these two tax consequences of recovering the assets carrying amount together as they crystallised over the asset's life, irrespective of how the asset was recovered.

As a result of the May 2020 IFRS Interpretation Committee's decision, the consolidated entity has changed its accounting policy, retrospectively adjusting the deferred tax accounting for impacted intangible assets (brand names) which were acquired prior to the adoption of IFRS.

The impact of this change as at 1 July 2018 was as follows:

In thousands of AUD

Adjustment

Decrease in retained earnings

85,247

(Increase in) deferred tax liabilities

(85,247)

The initial adoption of all other Standards and Interpretations listed above have not had a material impact on the amounts reported, or disclosures made, in the consolidated financial report.

7

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section I: Overview (continued)

1. Significant accounting policies (continued)

  1. Changes in accounting policies, disclosures, standards and interpretations (continued)
  1. Standards and Interpretations issued but not yet effective
    At the date of authorisation of the consolidated financial statements, the following Standards and Interpretations were issued but not yet effective.

AASB 2018‐6 Definition of a Business - Amendments to AASB 3

Effective for the

Expected to be

annual reporting

initially applied in

period beginning on

the period ending

1 January 2020

30 June 2021

AASB 2019‐3 Interest Rate Benchmark Reform - Amendments to AASB 9, AASB 139 and AASB 7

AASB 2018‐7 Definition of Material - Amendments to IAS 1 and IAS 8

AASB 2019‐1 Amendments to The Conceptual Framework for Financial Reporting

AASB 2020‐1 Classification of Liabilities as Current or Non‐ current ‐ Amendments to IAS 1

1 January 2020

30 June 2021

1 January 2020

30 June 2021

1 January 2020

30 June 2021

1 January 2022

30 June 2023

The consolidated entity is assessing the potential impact of the above standards and interpretations issued but not yet effective on its consolidated financial statements.

  1. Basis of consolidation
  1. Business combinations
    The consolidated entity accounts for business combinations using the acquisition method when control is transferred to the consolidated entity. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the business combination date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity issued by the acquirer, and the amount of any non-controlling interest in the acquiree. Transaction costs are expensed as incurred.
  2. Subsidiaries
    Subsidiaries are entities controlled by the consolidated entity. The consolidated entity controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial results and balances of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.
  3. Transactions eliminated on consolidation
    Intra-group balances and transactions, and unrealised income and expense arising from intra-group transactions, are eliminated.

8

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section I: Overview (continued)

1. Significant accounting policies (continued)

  1. Foreign currency
  1. Foreign currency transactions
    Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to Australian dollars at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are retranslated to Australian dollars using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Australian dollars at foreign exchange rates ruling at the date the fair value was determined.
  2. Financial statements of foreign operations
    The revenues and expenses of foreign operations are translated to Australian dollars at rates approximating the foreign exchange rates ruling at the dates of the transactions.
    The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Australian dollars at foreign exchange rates ruling at the reporting date. Foreign exchange differences arising on retranslation at balance date are recognised in other comprehensive income, and presented in the foreign currency translation reserve (FCTR) in equity. Hedge instrument movements of a hedge of a net investment in a foreign operation is also recognised in the FCTR to the extent the hedge is effective.
    When a foreign operation is disposed such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.
  1. Current vs non-current classification
    The consolidated entity presents assets and liabilities in the consolidated statement of financial position based on current/non-current classification.
    An asset is current when it is:
    • Expected to be realised or intended to be sold or consumed in the normal operating cycle;
    • Expected to be realised within twelve months after the reporting period;
    • Held primarily for trading; or
    • Cash and cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when:

  • It is expected to be settled in the normal operating cycle;
  • It is due to be settled within twelve months after the reporting period;
  • Held primarily for trading; or
  • There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

All other liabilities are classified as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

9

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year

2. Operating segments

The consolidated entity has one continuing reportable segment, Water Solutions. This amalgamates the two continuing reportable segments reported in the 30 June 2019 financial report (Bathrooms and Kitchens, and Methven) following continued integration. This segment includes the sale of vitreous china toilet suites, basins, plastic cisterns, taps and showers, baths, kitchen sinks, laundry tubs, domestic water control valves, smart products and bathroom accessories. The CEO reviews internal management reports on a monthly basis.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before interest and income tax ('EBIT'), and excludes transaction and integration costs, in line with management reports that are reviewed by the CEO. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of the segment relative to other entities that operate in these industries.

Discontinued operations includes the Door & Access Systems' business that was sold with an effective date of 3 July 2018. Refer to Note 27 for further information regarding discontinued operations.

In thousands of AUD

Water Solutions

Discontinued

Total

For the year ended 30 June

2020

2019

2020

2019

2020

2019

Sales revenue

398,704

381,730

-

-

398,704

381,730

Segment EBIT before gain on sale(i)

71,840

78,117

-

-

71,840

78,117

Gain on sale(i)

-

-

-

50,060

-

50,060

Segment EBIT

71,840

78,117

-

50,060

71,840

128,177

Depreciation (property, plant and equipment)

5,303

3,734

-

-

5,303

3,734

Depreciation (right of use assets)

12,956

9,951

-

-

12,956

9,951

Amortisation

2,107

1,224

-

-

2,107

1,224

Capital expenditure

12,317

4,326

-

-

12,317

4,326

As at 30 June

2020

2019

2020

2019

2020

2019

Reportable segment assets

701,420

698,556

-

-

701,420

698,556

Reportable segment liabilities

421,689

411,800

-

-

421,689

411,800

Reconciliation of profit

For the year ended 30 June

2020

2019

Total EBIT for reportable segments

71,840

128,177

Elimination of discontinued operations

-

(50,060)

Transaction and integration costs on business combination

(1,543)

(8,737)

Operating profit from continuing operations

70,297

69,380

  1. Gain on sale of discontinued operations excluding tax benefit. Refer to Note 27 for further information regarding the gain on sale of discontinued operations.

10

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year (continued)

2. Operating segments (continued)

Geographical information

In thousands of AUD

Australia

New Zealand

Other

Consolidated

For the year ended 30 June

2020

2019

2020

2019

2020

2019

2020

2019

External sales revenue

323,183

342,406

47,319

31,401

28,202

7,923

398,704

381,730

Non-current assets

470,869

444,078

37,588

40,884

21,422

21,804

529,879

506,766

The revenue information above is based on the geographical location of customers. Non-current assets are based on the geographical location of the assets.

Major customers

The consolidated entity conducts business with four customers (2019: four) where the net revenue generated from each customer exceeds 10% of the consolidated entity's net revenue. Net revenue from these customers was:

For the year ended 30 June

2020

2019

In thousands of AUD

Customer 1

85,091

79,370

Customer 2

64,545

45,183

Customer 3

49,456

65,136

Customer 4

40,637

48,122

3. Business combination

On 10 April 2019, the consolidated entity acquired 100% of the share capital of Methven Limited.

The acquisition provides a number of strategic benefits, strengthening the consolidated entities' position in Water Solutions across Australia and New Zealand, provides a platform for international growth, and opportunity to realise product, freight, logistics, and public company cost savings.

The fair value of the identifiable assets and liabilities of Methven as at the date of the acquisition as disclosed on the following page have been finalised during the year ended 30 June 2020 and changes to provisional values retrospectively reflected in the comparative period presented.

The $68,505,000 of goodwill recognised comprises the value of synergies to be achieved as a result of combining Methven Limited and its subsidiaries ('Methven') with the rest of the consolidated entity, as well as intangible assets that do not qualify for separate recognition. None of the goodwill recognised is expected to be deductible for tax purposes.

The goodwill has been allocated to the Water Solutions group of cash-generating units (CGU's).

11

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year (continued)

3.

Business combination (continued)

In thousands of AUD

10 April 2019

Cash and cash equivilents

3,762

Trade and other receivables

14,518

Inventories

20,371

Other assets

1,867

Deferred tax assets

5,804

Property, plant and equipment

6,304

Intangible assets

68,336

Right of use assets

9,095

Trade and other payables

(17,457)

Employee benefits

(1,636)

Income tax payable

(226)

Deferred tax liabilities

(17,663)

Loans and borrowings

(36,275)

Provisions

(3,606)

Lease liabilities

(9,095)

Derivative financial instruments

(171)

Fair value of identifiable net assets

43,928

Goodwill arising on acquisition

68,505

112,433

Cash paid

112,433

Acquisition date fair value of consideration transferred

112,433

Cash acquired on acquisition

3,762

Cash paid

(112,433)

Net consolidated cash outflow

(108,671)

The fair value of the acquired receivables amounts to $14,518,000. The gross contractual amount

receivable was $14,551,000, however only the fair value amount is expected to be collected. Various

valuation techniques were used to determine fair value of the identifiable assets and liability of

Methven. The relief-from-royalty method was used to value brand names and patented technology

(intangible assets) acquired.

Transaction and integration costs on business combination are as follows:

For the year ended 30 June 2019

Direct costs relating to the acquisition

5,843

Integration costs

2,894

Transaction and integration costs on business combination

8,737

Income tax benefit

(1,140)

7,597

For the year ended 30 June 2020

-

Direct costs relating to the acquisition

Integration costs

1,543

Transaction and integration costs on business combination

1,543

Income tax benefit

(506)

1,037

Total

5,843

Direct costs relating to the acquisition

Integration costs

4,437

Transaction and integration costs on business combination

10,280

Income tax benefit

(1,646)

8,634

12

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year (continued)

4. Income and Expenses

(a) Sales revenue

In thousands of AUD

2020

2019

Sales revenue

398,704

381,730

Sales revenue is recognised on the satisfaction of each performance obligation the consolidated entity has with its customers, and is measured based on an allocation of the contract's transaction price. The consolidated entity's key performance obligation is the delivery of goods to its customers with typical payment terms of 30 days. Key components of the transaction price include the price for the goods, along with retrospective rebates and stock return estimates.

Refer to Note 2 geographical information for disaggregated revenue information.

  1. Other income

In thousands of AUD

2020

2019

Foreign currency gains

968

106

Other - transitional services income, scrap income, royalties

876

1,908

Government grant income

1,048

-

2,892

2,014

Government grant income relates to employment assistance funding provided by governments in response to the coronavirus. These grants have been recognised in other income where there is reasonable assurance that the grant will be received and all attached conditions will be complied with.

  1. Cost of sales

In thousands of AUD

2020

2019

Cost of sales

237,432

218,801

Cost of sales comprises the cost of manufacturing and purchase of goods including supply chain costs such as freight and warehousing.

(d)

Other expenses

In thousands of AUD

2020

2019

Foreign currency losses

94

22

Other

429

-

523

22

(e)

Personnel expenses

In thousands of AUD

2020

2019

Wages and salaries - including superannuation contributions,

annual leave and long service leave

69,554

60,912

Equity-settledshare-based payment transactions

1,431

1,113

70,985

62,025

Defined contribution superannuation funds

The consolidated entity makes contributions to defined contribution superannuation funds. A defined contribution superannuation fund is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution superannuation funds are recognised as an employee benefit expense in profit or loss in the periods during which the services are rendered by employees. The amount recognised as an expense was $3,948,000 for the financial year ended 30 June 2020 (2019: $3,738,000) for continuing operations.

13

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year (continued)

4. Income and Expenses (continued)

(f)

Net financing costs

In thousands of AUD

2020

2019

Finance income

156

414

Finance expense

Interest expense on financial liabilities

4,910

3,572

Interest expense on swaps

910

331

Fees on financial liabilities including amortisation

297

272

Interest on lease liabilities

2,683

2,050

8,800

6,225

Net financing costs

8,644

5,811

Net financing costs comprise interest payable on borrowings calculated using the effective interest method, interest receivable on funds invested and gains and losses on hedging instruments that are recognised in profit or loss. Borrowing costs are expensed as incurred unless they relate to qualifying assets. Interest income is recognised in profit or loss as it accrues, using the effective interest method.

5.

Income tax expenses

In thousands of AUD

2020

2019

Current tax expense from continuing operations

Current year

17,792

17,997

Adjustments for prior years

(945)

(81)

16,847

17,916

Deferred tax (benefit) / expense from continuing operations

Origination and reversal of temporary differences

920

2,411

Tax expense from continuing operations

17,767

20,327

Tax (benefit) / expense from discontinued operations

-

(742)

Total tax expense for the consolidated entity

17,767

19,585

Numerical reconciliation between tax expense and pre-tax profit

In thousands of AUD

2020

2019

Profit from continuing operations before tax

61,653

63,569

Profit from discontinued operations before tax

-

50,060

Profit before tax for the consolidated entity

61,653

113,629

Tax expense using the domestic rate of 30%

18,496

34,089

Tax expense / (benefit) due to:

Non-deductible expenses

256

196

Effect of tax rate in foreign jurisdictions

(178)

(24)

Non-deductible transaction & integration costs on business

71

1,454

Non-assessable accounting gain on disposal of discontinued

-

(15,760)

operations on capital account

Rebateable research and development

(129)

(158)

Other items

196

(131)

(Over) / under provided in prior years

18,712

19,666

(945)

(81)

Income tax expense on pre-tax profit for the consolidated entity

17,767

19,585

14

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year (continued)

5.

Income tax expenses (continued)

Deferred tax recognised directly in equity

In thousands of AUD

2020

2019

Cash flow hedges

(1,396)

(1,320)

Share buy-back costs (2019: share buy-back and capital return

2

25

costs)

(1,394)

(1,295)

Current tax liability

In thousands of AUD

2020

2019

Current tax liability

137

947

Income tax

Tax expense comprises current and deferred tax. Current and deferred taxes are recognised in profit or loss except to the extent that they relate to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

  • temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
  • temporary differences related to investments in subsidiaries and associates and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future;
  • taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.

In determining the amount of current and deferred tax, the consolidated entity takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The consolidated entity believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the consolidated entity to change its judgements regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

15

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year (continued)

  1. Income tax expenses (continued)
    The Company and its wholly-Australian resident entities are part of a tax-consolidated group. As a consequence, all members of the tax-consolidated group are taxed as a single entity. The head entity within the tax-consolidated group is GWA Group Limited.
    The current tax liability for the consolidated entity represents the amount of income taxes payable. In accordance with tax consolidation legislation, the Company as the head entity of the Australian tax- consolidated group has assumed the current tax liability initially recognised by the members in the tax- consolidated group.
    Goods and Services Tax
    Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.
    Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the statement of financial position.
    Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows.
  2. Earnings per share

In cents

2020

2019

Total

- Basic

16.6

35.6

- Diluted

16.5

35.5

Continuing operations

- Basic

16.6

16.4

- Diluted

16.5

16.3

- Basic (excluding transaction & integration costs)

17.0

19.3

- Diluted (excluding transaction & integration costs)

16.9

19.2

Discontinued operations

- Basic

-

19.2

- Diluted

-

19.2

Basic earnings per share (EPS) is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

16

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section II: Results for the year (continued)

6. Earnings per share (continued)

The calculation of basic and diluted EPS has been based on the following profit attributable to ordinary shareholders.

Profit attributable to ordinary shareholders - basic and diluted

In thousands of AUD

2020

2019

Continuing operations

Profit before transaction & integration costs

44,923

50,839

Net transaction & integration costs

(1,037)

(7,597)

Profit for the year from continuing operations

43,886

43,242

Profit for the year from discontinued operations

-

50,802

Profit for the year

43,886

94,044

The calculation of basic earnings per share has been based on the following weighted average number of shares outstanding.

Weighted average number of ordinary shares (basic)

In thousands of shares

2020

2019

Issued ordinary shares at 1 July

263,948

263,948

Weighted average number of ordinary shares

263,948

263,948

The calculation of diluted earnings per share has been based on the following weighted average number of ordinary shares outstanding adjusted for the effects of all dilutive potential ordinary shares.

Weighted average number of ordinary shares (diluted)

In thousands of shares

Weighted average number of ordinary shares (basic) Effect of performance rights on issue

Weighted average number of ordinary shares (diluted)

2020 2019

263,948 263,948

1,306 1,197

265,254 265,145

17

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities

7. Cash and cash equivalents

(a) Balances

In thousands of AUD

2020

2019

Bank balances

32,359

39,637

Cash and cash equivalents

32,359

39,637

Cash and cash equivalents comprise cash balances and call deposits with an original maturity date of three months or less.

The consolidated entity's exposure to interest rate risk and a sensitivity analysis for financial assets and liabilities are disclosed in Note 19.

  1. Reconciliation of cash flows from operating activities to net profit

In thousands of AUD

2020

2019

Profit for the year

43,886

94,044

Adjustments for:

18,259

13,685

Depreciation

Amortisation

2,107

1,224

Share-based payments

(1,719)

(1,624)

Unrealised foreign exchange loss / (gain)

(713)

(36)

Loss / (gain) on sale of PP&E and intangible assets

429

(160)

Gain on sale of the Door & Access Systems' business

-

(50,802)

Cash flow hedge movements

4,523

4,413

Other non-cash movements

(4,177)

2,799

Changes in assets and liabilities:

14,429

4,938

Decrease in trade and other receivables

(Increase) / Decrease in inventories

(3,521)

15,879

Decrease in prepayments

478

328

(Decrease) in trade payables and accrued expenses

(11,759)

(8,299)

(Decrease) in deferred taxes and in taxes payable

(1,288)

(7,032)

Increase / (Decrease) in provisions and employee benefits

18

(1,727)

Net cash flows from operating activities

60,952

67,630

18

GWA Group Limited and its controlled entities Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

8. Trade and other receivables

In thousands of AUD

Net trade receivables

Other

2020 2019

56,080 70,151

548906

56,628 71,057

Trade receivables are initially measured at the transaction price determined under AASB 15 (refer to Note 4(a)) and subsequently measured at amortised cost using the effective interest rate (EIR) method and are subject to impairment. Impairment losses are recognised in profit or loss and reflected in an allowance account against trade receivables.

The consolidated entity recognises an allowance for expected credit losses (ECLs) for trade receivables. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows expected to be received, discounted at an approximation of the original EIR.

The consolidated entity applies a simplified approach in calculating ECLs. Therefore, the consolidated entity does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The consolidated entity has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

The consolidated entity's exposure to credit and currency risk and impairment loss related to trade and other receivables are disclosed in Note 19.

9.

Inventories

In thousands of AUD

2020

2019

Raw materials and consumables

4,268

3,861

Work in progress

181

466

Finished goods

74,333

70,935

78,782

75,262

Inventories are measured at the lower of cost and net realisable value.

The cost of inventories is based on the first-infirst-out principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The future estimated recoverability of inventory was determined with consideration of excess inventory volumes (i.e. ageing analysis), discontinued product lines and risk weightings applied by management with reference to their assessment of recovery rates.

19

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

10. Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

Assets

Liabilities

Net

In thousands of AUD

2020

2019

2020

2019

2020

2019

Property, plant & equipment

1,141

1,348

(1,273)

(924)

(132)

424

Non-indefinite life intangibles

660

732

(960)

(777)

(300)

(45)

Indefinite life intangibles

-

-

(102,846)

(102,842)

(102,846)

(102,842)

Inventories

4,661

4,294

-

-

4,661

4,294

Employee benefits

2,816

2,934

-

-

2,816

2,934

Provisions

2,914

3,070

-

-

2,914

3,070

Leases

1,449

652

-

-

1,449

652

Other items

4,831

4,183

(249)

-

4,582

4,183

Tax assets / (liabilities)

18,472

17,213

(105,328)

(104,543)

(86,856)

(87,330)

Set off of tax

(2,482)

(1,701)

2,482

1,701

-

-

Net tax assets / (liabilities)

15,990

15,512

(102,846)

(102,842)

(86,856)

(87,330)

Movement in temporary differences during the year

Balance

Recognised

Recognised

Exchange

Balance

In thousands of AUD

1 July 19

in income

in equity

differences 30 June 20

Property, plant & equipment

424

(539)

-

(17)

(132)

Non-indefinite life intangibles

(45)

(257)

-

2

(300)

Indefinite life intangibles

(102,842)

-

-

(4)

(102,846)

Inventories

4,294

386

-

(19)

4,661

Employee benefits

2,934

(110)

-

(8)

2,816

Provisions

3,070

(132)

-

(24)

2,914

Leases

652

787

-

10

1,449

Other items

4,183

(988)

1,394

(7)

4,582

(87,330)

(853)

1,394

(67)

(86,856)

Acquisition

Balance

Recognised

Recognised

Exchange

of

Balance

In thousands of AUD

1 July 18

in income

in equity

differences

subsidiary 30 June 19

Property, plant & equipment

(311)

(626)

-

(5)

1,366

424

Non-indefinite life intangibles

752

(21)

-

2

(778)

(45)

Indefinite life intangibles

(85,247)

-

-

68

(17,663)

(102,842)

Inventories

2,763

(1,430)

-

(5)

2,966

4,294

Employee benefits

2,638

(184)

-

(1)

481

2,934

Provisions

3,229

(1,434)

-

(1)

1,276

3,070

Leases

491

273

-

(2)

(110)

652

Other items

1,104

975

1,295

206

603

4,183

(74,581)

(2,447)

1,295

262

(11,859)

(87,330)

Unrecognised deferred tax assets

Deferred tax assets have not been recognised in respect of the following items:

In thousands of AUD

2020

2019

Capital losses

15,203

15,203

Revenue losses from foreign jurisdictions

-

-

The deductible capital losses accumulated at balance date do not expire under current tax legislation. Refer to Note 5 for the consolidated entity's accounting policy on deferred tax.

20

GWA Group Limited and its controlled entities Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

11. Property, plant and equipment

In thousands of AUD

Cost

Balance at 1 July 2019 Additions

Disposals

Transfers

Exchange rate movements Balance at 30 June 2020

Balance at 1 July 2018 Additions

Acquisition of controlled entities Disposals

Transfers

Exchange rate movements Balance at 30 June 2019

Accumulated depreciation

Balance at 1 July 2019 Depreciation Disposals

Exchange rate movements Balance at 30 June 2020

Balance at 1 July 2018 Depreciation Disposals

Exchange rate movements Balance at 30 June 2019

Carrying amounts

As at 30 June 2020

As at 30 June 2019

Plant and

Work in

equipment

progress

Total

47,311

2,342

49,653

11,507

232

11,739

(9,466)

-

(9,466)

681

(681)

-

(1,167)

(26)

(1,193)

48,866

1,867

50,733

39,712

961

40,673

2,614

504

3,118

4,648

1,656

6,304

(680)

-

(680)

828

(828)

-

189

49

238

47,311

2,342

49,653

(28,849)

-

(28,849)

(5,303)

-

(5,303)

8,205

-

8,205

44

-

44

(25,903)

-

(25,903)

(25,767)

-

(25,767)

(3,734)

-

(3,734)

680

-

680

(28)

-

(28)

(28,849)

-

(28,849)

22,963

1,867

24,830

18,462

2,342

20,804

21

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

11. Property, plant and equipment (continued)

Recognition and Measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site where they are located, and an appropriate proportion of production overheads. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

The consolidated entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the consolidated entity and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs are recognised in profit or loss as an expense as incurred.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within 'other income' or 'other expenses' in profit or loss.

Depreciation

Depreciation is recognised in profit or loss as incurred on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives in the current and comparative periods are as follows:

plant and equipment

3-15 years

The residual value, the useful life and the depreciation method applied to an asset are reassessed annually.

Impairment

The carrying values of property, plant and equipment are reviewed for impairment at each reporting date, with the recoverable amount being estimated when events or changes in circumstances indicate that the carrying value may be impaired. The recoverable amount of property, plant and equipment is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For an asset that does not generate largely independent cash inflows, recoverable amount is determined for the cash-generating unit to which the asset belongs, unless the asset's value in use can be estimated to be close to its fair value.

An impairment exists when the carrying value of an asset or cash-generating unit exceeds its estimated recoverable amount. The asset or cash-generating unit is then written down to its recoverable amount. Impairment losses are recognised in profit or loss.

22

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

12. Intangible assets

Trade names,

Brand

designs and

In thousands of AUD

Software

names

patents

Goodwill

Total

Cost

Balance at 1 July 2019

31,618

346,968

5,007

67,246

450,839

Additions

1,615

-

291

-

1,906

Disposals

(178)

-

(168)

-

(346)

Exchange rate movements

(10)

(113)

(103)

(310)

(536)

Balance at 30 June 2020

33,045

346,855

5,027

66,936

451,863

Balance at 1 July 2018

30,202

284,181

-

-

314,383

Acquisition of controlled entities

474

63,208

4,654

68,505

136,841

Additions

950

-

478

-

1,428

Disposals

-

-

(50)

-

(50)

Exchange rate movements

(8)

(421)

(75)

(1,259)

(1,763)

Balance at 30 June 2019

31,618

346,968

5,007

67,246

450,839

Accumulated amortisation

Balance at 1 July 2019

(28,748)

-

-

-

(28,748)

Amortisation

(1,423)

-

(684)

-

(2,107)

Disposals

52

-

160

-

212

Exchange rate movements

2

-

4

-

6

Balance at 30 June 2020

(30,117)

-

(520)

-

(30,637)

Balance at 1 July 2018

(27,575)

-

-

-

(27,575)

Amortisation

(1,224)

-

-

-

(1,224)

Disposals

-

-

-

-

-

Exchange rate movements

51

-

-

-

51

Balance at 30 June 2019

(28,748)

-

-

-

(28,748)

Carrying amounts

As at 30 June 2020

2,928

346,855

4,507

66,936

421,226

As at 30 June 2019

2,870

346,968

5,007

67,246

422,091

23

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

12. Intangible assets (continued)

Recognition and measurement

Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Goodwill acquired in business combinations is initially measured at cost being the excess of the cost of the business combination over the consolidated entity's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities.

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific assets to which it relates. All other expenditure is expensed as incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised only if the product or process is technically and commercially feasible and the consolidated entity has sufficient resources to complete development.

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the profit or loss as incurred. Expenditure incurred in developing, maintaining or enhancing brand names is recognised in the Income Statement in the year in which it is incurred.

Amortisation

Amortisation is recognised in the Income Statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets are amortised from the date they are available for use. The estimated useful lives in the current and comparative periods are as follows:

goodwill

indefinite

brand names

indefinite

software

3-5 years

trade names

10-20 years

designs

15 years

patents

3-19 years (based on patent term)

Brand names are not amortised as the directors believe that they have an indefinite useful life.

Impairment

Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired.

Intangible assets with an indefinite useful life are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value is impaired.

An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its recoverable amount.

The recoverable amount of an asset or CGU is the greater of its own value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

24

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

12. Intangible assets (continued)

Impairment (continued)

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU's. Subject to an operating segment ceiling test, CGU's to which goodwill has been allocated are aggregated so that the level at which impairment is tested reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGU's that are expected to benefit from the synergies of the combination.

Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGU's are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or group of CGU's), and then to reduce the carrying amounts of the other assets in the CGU (or group of CGU's) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Carrying value of brand names and goodwill for each cash generating unit and segment

In thousands of AUD

2020

2019

Water Solutions (2019: Bathroom & Kitchens)

413,791

284,199

Unallocated

-

130,015

413,791

414,214

Unallocated brand names and goodwill for 2019 pertained to provisional purchase price accounting for the business combination of Methven Limited. Refer to Note 3 for further information.

Impairment testing for brand names and goodwill

The recoverable amounts of Water Solutions' brand names and goodwill were assessed as at 30 June 2020 based on internal value in use calculations and no impairment was identified (2019: nil).

Value in use was determined by discounting the future cash flows to be generated from the continuing use of the business unit and to which the brand names and goodwill are attached and was based on the following assumptions:

  • Cash flows were projected based on actual operating results and business plans of the units, with projected cash flows to five years before a terminal value was calculated. Maintainable earnings were adjusted for an allocation of corporate overheads.
  • Management used a constant growth rate of 2.7% (2019: 2.6%) in calculating the terminal value, which does not exceed the long-term average growth rate for the industry.
  • A pre-tax discount rate of 9.1% was used (2019: 12.8%).

The key assumptions relate to dwelling completions, economic activity and market share. The values assigned to the key assumptions represent management's assessment of future trends in the Water Solutions industry and are based on both external sources and internal sources (historical data).

The recoverable amount of the CGU exceeds its carrying values as at 30 June 2020 and there are no reasonably possible changes in any of the key assumptions that would cause the CGU's recoverable amount to be less than its carrying amount. Sensitivities included reasonably possible changes in the discount rate (including applying the prior year discount rate), and included sensitivities considering the economic uncertainties due to the coronavirus pandemic based on information available to date.

25

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

13. Leases

Transition to AASB 16 Leases

The consolidated entity has applied AASB 16 Leases using the full retrospective approach, which required restatement of comparative information (30 June 2019 results and balances in these financial statements), including an adjustment to the comparative year's opening retained earnings (1 July 2018).

On transition, the consolidated entity recorded the following adjustments as at 1 July 2018:

In thousands of AUD

Increase to right of use assets Increase to lease liabilities Decrease to payables and provisions Increase to deferred tax assets Decrease to retained earnings

Adjustment

47,549 (51,280)

2,117

491

1,123

The statement of financial position as at 30 June 2019 has been restated as follows:

In thousands of AUD

Increase to right of use assets Increase to lease liabilities Decrease to payables and provisions Increase to deferred tax assets Increase to translation reserves Decrease to retained earnings

Adjustment 48,288 (52,668) 1,940 652 (253) 2,041

The income statement for the year ended 30 June 2019 has been restated as follows:

In thousands of AUD Increase to EBITDA Increase to operating profit Increase to financing costs Decrease to profit before tax Decrease to profit after tax

Policy

Adjustment

(11,017)

(736) 2,050 1,314 918

The consolidated entity enters into non-cancellable lease contracts, largely for the use of office and warehouse facilities. The leases typically run for a period of three to ten years.

The consolidated entity recognises a right of use asset and a lease liability at the lease commencement date.

The right of use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred, and an estimate for site restoration, less any lease incentives received.

The right of use asset is subsequently depreciated using the straight line method from commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the consolidated entity by the end of the lease term or the cost of the right of use asset reflects that the consolidated entity will exercise a purchase option. In that case the right of use asset will be depreciated over the useful life of the underlying asset. The right of use asset is also adjusted for certain remeasurements of the lease liability, and for any impairment losses recognised.

26

GWA Group Limited and its controlled entities

Notes to the interim financial statements

Section III: Assets and Liabilities (continued)

13. Leases (continued)

Policy (continued)

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the consolidated entities' incremental borrowing rate (adjusted to reflect the lease terms, for example, the lease period). The consolidated entity assesses whether it is reasonably certain to exercise the extension options, and if so, includes the option period into the calculation of the lease liability.

The lease liability is remeasured when there is a change in future payments arising from a change in an index or rate, or if there is a changed assessment as to whether it will exercise an extension option.

The consolidated entity has elected not to recognise right of use assets and lease liabilities for leases of low value and/or those that are short term.

The principal component of leased payments forms part of financing cash flows, and the interest component forms part of operating cash flows in the statement of cash flows.

In thousands of AUD

For the year ended 30 June

2020

2019

Amounts recognised in the profit or loss statement

Interest on lease liabilities

2,683

2,058

Depreciation of right of use assets

12,956

9,951

Payments made for low value leases

752

634

16,391

12,643

Amounts recognised in the statement of cash flows

Payments of lease liability principal

(8,384)

(11,452)

Payments of lease liability interest

(2,683)

(2,058)

(11,067)

(13,510)

Right of use assets

Balance as at 1 July

48,288

47,549

Additions to right of use assets

32,340

10,982

Depreciation for the period

(12,956)

(9,951)

Exchange rate movements

161

(292)

Balance as at 30 June

67,833

48,288

Lease liabilities

Balance as at 1 July

(52,668)

(51,280)

Additions to lease liabilities

(30,145)

(13,159)

Accretion of interest

(2,683)

(2,058)

Payments made

11,067

13,510

Exchange rate movements

(167)

319

Balance as at 30 June

(74,596)

(52,668)

Current lease liabilities

(11,458)

(8,325)

Non-current lease liabilities

(63,138)

(44,343)

(74,596)

(52,668)

The following table sets out a maturity analysis of lease

payments, showing the undiscounted lease payments to

be made after the reporting date (and therefore differs

from the carrying amount of lease liabilities).

Less than one year

13,904

11,210

One to two years

11,767

9,003

Two to five years

29,905

21,347

More than five years

29,608

21,944

Total

85,184

63,504

27

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

14. Trade and other payables

In thousands of AUD

2020

2019

Current

Trade payables and accrued expenses

43,699

55,495

Non-current

696

659

Trade payables and accrued expenses

Trade and other payables are initially measured at fair value and subsequently at their amortised cost.

The consolidated entity's exposure to currency risk and liquidity risk related to trade and other payables are disclosed in Note 19.

15. Employee benefits

In thousands of AUD

2020

2019

Current

Liability for annual leave

4,065

4,837

Liability for long service leave

1,055

949

5,120

5,786

Non-current

Liability for long service leave

4,310

3,884

Short-term employee benefits

Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the consolidated entity has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Long-term employee benefits

The consolidated entity's net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The benefit is calculated using expected future increases in wage and salary rates including related on- costs and expected settlement dates, and is discounted to present value using market yields at the reporting date on corporate bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.

28

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section III: Assets and Liabilities (continued)

16. Provisions

Warranties Restructuring

Site

In thousands of AUD

restoration

Other

Total

Balance at 1 July 2019

4,693

1,693

3,438

488

10,312

Additional provisions made / (written back)

(221)

-

1,883

-

1,662

Provisions used

-

(351)

(998)

(19)

(1,368)

Exchange rate differences

(33)

-

(3)

-

(36)

Balance at 30 June 2020

4,439

1,342

4,320

469

10,570

Current

4,439

1,342

551

106

6,438

Non-current

-

-

3,769

363

4,132

4,439

1,342

4,320

469

10,570

Recognition and Measurement

A provision is recognised when the consolidated entity has a present legal or constructive obligation as a result of a past event that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Warranties

The provision for warranties relates to future warranty expenses on products sold during the current and previous financial years. A provision for warranties is recognised when the underlying products or services are sold. The provision is based on estimates made from historical warranty data and a weighting of all possible outcomes against their associated probabilities.

Restructuring

The restructuring provision relates to the estimated costs of redundancies, site closures and product rationalisation related to business restructuring. A provision for restructuring is recognised when the consolidated entity has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for.

Site restoration

A provision for restoration in respect of owned and leased premises is recognised when the obligation to restore arises. The provision is the best estimate of the present value of the expenditure required to settle the restoration obligation at the reporting date. Future restoration obligations are reviewed annually and any changes are reflected in the present value of the provision at the end of the reporting period. The unwinding of the effect of discounting on the provision is recognised as a finance cost.

29

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management

17. Loans and borrowings

This note provides information about the contractual terms of the consolidated entity's loans and borrowings, which are measured at amortised cost. For more information about the consolidated entity's exposure to interest rate and foreign currency risk, refer to Note 19.

In thousands of AUD

2020

2019

Current - unsecured bilateral loan facilities

27,000

-

Non-current - unsecured syndicated loan facilities

148,400

177,759

Facilities available

175,400

177,759

Unsecured loan facilities

283,400

250,000

Bank guarantees and standby letters of credit

7,125

7,418

Facilities utilised at reporting date

290,525

257,418

Unsecured loan facilities

175,400

177,759

Bank guarantees and standby letters of credit

1,800

3,808

Facilities not utilised at reporting date

177,200

181,567

Unsecured loan facilities

108,000

72,241

Bank guarantees and standby letters of credit

5,325

3,610

113,325

75,851

Recognition and Measurement

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are measured at amortised cost using the effective interest rate (EIR) method. The EIR amortisation is included as finance costs in profit or loss.

Unsecured loan facilities

On 11 October 2019 the consolidated entity successfully completed the refinance of its syndicated banking facility (multicurrency revolving facility) which matures in October 2022. On 8 April 2020 the facility was increased from $210,000,000 to $243,340,000. For the period 10 April 2019 to 10 October 2019 the facility was $250,000,000, and for the period 1 July 2018 to 9 April 2019 the facility was $225,000,000.

On 11 October 2019 the consolidated entity put in place a one year multicurrency revolving bilateral facility of $40,000,000 which matures in October 2020.

The facilities were drawn in the following currencies:

In thousands of

2020

2019

AUD

142,000

115,000

NZD

30,000

61,500

GBP

3,000

2,200

The loan bears interest at market rates and interest is typically payable every 30 to 90 days. The consolidated entity partially hedges its exposure to variable interest rates through interest rate swap transactions (refer Note 19(d)).

Bank guarantee and standby letter of credit facilities

The bank guarantee and standby letter of credit facilities are committed facilities available to be drawn down under the facility agreement. The limits are specified in the facility agreement.

30

GWA Group Limited and its controlled entities Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

18. Capital and reserves

Share capital

Number of shares

(in thousands)

AUD

(in thousands)

2020

2019

2020

2019

On issue at 1 July - fully paid

263,948

263,948

307,790

307,790

On issue at 30 June - fully paid

263,948

263,948

307,790

307,790

Ordinary Shares

Ordinary shares are classified as equity. Incremental costs (transaction costs) directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

Transaction costs of an equity transaction are accounted for as a deduction from equity, net of any related income tax benefit.

The Company does not have authorised capital or par value in respect of its issued shares.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company's residual assets.

Translation reserve

The translation reserve comprises all foreign exchange differences arising from the retranslation of the financial statements of foreign operations where their functional currency is different from the presentation currency of the reporting entity, as well as from the retranslation of liabilities that hedge the Company's net investment in a foreign subsidiary.

Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Equity compensation reserve

The equity compensation reserve represents the fair value of the cumulative net charges of performance rights granted (refer Note 20).

31

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

18. Capital and reserves (continued)

Dividends

Dividends recognised in the current year are:

Costs per

Total

Date of Payment

share

amount

Franked

(In cents)

(In thousands

of AUD)

2020

21,116

4th March 2020

Interim 2020 ordinary

8.0

100%

Final 2019 ordinary

9.5

25,075

100%

4th September 2019

Total amount

17.5

46,191

2019

23,755

Interim 2019 ordinary

9.0

100%

5th March 2019

Final 2018 ordinary

9.5

25,075

100%

6th September 2018

Total amount

18.5

48,830

Dividends are recognised as a liability in the period in which they are declared. Franked dividends declared or paid during the year were franked at the tax rate of 30%.

After the balance date the following dividends were determined by the directors. These will be paid out of the parent entity's retained earnings in accordance with the Corporations Act 2001. The dividends have not been provided for as at the balance date. The determination and payment of the dividend has no income tax consequences.

Costs per

Total

share

amount

Franked

Date of Payment

(In cents)

(In thousands

of AUD)

Final 2020 ordinary

3.5

9,238

100%

16th October 2020

The financial effect of these dividends has not been brought to account in the financial statements for the financial year ended 30 June 2020 and will be recognised in subsequent financial reports.

Dividend franking account

The Company

In thousands of AUD

2020

2019

30 per cent franking credits available to shareholders of

GWA Group Limited for subsequent financial years (i.e. prior to

payment of final 2020 ordinary dividend.)

9,759

13,371

The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:

  1. franking credits/debits that will arise from the payment/settlement of the current tax liabilities/assets; and
  2. franking debits that will arise from the payment of dividends recognised as a liability at year-end.

The above franking account balance will decrease following the payment of the final dividend determined subsequent to balance date.

32

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management

  1. Policies
    Exposure to credit, interest rate and currency risks arise in the normal course of the consolidated entity's business. Derivative financial instruments are used to hedge exposure to fluctuations in foreign exchange rates and interest rates.
    Risk management policy
    The Board has overall responsibility for the establishment and oversight of the risk management framework. The Board has established the Finance Risk Committee, which is responsible for developing and monitoring risk management policies. The Finance Risk Committee is required to report regularly to the Audit and Risk Committee on its activities.
    Risk management policies are established to identify and analyse the risk faced by the consolidated entity, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the consolidated entity's activities.
    The Audit and Risk Committee oversees how management monitors compliance with the risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the consolidated entity. The Audit and Risk Committee is assisted in its oversight role by the Internal Audit function. The Internal Audit function conducts both regular and ad hoc reviews of risk management controls and procedures. The results of the reviews are reported to the Audit and Risk Committee.
    Capital management policy
    The Board's policy is to maintain a strong capital base and grow shareholder wealth. The Board monitors debt levels, cash flows and financial forecasts to establish appropriate levels of dividends and funds available to reinvest in the businesses or invest in growth opportunities.
    The Board focuses on growing shareholder wealth by monitoring the performance of the consolidated entity by reference to the return on funds employed. The Board defines return on funds employed as operating profit (earnings before interest and tax) divided by net assets after adding back net debt and net AASB 16 Leases balances.
    There were no changes to the Board's approach to capital management during the year.
    Derivative financial instruments
    The consolidated entity uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities. In accordance with its treasury policy, the consolidated entity does not hold or issue derivative financial instruments for trading purposes.
    Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognised in profit or loss, unless the derivative qualifies for hedge accounting, in which case the recognition of any resultant gain or loss depends on the nature of the item being hedged.
    The fair value of interest rate swaps is the estimated amount that the consolidated entity would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the reporting date, being the present value of the quoted forward price.

33

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management (continued)

  1. Policies (continued)
    Derivative financial instruments (continued)
    Hedging
    The consolidated entity holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.
    On initial designation of the derivative as the hedging instrument, the consolidated entity formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The consolidated entity makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the hedged items. For a cash flow hedge of a forecast transaction, the transaction should be highly probable to occur and should present an exposure to variation in cash flows that could ultimately affect reported profit or loss.
    Derivatives are recognised initially at fair value and attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are accounted for as described below.
    When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.
    When the hedged item is a non-financial asset, the amount recognised in equity is included in the carrying amount of the asset when the asset is recognised. In other cases the amount accumulated in equity is reclassified to profit or loss in the same period as the hedged item affects profit or loss. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss.
    Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss.
    When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.
    Where a derivative financial instrument is used to hedge economically the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in profit or loss.

34

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management (continued)

  1. Credit risk
    Credit risk is the risk of financial loss to the consolidated entity if a customer or other counterparty to a financial instrument fails to discharge their obligations.
    Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. A risk assessment process is used for customers requiring credit and credit insurance is utilised. Goods are sold subject to retention of title clauses in most circumstances. The consolidated entity does not require collateral in respect of financial assets.
    The consolidated entity maintains an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. To date, the economic uncertainties caused by coronavirus pandemic have not led to any losses in respect of trade receivables.
    Transactions involving derivative financial instruments are with counterparties with sound credit ratings. Given their sound credit ratings, management does not expect any counterparty to fail to meet its obligations.
    The consolidated entity has four major customers which comprise 85% of the trade receivables carrying amount at 30 June 2020 (2019: four customers comprising 83% of trade receivables).
    The carrying amount of financial assets represents the maximum credit exposure of the consolidated entity. The maximum exposure to credit risk at balance date was:

In thousands of AUD

2020

2019

Cash and cash equivalents

32,359

39,637

Net trade receivables

56,080

70,151

Other receivables

548

906

88,987

110,694

The ageing of gross trade receivables for the consolidated entity at balance date was as follows:

In thousands of AUD

2020

2019

Not yet due

58,203

67,283

Past due 0-30 days

14,389

18,545

Past due 31-60 days

446

1,296

Past due 61-120 days

250

109

Past due 120+ days

195

225

Less accrued rebates

(17,376)

(17,236)

56,107

70,222

There were no trade receivables with re-negotiated terms.

The movement in the allowance for impairment in respect of trade receivables during the year for the consolidated entity was as follows:

In thousands of AUD

2020

2019

Balance at 1 July

(71)

(1)

Acquisition of controlled entities

-

(33)

Impairment losses written back / (recognised)

(44)

(62)

Provisions used during the year

88

25

Balance at 30 June

(27)

(71)

35

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management (continued)

  1. Liquidity risk
    Liquidity risk is the risk that the consolidated entity will not be able to meet its financial obligations as they fall due. The consolidated entity prepares cash flow forecasts and maintains financing facilities with a number of institutions to ensure sufficient funds will be available to meet obligations without incurring excessive costs. The cash flows of the consolidated entity are controlled by management and reported monthly to the Board who is ultimately responsible for maintaining liquidity.
    The contractual maturities of financial liabilities and derivatives that are cash flow hedges of the consolidated entity, including estimated interest payments are as follows:

Maturity analysis

Carrying Contractual

0-6

6 - 12

1-2

2-5

5+

amount

cash flows

months

months

years

years

years

In thousands of AUD

2020

Non-derivatives financial liabilities

Unsecured cash advance facilities

(175,400)

(182,515)

(28,552)

(1,552)

(3,105)

(149,306)

-

Trade and other payables

(44,395)

(44,899)

(44,197)

-

(117)

(351)

(234)

Derivative financial instruments

Interest rate swaps used for

hedging (net)

(2,940)

(2,940)

(597)

(448)

(896)

(999)

-

Forward exchange contracts used

for hedging (net)

(1,375)

(1,375)

(1,031)

(344)

-

-

-

Total at 30 June 2020

(224,110)

(231,729)

(74,377)

(2,344)

(4,118)

(150,656)

(234)

2019

Non-derivatives financial liabilities

Unsecured cash advance facilities

(177,759)

(185,869)

(3,139)

(3,139)

(179,591)

-

-

Trade and other payables

(56,154)

(56,657)

(55,839)

-

(117)

(351)

(351)

Derivative financial instruments

Interest rate swaps used for

hedging (net)

(1,448)

(1,448)

(293)

(299)

(466)

(390)

-

Forward exchange contracts used

for hedging (net)

1,656

1,656

1,408

248

-

-

-

Total at 30 June 2019

(233,705)

(242,319)

(57,863)

(3,190)

(180,174)

(741)

(351)

36

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management (continued)

  1. Market risk
    Market risk is the risk that changes in market prices such as interest rates and foreign exchange rates will affect the consolidated entity's income or value of holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters.
    The consolidated entity enters into derivatives in order to manage market risks. All transactions are carried out within the guidelines set by the Finance Risk Committee.
  1. Interest rate risk
    Interest rate risk is the risk that changes in interest rates will affect the consolidated entity's income. The consolidated entity's variable rate borrowings are exposed to a risk of change in cash flows due to changes in interest rates in Australia, New Zealand and the United Kingdom.
    The consolidated entity adopts a policy of ensuring that its exposure to changes in interest rates on borrowings is reduced. Interest rate swaps, denominated in Australian dollars and New Zealand dollars, have been entered into to achieve an appropriate mix of fixed and floating rate exposure.
    As at 30 June 2020, the consolidated entity had interest rate swaps in operation with a notional contract amount of $118,686,000 (2019: $119,117,000). These swaps have fixed rates ranging from 0.88% to 2.30% (2019: 1.49% to 2.30%) and mature over the next four years.
    The consolidated entity also has a replacement interest rate swap effective in the following financial year with a notional contract amount of $25,000,000. This swap has a fixed rate of 0.43% and matures over the next four years.
    The consolidated entity classifies interest rate swaps as cash flow hedges and states them at fair value.
    The net fair value of swaps as at 30 June 2020 of $2,940,000 was recognised as a fair value derivative liability (2019: $1,448,000 liability). No hedge ineffectiveness was recognised, and therefore the full movement in the value of the hedging instrument was recognised in Other Comprehensive Income.
    Profile
    At balance date the consolidated entity's interest bearing financial instruments were:

2020

2020

2019

2019

Notional

Carrying

Notional

Carrying

In thousands of AUD

value

amount

value

amount

Variable rate financial instruments

Unsecured cash advance facilities

(175,400)

(175,400)

(177,759)

(177,759)

Cash

32,359

32,359

39,637

39,637

Fixed rate financial instruments

(143,041)

(143,041)

(138,122)

(138,122)

Interest rate swap derivatives

143,686

(2,940)

144,117

(1,448)

Total

645

(145,981)

5,995

(139,570)

37

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management (continued)

  1. Market risk (continued)
  1. Interest rate risk (continued) Sensitivity analysis
    The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected, after the impact of hedge accounting, with all other variables held constant.
    The impact on the consolidated entity's profit is affected through the impact on floating rate borrowings and derivatives. The impact on the consolidated entity's other comprehensive income ('OCI') is due to changes in the fair value of interest rate swap contracts designated as cash flow hedges.
    The assumed movement in basis points for the interest rate sensitivity analysis is considered reasonably possible given the market forecasts available at the reporting date and the current economic environment in which the consolidated entity operates.

In thousands of AUD - Higher/(Lower)

2020

2020

2019

2019

Post Tax

OCI(i)

Post Tax

OCI(i)

AUD denominated loans

Profit

Profit

+50 basis points (2019: +75 basis points)

(160)

458

53

1,293

-25 basis points (2019: -75 basis points)

80

(865)

(53)

(1,293)

NZD denominated loans

+50 basis points (2019: +75 basis points)

(67)

128

(84)

342

-25 basis points (2019: -75 basis points)

34

(255)

84

(342)

GBP denominated loans

+50 basis points (2019: +50 basis points)

(17)

-

(3)

-

-25 basis points (2019: -50 basis points)

8

-

3

-

(i) Other Comprehensive Income: cash flow hedges, net of tax

  1. Foreign currency risk
    The consolidated entity is exposed to foreign currency risk on sales, purchases and asset and liability holdings that are denominated in a currency other than the respective functional currencies of its subsidiaries. The currencies giving rise to this risk are primarily USD and RMB.
    The consolidated entity hedges its foreign currency exposure in respect of forecasted sales and purchases by entering into forward exchange contracts. The forward exchange contracts have maturities of up to 12 months after the balance date.

Forward exposure for the 12 months after the balance date covered by forward exchange contracts

AUD:USD

AUD:RMB

NZD:USD

GBP:USD

2020 2019

74% 77%

71% 78%

91% 82%

82% 83%

38

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management (continued)

  1. Market risk (continued)
  1. Foreign currency risk (continued)
    The consolidated entity classifies forward exchange contracts as cash flow hedges and states them at fair value. The net fair value of contracts as at 30 June 2020 of $1,375,000 was recognised as a fair value derivative liability (2019: $1,656,000 asset).
    The consolidated entity is also exposed to foreign currency risk on retranslation of the financial statements of foreign subsidiaries into AUD. The currencies giving rise to this risk are NZD, GBP and RMB. The consolidated entity hedges this exposure by holding net borrowings in foreign currencies, and designates these as net investment hedges.
    Sensitivity analysis
    The following table demonstrates the impact of reasonably possible exchange rate movements with all other variables held constant. However, the impact of exchange rate movements on profit is subject to other variables including competitor exchange rate positions and movement in market prices.
    The impact on the consolidated entity's other comprehensive income ('OCI') is due to changes in the fair value of forward exchange contracts designated as cash flow hedges, as well as from changes in the net borrowings in foreign currencies designated as net investment hedges (these movements will offset the translation of the financial statements foreign subsidiaries into AUD).
    The assumed movement in exchange rates for the sensitivity analysis is considered reasonably possible given the market forecasts available at the reporting date and the current economic environment in which the consolidated entity operates.
    The impact on foreign currency monetary assets and liabilities not designated as cash flow hedges are not material.

In thousands of AUD - Higher/(Lower)

2020

2019

USD

20% increase in USD:AUD - OCI (cash flow hedges, net of tax)

10,709

(2019: 10% increase in USD:AUD)

5,573

10% decrease in USD:AUD - OCI (cash flow hedges, net of tax)

(3,894)

(4,961)

20% increase in USD:NZD - OCI (cash flow hedges, net of tax)

(2019: 10% increase in USD:NZD - OCI)

1,207

485

10% decrease in USD:NZD - OCI (cash flow hedges, net of tax)

(439)

(593)

20% increase in USD:GBP - OCI (cash flow hedges, net of tax)

(2019: 10% increase in USD:GBP - OCI)

1,683

451

10% decrease in USD:GBP - OCI (cash flow hedges, net of tax)

(612)

(551)

RMB

20% increase in RMB:AUD - OCI (cash flow hedges, net of tax)

(2019: 10% increase in RMB:AUD - OCI)

4,083

2,500

10% decrease in RMB:AUD - OCI (cash flow hedges, net of tax)

(1,485)

(2,045)

NZD

10% increase in NZD:AUD - OCI (net investment hedge, net of tax)

(2,180)

(2,230)

10% decrease in NZD:AUD - OCI (net investment hedge, net of tax)

1,784

1,825

GBP

10% increase in GBP:AUD - OCI (net investment hedge, net of tax)

(348)

(309)

10% decrease in GBP:AUD - OCI (net investment hedge, net of tax)

285

253

39

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section IV. Funding and Risk Management (continued)

19. Financial instruments and financial risk management (continued)

  1. Fair values

The carrying value of financial assets and liabilities as at 30 June 2020 equalled fair value (30 June 2019: equalled fair value).

The fair value of financial instruments were estimated using the following methods and assumptions.

  1. Derivatives

  2. Forward exchange contracts are marked to market by discounting the contractual forward price and deducting the current spot rate. For interest rate swaps broker quotes are obtained. These quotes are back tested using discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on management's best estimates and the discount rate is a market related rate for a similar instrument at the balance sheet date. Where other pricing models are used, inputs are based on market related data at the balance sheet date.
  3. Loans and borrowings

  4. Interest-bearing loans bear interest at market rates. Accordingly, the notional amount of the interest- bearing loans is deemed to reflect the fair value.
  5. Trade and other receivables / payables

    1. All current receivables / payables are either repayable within twelve months or repayable on demand. Non-current payables relate to a supplier contractual obligation. Accordingly, the notional amount is deemed to reflect the fair value.
    2. Interest rates used for determining fair value

    The consolidated entity uses the government yield curve as at the balance date plus an adequate constant credit spread to discount financial instruments. The interest rates used are as follows:

2020

2019

Derivatives

0.2% - 0.4%

2.0% - 2.1%

Loans and borrowings denominated in AUD

1.5% - 1.7%

3.3% - 3.8%

Loans and borrowings denominated in NZD

1.6% - 1.8%

3.2% - 3.7%

Loans and borrowings denominated in GBP

1.5% - 1.7%

2.1% - 2.6%

  1. Fair value hierarchy
    The consolidated entity recognises the fair value of its financial instruments using the level 2 valuation method. The different levels have been defined as follows:
    • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
    • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
    • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

In thousands of AUD

30 June 2020

Level 1

Level 2

Level 3

Total

Forward contracts used for hedging

-

(1,375)

-

(1,375)

Interest rate swaps used for hedging

-

(2,940)

-

(2,940)

-

(4,315)

-

(4,315)

30 June 2019

Forward contracts used for hedging

-

1,656

-

1,656

Interest rate swaps used for hedging

-

(1,448)

-

(1,448)

-

208

-

208

40

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section V. Other Information

20. Share-based payments

The Long Term Incentive (Equity) Plan was approved by shareholders at the 2008 Annual General Meeting. Under the plan, the Board may offer performance rights to participants which entitle the holder to ordinary shares in the Company (or in limited cases cash payments), subject to meeting certain financial performance hurdles and the holder remaining in employment with the Company until the nominated vesting date.

The performance hurdles in relation to performance rights granted to executives in the 2019/20 year and 2018/19 year are subject to financial performance conditions which measure growth in Return on Funds Employed (ROFE) and Total Shareholder Return (TSR) compared to a peer group of companies. The performance hurdles are challenging but achievable and focus executives on sustained long term growth consistent with shareholder wealth creation.

The Plan runs over a three year performance period and the rights will only vest if the performance hurdles are achieved based on a 50% allocation of each grant to the two performance hurdles. If the vesting conditions and performance hurdles are achieved, ordinary shares will be issued to the participants at no cost. If the performance hurdles are not met, then the rights are cancelled.

For performance rights granted to executives in the 2019/20 year and 2018/19 year, the performance hurdles and vesting proportions for the ROFE performance measure and TSR performance measure are outlined in the tables below.

GWA Group Limited ROFE over three year performance

Proportion of Performance Rights to Vest if ROFE

period

hurdle is met

ROFE less than 16% per annum

0%

ROFE equal to 16% per annum

12.5%

ROFE between 16% and 19% per annum

Straight line vesting between 12.5% and 50%

ROFE equal to 19% or higher per annum

50% (i.e. 50% of total grant)

TSR of GWA Group Limited relative to TSRs of

Proportion of Performance Rights to Vest if TSR

Comparator Companies

hurdle is met

Less than the 50th percentile

0%

50th percentile

12.5%

Between the 50th percentile and 75th percentile

Straight line vesting between 12.5% and 50%

75th percentile or higher

50% (i.e. 50% of total grant)

Recognition and Measurement

The grant date fair value of performance rights granted to employees is recognised as a personnel expense, with a corresponding increase in equity (equity compensation reserve), evenly over the specified three year period that the performance rights vest to employees.

The amount recognised as an expense is adjusted to reflect the actual number of performance rights for which the related service and non-market vesting hurdles are met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non- market performance conditions at the vesting date. For share-based payment awards with market based non-vesting conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.

41

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section V. Other Information (continued)

20. Share-based payments (continued)

Fair Value

During the year 749,500 performance rights were granted to employees (2019: 617,000) at a weighted

average fair value of $2.71 (TSR) and $3.54 (ROFE) (2019: $2.23 (TSR) and $2.92 (ROFE)).

The fair value of the performance rights granted subject to the ROFE hurdle was determined by using a Black Scholes Model. The fair value of the performance rights granted subject to the TSR hurdle for vesting was determined by using a Monte Carlo simulation. When determining the fair values it was assumed the Company would have a dividend yield of 4.65%, the risk free rate was 0.75% and annualised share price volatility was 30% for the Company and its comparator companies listed for the TSR hurdle.

The amount recognised as personnel expenses (Note 4(e)) in the current financial year was $1,431,000 (2019: $1,113,000).

For further details of the Long Term Incentive (Equity) Plan, refer to the Remuneration Report section of the Directors' Report.

Balance at

Granted

Vested

Forfeited

Balance at

beginning

during the

during the

during the

end of the

Grant date

Expiry date

of the year

year

year

year

year

In number of performance rights

2020

24/02/2017

30/06/2019

461,222

-

(461,222)

-

-

19/02/2018

30/06/2020

537,000

-

-

-

537,000

18/02/2019

30/06/2021

617,000

-

-

(85,000)

532,000

14/02/2020

30/06/2022

-

749,500

-

(77,000)

672,500

1,615,222

749,500

(461,222)

(162,000)

1,741,500

2019

23/03/2016

30/06/2018

767,750

-

(767,750)

-

-

24/02/2017

30/06/2019

464,972

-

-

(3,750)

461,222

19/02/2018

30/06/2020

537,000

-

-

-

537,000

18/02/2019

30/06/2021

-

617,000

-

-

617,000

1,769,722

617,000

(767,750)

(3,750)

1,615,222

21. Related parties

Key management personnel compensation

The key management personnel compensation included in personnel expenses (Note 4(e)) are as follows:

In AUD

2020

2019

Short-term employee benefits

3,214,647

4,252,324

Post-employment benefits

175,906

165,453

Share-based payments

1,102,449

784,921

Other long term employee benefits

71,102

6,325

4,564,104

5,209,023

Individual directors and executives' compensation disclosures

Information regarding individual and executives' compensation is provided in the Remuneration Report section of the Directors' Report.

42

GWA Group Limited and its controlled entities Notes to the consolidated financial statements

Section V. Other Information (continued)

22. Auditor's remuneration

In AUD

The auditor of GWA Group Limited is KPMG Australia.

Audit services

KPMG Australia:

Audit and review of financial reports

Other assurance services

Overseas KPMG firms:

Audit of financial reports

Overseas non-KPMG audit firms:

PwC - audit of financial reports

PwC - other assurance services

Total audit services

Other services

KPMG Australia: Other services

Overseas KPMG Firms: Taxation services

Network firm of overseas non-KPMG audit firms: PwC - internal audit services

PwC - other services

Total other services

2020 2019

351,200 403,710

16,000 15,965

18,500 17,000

385,700 436,675

122,600 181,900

12,200-

134,800 181,900

520,500 618,575

--

  • 9,118

261,000 309,000

25,000 7,000

286,000 325,118

23. Capital commitments

Capital expenditure commitments for plant and equipment purchases contracted but not provided for are payable as follows:

In thousands of AUD

2020

2019

Less than one year

942

3,438

942

3,438

43

GWA Group Limited and its controlled entities Notes to the consolidated financial statements

Section V. Other Information (continued) 24. Consolidated entities

Parties to

cross

guarantee

Parent entity

GWA Group Limited

Y

Subsidiaries

N

Austral Lock Pty Ltd(b)(c)

Canereb Pty Ltd(c)

N

Caroma Holdings Limited

Y

Caroma Industries Limited

Y

Caroma Industries (NZ) Limited

N

Caroma International Pty Ltd(b)

N

Corille Limited(b)(c)

N

Deva Tap Company Ltd

N

Dorf Clark Industries(c)

N

G Subs Pty Ltd(b)(c)

N

GWA Finance Pty Limited

Y

GWA Group Holdings Limited

Y

GWAIL (NZ) Ltd

N

GWA Taps Manufacturing Limited(b)(c)

N

GWA Trading (Shanghai) Co Ltd

N

Heshan Methven Bathroom Fittings Co. Limited

N

Industrial Mowers (Australia) Limited(c)

N

Methven Australia Pty Limited(a)

Y

Methven Hotel Solutions Pty Ltd(c)

N

Methven Limited

N

Methven UK Limited

N

Methven USA Inc

N

McIlwraith Davey Pty Ltd(b)(c)

N

Plumbing Supplies (NZ) Ltd

N

Sebel Furniture Holdings Pty Ltd(b)

N

Starion Tapware Pty Ltd(b)(c)

N

Stylus Pty Ltd(b)(c)

N

Country of

Ownership

incorporation

interest

2020

2019

Australia

Australia

100%

100%

Australia

100%

100%

Australia

100%

100%

Australia

100%

100%

New Zealand

100%

100%

Australia

100%

100%

Australia

100%

100%

United Kingdom

100%

100%

Australia

100%

100%

Australia

100%

100%

Australia

100%

100%

Australia

100%

100%

New Zealand

100%

100%

Australia

100%

100%

China

100%

100%

China

100%

100%

Australia

100%

100%

Australia

100%

100%

Australia

100%

100%

New Zealand

100%

100%

United Kingdom

100%

100%

USA

100%

100%

Australia

100%

100%

New Zealand

100%

100%

Australia

100%

100%

Australia

100%

100%

Australia

100%

100%

  1. Entity joined the Deed via a Deed of Variation dated 24 May 2019.
  2. Entities removed from the Deed via a Deed of Variation dated 24 May 2019.
  3. Entities entered into liquidation on 23 June 2020.

25. Deed of cross guarantee

Pursuant to ASIC Class Order 98/1418 (as amended) dated 13 August 1998, the wholly-owned subsidiaries as listed in Note 24 are relieved from the Corporations Act 2001 requirements for preparation, audit and lodgement of financial reports, and Directors' reports.

It is a condition of the Class Order that the Company and each of the subsidiaries enter into a Deed of Cross Guarantee. The effect of the Deed is that the Company guarantees to each creditor payment in full of any debt in the event of winding up of any of the subsidiaries under certain provisions of the Corporations Act 2001. If a winding up occurs under other provisions of the Act, the Company will only be liable in the event that after six months any creditor has not been paid in full. The subsidiaries have also given similar guarantees in the event that the Company is wound up.

44

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section V. Other Information (continued)

25. Deed of cross guarantee (continued)

A consolidated statement of profit or loss and other comprehensive income and consolidated statement of financial position, comprising the Company and controlled entities which are a party to the Deed, after eliminating all transactions between parties to the Deed of Cross Guarantee, at 30 June 2020, is set out in the table below.

Summarised statement of profit or loss and other comprehensive income

In thousands of AUD

2020

2019

Sales revenue

323,263

342,321

Cost of sales

(189,937)

(196,292)

Gross profit

133,326

146,029

Operating expenses

(70,952)

(79,139)

Finance income

1,717

1,687

Finance expenses

(8,693)

(5,628)

Profit before tax

55,398

62,949

Tax expense

(17,135)

(19,776)

Profit from continuing operations, net of tax

38,263

43,173

Profit from discontinued operations, net of tax

-

50,802

Net profit

38,263

93,975

Other comprehensive income, net of tax

(3,056)

(3,494)

Total comprehensive income, net of tax

35,207

90,481

Retained earnings at beginning of the year

347,659

388,697

Transition impact of AASB16 leases

-

(1,064)

Impact on adoption of IFRS IC decision

-

(85,119)

Net profit

38,263

93,975

Dividends received during the year

88,031

-

Dividends paid during the year

(46,191)

(48,830)

Retained earnings at end of the year

427,762

347,659

Statement of financial position

2020

2019

In thousands of AUD

Assets

Cash and cash equivalents

20,777

29,486

Trade and other receivables

44,466

57,690

Inventories

60,029

59,093

Derivative financial instruments

-

1,570

Other

3,128

3,390

Total current assets

128,400

151,229

Investments

449,313

449,313

Intercompany receivable

73,218

75,360

Deferred tax assets

12,511

11,478

Property, plant and equipment

20,971

15,239

Intangible assets

386,140

385,844

Right of use assets

59,429

38,349

Total non-current assets

1,001,582

975,583

Total assets

1,129,982

1,126,812

45

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section V. Other Information (continued)

25. Deed of cross guarantee (continued)

Statement of financial position (continued)

In thousands of AUD

2020

2019

Liabilities

Trade and other payables

32,616

40,640

Loans and borrowings

27,000

-

Intercompany payable

-

89,396

Employee benefits

4,151

4,693

Income tax payable

715

1,618

Lease liabilities

11,005

7,925

Provisions

4,700

7,018

Derivative financial instruments

4,738

1,415

Total current liabilities

84,925

152,705

Deferred tax liabilities

100,569

100,590

Loans and borrowings

148,400

177,759

Lease liabilities

54,976

34,509

Employee benefits

4,201

3,778

Provisions

3,324

1,071

Total non-current liabilities

311,470

317,707

Total liabilities

396,395

470,412

Net assets

733,587

656,400

Equity

Issued capital

307,790

307,790

Reserves

(1,965)

951

Retained earnings

427,762

347,659

Total equity

733,587

656,400

26. Parent entity disclosures

As at, and throughout, the financial year ended 30 June 2020 the parent company of the consolidated entity was GWA Group Limited.

The Company

In thousands of AUD

2020

2019

Results of the parent entity

Profit for the year

78,775

79,244

Other comprehensive income

-

-

Total comprehensive income for the year

78,775

79,244

Financial position of the parent entity

Current assets

446

848

Total assets

885,212

852,486

Current liabilities

-

-

Total liabilities

419,162

419,162

Equity of the parent entity

Share capital

307,790

307,790

Equity compensation reserve

1,352

1,211

Retained earnings

156,908

124,323

Total equity

466,050

433,324

46

GWA Group Limited and its controlled entities

Notes to the consolidated financial statements

Section V. Other Information (continued)

  1. Parent entity disclosures (continued)
    Parent entity contingencies
    The directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.
    Contingent liabilities
    The directors are not aware of any contingent liabilities of the parent entity as at reporting date (2019: $nil).
    Capital expenditure commitments
    The parent entity has not entered into contractual commitments on behalf of wholly-owned subsidiaries for the acquisition of property, plant or equipment as at reporting date (2019: $nil).
    Parent entity guarantees
    The parent entity in the ordinary course of business has guaranteed the performance of certain contractual commitments entered into by its subsidiaries.
    The parent entity has entered into a Deed of Cross Guarantee with the effect that the parent entity has guaranteed the repayment of all current and future creditors in the event any of the entities party to the Deed is wound up. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the Deed are disclosed in Notes 24 and 25.
  2. Discontinued Operations
    A discontinued operation is a component of the consolidated entity's business that represents a separate line of business operations that has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale if earlier. When an operation is classified as a discontinued operation, the comparative statement of profit or loss and other comprehensive income is re-presented as if the operation had been discontinued from the start of the period.
    The Door & Access Systems' business (comprising of Gainsborough Hardware Industries Limited and API Services and Solutions Pty Ltd) was sold with an effective date of 3 July 2018.
    Refer to the consolidated annual financial report of the consolidated entity as at and for the year ended 30 June 2019 for details of the prior period financial results and cash flows of the discontinued Operations which only included the net proceeds from the sale of the business. There were no financial results nor cash flows of the discontinued operations for the year ended 30 June 2020.
  3. Subsequent events
    The Directors' continue to assess the uncertain and evolving impact of the coronavirus pandemic on GWA's operations.
    To the Directors' best knowledge, there are no events that have arisen subsequent to 30 June 2020 that will, or may, significantly affect the operation or results of the consolidated entity.

47

GWA Group Limited and its controlled entities

Directors' Declaration

In the opinion of the directors of GWA Group Limited (the Company):

  1. The consolidated financial statements and notes, and the Remuneration Report in the Directors' Report, are in accordance with the Corporations Act 2001 including:
    1. giving a true and fair view of the financial position of the consolidated entity as at 30 June 2020 and of its performance for the year ended on that date; and
    2. complying with Australian Accounting Standards and the Corporations Regulations 2001;
  2. There are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable;
  3. There are reasonable grounds to believe that the Company and the group entities identified in Note 24 will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between the Company and those group entities pursuant to ASIC Class Order 98/1418;
  4. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and the Chief Financial Officer for the financial year ended 30 June 2020; and
  5. The directors draw attention to Note 1(a) to the consolidated financial statements which includes a statement of compliance with International Financial Reporting Standards (IFRS).

Dated on 17 August 2020.

Signed in accordance with a resolution of the directors:

Darryl D McDonough

Tim R Salt

Director

Director

48

Independent Auditor's Report

To the shareholders of GWA Group Limited

Report on the audit of the Financial Report

Opinion

We have audited the Financial Report of GWA Group Limited (the Company).

In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including:

  • giving a true and fair view of the Group's financial position as at 30 June 2020 and of its financial performance for the year ended on that date; and
  • complying with Australian Accounting Standards and the Corporations Regulations 2001.

The Financial Report comprises:

  • Consolidated Statement of Financial Position as at 30 June 2020;
  • Consolidated Statement of Profit or Loss and Other Comprehensive Income, Consolidated Statement of Changes in Equity, and Consolidated Statement of Cash Flows for the year then ended;
  • Notes including a summary of significant accounting policies; and
  • Directors' Declaration.

The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the Financial Report section of our report.

We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board's APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.

Key Audit Matters

The Key Audit Matter we identified is:

  • Valuation of Inventory.

Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period.

These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

Valuation of Inventory $78.8m

Refer to Note 9 to the Financial Report

The key audit matter

How the matter was addressed in our audit

The valuation of inventory is a key audit

Our procedures included:

matter as inventory is a significant asset in

We assessed the accuracy of previous Group

the financial report and the net realisable

forecasts by inventory SKU by comparing forecast

value is impacted by the building industry

demand to actual sales in the prior period. This

cycles, changes in consumer preferences

informed our evaluation of forecasts incorporated in

and economic instability as a result of the

the inventory provision calculation in the current

coronavirus pandemic. This necessitated

year;

an additional focus on excess and

We tested the completeness of inventory identified

discontinued inventory SKU's (stock

keeping unit) and judgemental valuation

as excess or fast moving and discontinued as

assumptions.

follows:

These conditions gave rise to additional

-

We assessed the Group's calculation for

identifying excess inventory. We did this by

audit effort, including greater involvement

performing our own calculation based on sales

by our senior team members, to gather

data for the last 12 months and comparing the

evidence over the estimation of the

results. We considered the impact on our audit

valuation of inventory.

of any exceptions. Where relevant, we obtained

We focused on the following elements of

underlying documentation from the Group to

evaluate exceptions; and

the Group's estimation of the valuation of

inventory:

-

We compared inventory SKU's to be

Criteria for categorisation of inventory

discontinued to the approved discontinued

inventory report used by the Group in assessing

SKU's by risk, such as discontinued,

the recoverable value of inventory;

new products, excess or fast moving

We assessed the write off history for the last 3

range, as they attribute different

values due to the differing provision

years against the provision to determine the

policy rates;

adequacy of the inventory provision;

Expected forecast demand which is

For certain components, we independently

based on the last 12 months' sales, as

developed an expected inventory valuation range by

this determines the categorisation of

considering the following:

inventory SKU's as excess or fast

-

Inventory turnover rate by inventory SKU;

moving; and

Assessing the impact of inventory sold

-

Recovery rates achieved historically when

selling discontinued inventory. We considered

in the current year below cost.

the historical quantum recovered compared to

the original cost; and

-

Overall recoveries achieved for sales recorded

below original cost;

We compared our estimated inventory valuation

range to the inventory value recorded by the Group;

For other components, we tested a sample of

inventory items to purchase invoices and sales

invoices to determine the recoverability and

valuation of inventory in line with accounting

standards.

Other Information

Other Information is financial and non-financial information in GWA Group's annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information.

Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.

In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor's Report we have nothing to report.

Responsibilities of the Directors for the Financial Report

The Directors are responsible for:

  • preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
  • implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error
  • assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the Financial Report

Our objective is:

  • to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and
  • to issue an Auditor's Report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.

A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor's Report.

Report on the Remuneration Report

Opinion

In our opinion, the Remuneration Report of GWA Group Limited for the year ended 30 June 2020, complies with Section 300A of the Corporations Act 2001.

Directors' responsibilities

The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001.

Our responsibilities

We have audited the Remuneration Report included in the Annual report for the year ended 30 June 2020.

Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

1

KPMG

Julie Cleary

Partner

Sydney

17 August 2020

PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01

Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of GWA Group Limited

I declare that, to the best of my knowledge and belief, in relation to the audit of GWA Group Limited for the financial year ended 30 June 2020 there have been:

  1. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
  2. no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG

Julie Cleary

Partner

Sydney

17 August 2020

KPMG, an Australian partnership and a member

firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

Liability limited by a scheme approved under Professional Standards Legislation.

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GWA Group Limited published this content on 17 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 August 2020 22:42:16 UTC