Prospectus and Investment Statement FOR THE INITIAL PUBLIC OFFER

Prospectus and Investment Statement FOR THE INITIAL PUBLIC OFFER OF 25,316,781 MILLION NEW AND EXISTING ORDINARY SHARES AT $1.43 PER SHARE TO THE PUBLIC AND AN OFFER OF 277,624 SHARE OPTIONS TO CERTAIN SENIOR STAFF OF THE METHVEN GROUP LEAD MANAGER AND ORGANISING PARTICIPANT: METHVEN GLOBAL VISION: To be a world leader in the design and supply of water delivery systems for the shower environment. METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT Important information (The information in this section is required under the Securities Act 1978). Investment decisions are very important.They often have long-term consequences. Read all documents carefully. Ask questions. Seek advice before committing yourself. CHOOSING AN INVESTMENT That document will tell you: • Whether the advisor gives advice only about particular types of investments; • Whether the advice is limited to the investments offered by one or more particular financial organisations; and • Whether the advisor will receive a commission or other benefit from advising you. You are strongly encouraged to request that statement. An investment advisor commits an offence if he or she does not provide you with a written disclosure statement within five working days of your request. You must make the request at the time the advice is given or within one month of receiving the advice. In addition: • If an investment advisor has any conviction for dishonesty or has been adjudged bankrupt, he or she must tell you this in writing; and • If an investment advisor receives any money or assets on your behalf, he or she must tell you in writing the methods employed for this purpose. Tell the advisor what the purpose of your investment is. This is important because different investments are suitable for different purposes. IMPORTANT NOTICE When deciding whether to invest, consider carefully the answers to the following questions that can be found on the pages noted below: • WHAT SORT OF INVESTMENT IS THIS? • WHO IS INVOLVED IN PROVIDING IT FOR ME? • HOW MUCH DO I PAY? • WHAT ARE THE CHARGES? • WHAT RETURNS WILL I GET? • WHAT ARE MY RISKS? • CAN THE INVESTMENT BE ALTERED? • HOW DO I CASH IN MY INVESTMENT? • WHO DO I CONTACT WITH ENQUIRIES ABOUT MY INVESTMENT? • IS THERE ANYONE TO WHOM I CAN COMPLAIN IF I HAVE PROBLEMS WITH THE INVESTMENT? • WHAT OTHER INFORMATION CAN I OBTAIN ABOUT THIS INVESTMENT? 83 84 85 85 86 87 88 89 89 90 90 In addition to the information referred to above, important information about the Offer can be found in other sections of this Offer Document. CHOOSING AN INVESTMENT ADVISOR You have the right to request from any investment advisor a written disclosure statement stating his or her experience and qualifications to give advice. This Offer Document relates to an offer to the public of 25,316,781 new and existing fully paid ordinary Shares (the ‘Shares’) in Methven Limited (‘Methven’) by Methven and the Selling Shareholders respectively (the ‘Share Offer’), and an offer of 277,624 share options to Senior Staff by Methven (the ‘Senior Staff Option Offer’). The Share Offer and Senior Staff Option Offer are collectively described as the ‘Offer’. Details of the Share Offer and Senior Staff Option Offer are summarised in Section 3 and Section 4.This Offer Document has been prepared as at, and is dated 4 November 2004. page one Important information CONTINUED This Offer Document is a combined Investment Statement and Registered Prospectus for the purposes of the Securities Act 1978 (the ‘Securities Act’) and the Securities Regulations 1983 (the ‘Securities Regulations’). The purpose of the Investment Statement section (under the section headed 'Answers to Important Questions') on page 83, is to provide certain key information that is likely to assist a prudent but non-expert person to decide whether or not to acquire Shares or Senior Staff Options under the Offer. However, investors should note that other important information about the Shares, the Senior Staff Options and the Offer is available in the remainder of this Offer Document. If you are in any doubt as to how to deal with this Offer Document, please consult an NZX Firm or another financial or legal advisor immediately. None of Methven, the Selling Shareholders, the Promoters or any of their respective directors, officers, employees, consultants or advisors take responsibility for the taxation liability of a shareholder or investor in relation to this Offer. Shareholders and investors should seek their own taxation advice. A copy of this Offer Document, duly signed by the Directors (or their duly authorised agent(s)) of Methven and the Selling Shareholders (as issuers) and the Promoters for the purposes of the Securities Act 1978 and, having endorsed or attached copies of the documents required by the Securities Act and the Securities Regulations to be so endorsed or attached, including the Auditors' Report set out on pages 80 to 81, has been delivered to the Registrar of Companies for registration under the Securities Act. OVERSEAS INVESTORS The Share Offer is only made to members of the public and to institutional investors in New Zealand.The Senior Staff Option Offer is personally made to Eligible Senior Staff in New Zealand and Australia and, to the extent made in Australia, is made to persons that do not require an Australian prospectus under Section 708 of the Corporations Act (Cth) 2001. Neither the Share Offer nor the Senior Staff Option Offer may be accepted by any other person. No person may offer, sell, re-sell or deliver (or invite any person to do so) any Shares or Senior Staff Options or distribute any documents (including this Offer Document) in relation to any such offer, sale, delivery or invitation to any person outside New Zealand except in accordance with all of the legal requirements of the relevant jurisdiction. Unless otherwise agreed with Methven any person or entity applying for Shares in the Offer will, by virtue of such application, be deemed to represent that he, she or it is not in a jurisdiction that does not permit the making of an offer or invitation of the kind contained in this Offer Document and is not acting for the account or benefit of a person within such a jurisdiction. None of Methven, the Selling Shareholders, the Promoters, the Lead Manager nor any of their respective directors, officers, employees, consultants, agents, partners or advisors accepts any liability or responsibility to determine whether a person is able to participate in the Offer. NO GUARANTEE No person in this Offer Document, nor any other person, guarantees the Shares or the Senior Staff Options to be issued and/or transferred pursuant to the Offer. page two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT KEY DATES Registration of Offer Document: Opening of Offer: Closing of Offer for applications for Shares from the Priority Pool for Registered Plumbers: Closing of Offer: Allocation and allotment or transfer of Shares and allotment of Senior Staff Options: Posting of Holder Statements and Option Certificates: Anticipated Quotation of Shares and Trading on NZSX: Expected first dividend:* Expected subsequent dividends:* 4 November 2004 8 November 2004 5pm, 19 November 2004 5pm, 26 November 2004 29 November 2004 29 November 2004 30 November 2004 June 2005 Interim dividend in approximately December each year starting 2005 and final dividend approximately June each year starting 2005. *Methven can give no guarantee as to the amount or frequency of future dividends or other distributions, if any, payable on the Shares. This timetable is indicative only. Methven, in consultation with the Lead Manager, reserves the right to extend the closing date of any part of the Offer, in which case the dates referred to above may change accordingly. Public investors are not being offered Senior Staff Options. Senior Staff selected to participate in the Senior Staff Option Offer will receive individual Offers of Senior Staff Options from Methven. Eligible Senior Staff who receive offers will be advised of the number of Senior Staff Options for which they will be entitled to apply.The Senior Staff Options will not be quoted on the NZX and cannot be traded. No dividends will be payable in respect of the Senior Staff Options. page three METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT Contents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. CHAIRMAN’S LETTER KEY FEATURES SUMMARY OF THE SHARE OFFER SUMMARY OF SENIOR STAFF OPTIONS OFFER USE OF SHARE OFFER PROCEEDS SHAREHOLDING STRUCTURE SUMMARISED FINANCIAL AND DIVIDEND INFORMATION CORPORATE GOVERNANCE, DIRECTORS AND SENIOR MANAGEMENT INDUSTRY OVERVIEW INTRODUCTION TO METHVEN, ITS PRODUCTS, BRANDS AND TECHNOLOGY PRODUCT MANUFACTURING, SOURCING, SALES AND MARKETING GROWTH PROSPECTS AND STRATEGY PROSPECTIVE FINANCIAL INFORMATION TRADE FACTORS AND RISKS HISTORICAL FINANCIAL INFORMATION INVESTMENT STATEMENT - ANSWERS TO IMPORTANT QUESTIONS STATUTORY INFORMATION RULES RELATING TO THE METHVEN SENIOR STAFF OPTION SCHEME GLOSSARY OF TERMS INSTRUCTIONS AND TERMS AND CONDITIONS OF SENIOR STAFF OPTION APPLICATION - EMPLOYEES ONLY 6 8 11 14 16 17 18 22 27 31 41 45 48 55 60 83 92 97 100 102 21. INSTRUCTIONS AND TERMS AND CONDITIONS OF SHARE APPLICATION AND SHARE APPLICATION FORMS 22. CORPORATE DIRECTORY 103 109 1. Chairman’s letter Dear Investor On behalf of the directors and management team of Methven, I am pleased to offer you the opportunity to become a shareholder in this long-established and thriving New Zealand business. Methven and the Selling Shareholders between them are seeking to raise $36.2 million in this offer of new and existing Shares, in order for Methven to fund the acquisition of the remaining 40% shareholding in our Australian subsidiary (Methven Australia) and to enable the existing shareholders to realise around half of their investment in the Company. As part of the Offer, the Company will be offering a relatively small number of share options to selected Senior Staff of the Methven Group (in conjunction with the Senior Staff Share Offer).These options, which will only have value in the event of growth in the Company’s share price in excess of 7.5% per annum and which will not carry dividend rights, will provide a positive incentive and reinforce Methven’s performance culture. We believe the Company has strong growth prospects and that a NZX listing will support our ambition for the Company to remain New Zealand controlled and to develop to its potential. It is important to us that Methven’s new shareholders understand the essence of what Methven is about and our vision for its future. I encourage you to read this letter and Offer Document. Methven has a proud history of New Zealand design, manufacture and supply of quality tap and showerware and domestic water control valves. Methven believes it is the largest supplier of tap and showerware to the New Zealand market, with an estimated market share of more than 40%, and also the second largest supplier of domestic water control valves to the Australian plumbing market. Methven’s passion for innovation and its expertise in fluid dynamics, design and manufacturing have been fundamental to the Company’s success. The Company’s desire to deliver better performing tap and showerware and safer more reliable plumbing systems has provided its driving force and direction. page six METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT The performance and enduring quality of Methven products, many of which incorporate proprietary technology, have earned strong loyalty to Methven’s brands amongst merchant channels and plumbers in New Zealand. The Company’s Fastflow shower mixer is an example of its proprietary technology. Fastflow delivers a stronger shower in homes with low pressure hot water systems, as are commonly found in New Zealand. Methven differs from most of its competitors in that it produces both tap and showerware, and valves. The combination of these products lies at the heart of the Company’s ability to design and develop technology that delivers water better. Methven plans to maintain its New Zealand market leadership by continuing to develop functionally superior products based on this competitive advantage. Methven successfully established itself in the Australian domestic water control valve market in 2001. In 2003, the Company acquired a 60% interest in a leading Australian showerware supply business (Flexispray) with a view to entering the Australian tap and showerware market.This business, which now operates under the name Methven Australia, was the vehicle for the launch of a select Methven tapware offering in Australia in early 2004. Methven Australia has performed ahead of preacquisition expectations and is focused on achieving growth in Methven tap and showerware sales through its existing customer base. Methven will, on completion of the Offer, acquire the remaining 40% interest in Methven Australia using proceeds from the Offer to do so. Methven’s international growth aspirations extend beyond Australia, albeit with a focus on selling products and technologies relating to better delivery of water into the shower environment. For example, we believe our latest innovation, ‘SatinJet’ shower technology, offers international potential. SatinJet is a shower head innovation which creates a spray pattern with a unique feel, described as a ‘soft intensity’. SatinJet performs well at relatively low water pressures and can also deliver water and energy saving benefits. SatinJet is expected to assist the establishment of the Methven tap and showerware brand in Australia where the water saving benefits of the technology, without compromise to the shower experience, have real significance. Methven is also advancing initiatives to license SatinJet technology and to establish Original Equipment Manufacture (OEM) type supply arrangements for SatinJet equipped shower heads in Europe and the USA. In the medium term, the Company is considering launching Methven branded products directly into the UK, where a prevalence of low and unequal water pressure systems provides opportunities for Methven’s pressure compensating tap and showerware and valving technologies. Aside from SatinJet, Methven has a pipeline of other innovations and product designs in various stages of development. Investment has also been committed to upgrading Methven’s manufacturing technologies and systems, reflecting the Company’s continued commitment to manufacturing its new designs and higher end product offerings in New Zealand. I commend this Offer for your consideration. Yours faithfully Richard Cutfield Chairman 4 November 2004 page seven 2. Key features LONG-ESTABLISHED NEW ZEALAND MARKET LEADER TRACK RECORD OF EARNINGS GROWTH Methven is a leading supplier of tap and showerware and domestic water control valves to the New Zealand plumbing market. In New Zealand, Methven estimates that it has a tap and showerware market share of more than 40% and a domestic water control valve market share of more than 30%1. The business was originally founded in 1886. TRUSTED BRANDS Methven’s brands enjoy loyalty and support from New Zealand’s plumbers, merchant channels and end users. This support has been earned through continually delivering product performance, quality manufacturing and reliable back-up service. COMPLEMENTARY DUAL BUSINESS STREAMS Methven has consistently delivered earnings growth (before interest and tax) since its Management Buy Out (‘MBO’) in 2001.The Company is forecasting consolidated Earnings Before Interest,Tax, Depreciation and Amortisation (‘EBITDA’) of $11.4 million in the financial year (‘FY’) ending 31 March 2005, an increase of 15% on prior year (audited) EBITDA of $9.9 million (including only 9 months trading of Methven Australia post-acquisition)2. This growth reflects the success of Methven’s entry into the Australian market, product range changes and cost savings related to investment in upgrading its manufacturing technologies and systems and component sourcing initiatives. Earnings (EBITDA) growth has also been assisted by the relatively high level of residential building activity in New Zealand over the last two to three years. While the level of New Zealand new dwelling construction activity in particular is expected to decline, Methven expects its earnings to continue to grow.The Company's New Zealand sales have historically been more influenced by the larger and less volatile renovation and replacement market, and any general decline in this market is expected to be more than offset by the introduction of new products, cost saving initiatives and growth in Australia and other international markets. INTERNATIONAL GROWTH PROSPECTS Methven’s tap and showerware and valving business streams are complementary. In a manufacturing and design sense they share common technologies, resources and infrastructure.The technical aspects of valve design strengthen Methven’s ability to design better performing tap and showerware and enhance its reputation with the plumbing trade. DESIGN DRIVEN INNOVATOR Methven’s continuing focus on developing better performing tap and showerware and safer, more reliable, plumbing systems is evidenced by the Company’s portfolio of 19 existing and pending patents, relating mainly to innovations in fluid dynamics. Many of these innovations have been in response to the pressure challenged domestic water systems prevalent in New Zealand, but also offer potential in international markets.Whilst product performance is Methven’s primary point of difference, its design focus extends to creating appealing ranges of classical and contemporary styled products which embrace a combination of form and function. Methven launched its international growth strategy in 2001 by successfully entering the Australian domestic water control valve market. More recently, in 2003, it acquired a majority interest in a leading Australian showerware supply business, providing a vehicle for the introduction of selected Methven tapware ranges into the Australian market. Methven’s most recently released innovation, SatinJet, produces a unique shower feel with water saving potential, which the Directors believe will offer considerable market potential in Australasia. SatinJet is also attracting interest from prospective licensees of page eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT the technology in Europe and the USA. Methven has a pipeline of other technologies and products under development which it believes offer future market potential both in Australasia and beyond. COMMITTED MANAGEMENT SHAREHOLDERS The Existing Shareholders, who include senior managers, will on Listing retain, in aggregate, a 50% shareholding in the Company. They have each entered into a voluntary agreement prohibiting them from selling any of their retained shareholdings between the Listing date and prior to the date that is six weeks after the announcement of Methven’s FY2005 results (without prior approval of the Lead Manager and the Company)3. The minority shareholders of Methven Australia have also elected to commit a significant proportion of the proceeds from the purchase by Methven of their 40% interest in Methven Australia, to subscribe for Shares in the Offer.4 SOUND INVESTMENT FUNDAMENTALS At the Offer Price of $1.43 per Share the Company is forecasting a Price to Earnings Ratio of 11.80 times and EBITDA to Enterprise Value Ratio of 6.79 times for FY2005.The Company believes that its strong underlying business and an intended 60% payout ratio should generate a sustainable dividend stream, whilst also providing sufficient capital for growth. Methven is forecasting a gross dividend of 3.61 cents per share (net 2.42 cents per share) in respect of the period from the date of Listing to 31 March 2005, to be paid in June 2005.The dividend is expected to be fully imputed and will equate to a gross dividend yield of 7.57% per annum (net 5.08% per annum). Future dividends will be imputed to the maximum extent available2. 1. Market value and market share estimates are based on private market research carried out by Methven over the past two years combined with sales data from industry participants, suppliers and distributors. 2. Further information on the forecast financial results to 31 March 2005 can be found under Section 7, Summarised Financial and Dividend Information on pages 18 to 21, and Section 13, Prospective Financial Information, between pages 48 to 53. 3. Further details of these transfer restrictions are set out on page 96. 4. Methven will, immediately prior to Listing the complete the Methven Australia Minority Aquisition, further details of which appear in Section 5. page nine METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 3. Summary of the Share Offer Methven is offering for subscription 11,188,811 new fully paid ordinary shares in the Company (‘New Shares’) and the Selling Shareholders are offering for sale 14,127,970 existing fully paid ordinary shares in the Company (‘Existing Shares’), in each case at an Offer Price of $1.43 per Share (the ‘Offer Price’), payable in full at the time of application.These offers are referred to jointly as the ‘Share Offer’. Contemporaneously with the offers of New Shares and Existing Shares under the Share Offer, the Selling Shareholders will also make an offer of 277,624 (in aggregate) of their shares to Eligible Senior Staff (the ‘Senior Staff Share Offer’). Details of the Senior Staff Share Offer are set out on page 96. The Offer will not proceed unless all Shares in the Share Offer are subscribed for. The number of Shares offered under the Share Offer (and the Senior Staff Share Offer) take account of a 20:1 share split to occur immediately prior to Listing. On completion of the Offer (and Listing), Methven will have 51,188,810 fully paid ordinary shares on issue. More details of the shareholding structure of Methven, before and after completion of the Share Offer (and Listing), are set out on page 17. Methven reserves the right to withdraw the Share Offer at any time prior to Alotment. USE OF PROCEEDS OF THE OFFER of imputation credits which would otherwise be lost on Listing; and (c) meet the Company's portion of the costs of the Offer. Further details relating to the Company’s intended use of the proceeds of the Share Offer are set out in Section 5 of this Offer Document. Although it is intended that the proceeds of the Share Offer will be used as set out above, they may be applied to any undertaking in which Methven may lawfully engage. The Company will complete the Methven Australia Minority Acquisition and pay amounts owing to the Selling Shareholders under the Special Dividend immediately prior to Listing. Further details of these transactions are set out on page 16. The $20.2 million of proceeds of the offer of Existing Shares will be paid to the Selling Shareholders in the appropriate proportion to the numbers of Existing Shares sold. ALLOCATION OF SHARES Shares under the Share Offer have been allocated as follows. Firm Allocation to clients of the Lead Manager and other NZX Firms Firm Allocation to the vendors under the Methven Australia Minority Acquisition Priority Pool for Registered Plumbers 23,326,030 Shares 990,751 Shares 1,000,000 Shares Methven intends to use the proceeds of the Offer of New Shares ($16 million) to: (a) fund the purchase price to be paid by Methven on completion of the Methven Australia Minority Acquisition ($2.9 million); (b) substantially fund the payment of the Special Dividend ($13 million) that the Company has declared so as to enable the Selling Shareholders, in conjunction with the Share Offer, to reduce their investment in the Company to 50% of the fully diluted value of the Company (with such Special Dividend declared by reference to a Record Date of 2 November 2004).The Special Dividend will also allow the Selling Shareholders to receive the benefits There is no public pool. Priority Pool for Registered Plumbers The closing date for applications for Shares from the Priority Pool for Registered Plumbers is 19 November 2004, being one week before the Closing Date for the Offer. Shares forming part of the Priority Pool for Registered Plumbers for which no valid Share Application Form is received, will be re-allocated by the Lead Manager. APPLICATION FOR SHARES Applications must be for a minimum of 1,500 Shares and thereafter in multiples of 500 Shares. page eleven 3. Summary of the Share Offer CONTINUED Applications for Shares under the Share Offer must be made on the Share Application Form (included with and forming part of this Offer Document), and in accordance with the application instructions set out in Section 19. Applications must be accompanied by cheque payment in full for the Shares being applied for. Cheques should be made out to ‘Methven Limited Share Offer’ and crossed ‘Not Transferable’. Cheques will be banked as they are received and must not be post dated. Duly completed Share Application Forms together with the appropriate payment, should be mailed or delivered to the Share Registrar, the Primary Market Participant whose stamp appears on the Share Application Form or the Lead Manager, or any other channel approved by NZX, in time to be received by the Share Registrar by 5.00pm, on the Closing Date, 26 November 2004. Failure to include any of the required details may disqualify the application. The Company, in consultation with the Lead Manager, reserves the right to extend the Closing Date for the Share Offer. OVERSEAS OFFERS ALLOTMENT AND TRANSFER OF SHARES Allotment of Shares applied for under the Share Offer will be completed in order to meet the minimum shareholding spread requirements of NZX.The Company will not issue additional shares to meet over-subscriptions. The Directors and the Selling Shareholders reserve the right to reject any application, or accept any application in part only, without giving any reason for doing so. Any interest generated on application monies held by Methven shall be for the account of Methven, except as required by the Securities Act 1978. Any surplus application monies will be refunded to applicants within five Business Days after allotment and will not carry interest. Notifications to successful applicants of their allocations under the Share Offer are expected to be issued on 29 November 2004. None of Methven, NZX or the Lead Manager (nor any of their respective Directors, officers, employees or advisors) accept any liability in respect of any applicant who elects to trade Shares without receiving confirmation of allotment of their allocation. Applicants wishing to confirm their allotment or transfer can do so by phoning the NZX Firm from whom their firm allocation was made or BK Registries Limited on 0800 377 388. UNDERWRITING The Share Offer is only being made to members of the public and institutional investors in New Zealand. No person may offer, sell, re-sell or deliver any Shares or distribute any documents (including this Offer Document) in relation to the Shares to any person outside New Zealand except in accordance with all of the legal requirements of the relevant jurisdiction. Unless otherwise agreed with Methven and the Selling Shareholders, any person or entity subscribing for Shares in the Share Offer shall by virtue of such subscription be deemed to represent that he, she or it is not in a jurisdiction which does not permit the making to him, her or it of an offer or invitation of the kind described in this Offer Document, and is not acting for the account or benefit of a person within such jurisdiction. None of Methven, the Selling Shareholders, the Promoters, the Lead Manager, nor any of their respective directors, officers, employees, consultants, agents, partners or advisors accepts any liability or responsibility to determine whether a person is able to participate in the Offer. The Share Offer is not underwritten. QUOTATION ON NZSX Application has been made to NZX for permission to list the ordinary shares of Methven and all the requirements of NZX relating thereto that can be complied with on or before the date of the Offer Document have been duly complied with. However, NZX accepts no responsibility for any statement in this Offer Document. BROKERAGE Methven and the Selling Shareholders will pay brokerage at a rate of 1.75% to the Lead Manager on allotment/transfer of Shares pursuant to the Share page twelve METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT Offer. From this brokerage, the Lead Manager will pay brokerage to NZX Firms at the same rate in respect of Shares allocated firm to them and duly allotted/ transferred pursuant to applications bearing their stamp. SELLING RESTRICTIONS ON EXISTING SHAREHOLDERS The Existing Shareholders will, in aggregate, retain 50% of the shares in Methven on issue as at the date of Listing. Each such shareholder has entered into a voluntary agreement which prohibits them, during the period from the date of Listing to the date that is six weeks after the announcement of Methven's FY2005 results, from transferring, selling or charging shares held as at the date of Listing, without the approval of the Lead Manager and the Company and, in some instances, NZX (the ‘Standstill Agreements’). Further details of the Standstill Agreements are set out on page 96. VOTING CONTROL OF 20% OR MORE OF VOTING SECURITIES On Listing, AMP Capital Investments No 11 Limited and AMP Capital Investments No 3 Limited will hold, in aggregate, 25% of the voting securities of Methven. An associate of these two persons, AMP Capital Investors (New Zealand) Limited (which, as at the date of this Offer Document, also has a relevant interest in more than 5% of the voting securities of Methven, as described on page 93), is proposing to subscribe for Shares in the Share Offer, such subscription being pursuant to the Takeovers Code (Class Exemptions) Notice (No 2) 2001. Following any such subscription, as at (and beyond) the date of Listing, the potential maximum control percentage held by AMP Capital Investors (New Zealand) Limited and/or any of its associates (which include AMP Capital Investments No. 3 Limited, AMP Capital Investments No. 11 Limited, AMP Life Limited and AMP Private Capital NZ Fund Limited) will be, in aggregate, 33.2%. page thirteen 4. Summary of the Senior Staff Option Offer OFFER DESCRIPTION must be signed before a witness. Eligible Senior Staff will be notified of the number of Senior Staff Options being offered to them. Eligible Senior Staff wishing to apply for Senior Staff Options pursuant to the Senior Staff Option Offer must apply for the full number of Senior Staff Options offered to them. The completed Option Application Form must be returned to: Methven Group Chief Executive Officer Methven Limited 447 Rosebank Road Avondale Auckland NEW ZEALAND ALLOCATION OF SENIOR STAFF OPTIONS Methven is offering a total of 277,624 Senior Staff Options to Eligible Senior Staff, such options entitling the holder to purchase shares in Methven pursuant to the terms of the Methven 2004 Share Option Scheme (the ‘Senior Staff Option Scheme’). Each Senior Staff Option will, on exercise, entitle the holder to purchase one fully paid ordinary share in Methven on the terms and conditions of the Senior Staff Option Scheme (which have been set out in full on pages 97 to 99). Assuming all offers of Senior Staff Options are accepted, the Company will have on issue 277,624 Senior Staff Options, which may convert into 277,624 shares in the Company no earlier than 30 November 2006. On the basis of the post-Listing shareholdings set out in the table on page 17 and assuming all Senior Staff Options convert into shares, this would represent 0.54% of the Company. The Senior Staff Options will only be offered to Eligible Senior Staff. Eligible Senior Staff, who will also be offered shares in Methven under the Senior Staff Share Offer, will be offered one Senior Staff Option for every share they are offered and accept under the Senior Staff Share Offer. Each Senior Staff member selected to participate will receive, together with this Offer Document, an individual offer specifying the number of Senior Staff Options being offered to that Senior Staff member. No Senior Staff Options are being offered to any Director of Methven or its subsidiaries or to any existing shareholders of Methven.The Senior Staff Option Offer is not underwritten. APPLICATION FOR OPTIONS Once Methven receives a completed Option Application Form from an Eligible Senior Staff member (and assuming that the Offer proceeds) it will: • Grant to that Senior Staff member the number of Senior Staff Options on or about 29 November 2004; and • Issue an Option Certificate in the name of that Senior Staff member by 6 December 2004. EXERCISE OF SENIOR STAFF OPTIONS There is no application fee or other sum payable for the Senior Staff Options offered under the Senior Staff Option Offer. Eligible Senior Staff wishing to accept the Senior Staff Option Offer need to complete the Option Application Form (personally provided to them) in full and return it to the address below no later than 5.00pm on 26 November 2004 or such later date as may be advised by Methven in writing.The Option Application Form contains an undertaking to comply with the terms and conditions of the Senior Staff Option Scheme and The Senior Staff Options can only be exercised on written notice to Methven within an Exercise Period commencing on 30 November 2006 and ending on 29 November 2009 (‘Exercise Period’). The Senior Staff Options will lapse if they are not exercised by the end of the Exercise Period or if the Senior Staff member ceases to be employed within the Methven Group or if certain other circumstances exist (these are set out in full on pages 97 to 99). An Exercise Price will apply for Option Holders wishing to exercise their Senior Staff Options.The Exercise Price will vary depending on when, during the Exercise Period, a Senior Staff Option is exercised, as set out below: EXERCISE DATE EXERCISE PRICE Between 30 November 2006 and 29 November 2007 Between 30 November 2007 and 29 November 2008 Between 30 November 2008 and 29 November 2009 $1.65 $1.78 $1.91 page fourteen METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT In addition the Senior Staff Options are not able to be exercised unless certain conditions are met. In particular, each Senior Staff Option will correspond to a share in Methven transferred to the Eligible Senior Staff member pursuant to the Senior Staff Share Offer and will only be exercisable if the corresponding share has not been disposed of prior to the date of exercise.The conditions of the Senior Staff Options are set out in full on pages 97 to 99. Option Holders may exercise their Senior Staff Options by giving a written notice to Methven detailing the number of Senior Staff Options to be exercised.This notice must be accompanied by: • a cheque made payable to Methven in payment of the Exercise Price for the total number of Senior Staff Options exercised under that notice; and • the Option Certificate issued in respect of the Senior Staff Options (if fewer than all of the Senior Staff Options stated on the Option Certificate are exercised, the Company will issue a replacement Option Certificate for the remaining Senior Staff Options held). Option Holders may exercise either all or part of their Senior Staff Options but the minimum number that may be exercised on any one occasion is the lesser of 1,000 Senior Staff Options or the balance of Senior Staff Options then remaining. MINIMUM APPLICATION transfer of the appropriate number of shares to the Option Holder within 5 Business Days of receiving payment of the relevant Exercise Price. LISTING Methven does not intend to list the Senior Staff Options on the NZSX. Application has been made to NZX for permission to list the shares and all requirements of NZX relating to listing the shares that can be complied with on or before the date of this Offer Document have been duly complied with. However, NZX accepts no responsibility for any statement in this Offer Document. NEW ZEALAND ONLY OPTION OFFER The Senior Staff Option Offer described in this section is an offer to Eligible Senior Staff in New Zealand. No person may offer, sell or deliver (or invite any person to do so) any Senior Staff Options or distribute any documents (including this Offer Document) in relation to any such offer, sale delivery or invitation to any person outside New Zealand except in accordance with all of the legal requirements of the relevant jurisdiction. Notwithstanding this, the Company intends to make offers of Senior Staff Options to certain Senior Staff who reside in Australia but, to the extent such offers are made in Australia, only where this does not require an Australian prospectus under Section 708 of the Corporations Act (Cth) 2001. USE OF PROCEEDS OF SENIOR STAFF OPTION OFFER Applications must be for the total number of Senior Staff Options offered to the Eligible Senior Staff member concerned (which will equate with the number of Shares applied for by that Eligible Senior Staff member under the Senior Staff Share Scheme). ALLOCATION OF SHARES Each Senior Staff Option will, upon exercise, convert into one Methven share, ranking equally in all respects with all other shares on issue as at the date on which such Senior Staff Option is exercised, except for any dividend in respect of which the Record Date is prior to the date of exercise. Methven will issue, transfer or procure the Methven will not receive any proceeds from the allotment of the Senior Staff Options under the Senior Staff Option Offer but will receive proceeds from the issue of shares upon exercise of the Senior Staff Options. It is intended that these proceeds will be used for general business purposes of Methven. However they may be applied to any undertaking in which Methven may lawfully engage. page fifteen 5. Use of Share Offer proceeds METHVEN AUSTRALIA MINORITY ACQUISITION Methven will use a portion of the proceeds from the issue of New Shares under the Share Offer to fund its acquisition of the remaining 40% of its subsidiary, Methven Australia (the ‘Methven Australia Minority Acquisition’). Methven acquired a 60% interest in Methven Australia in 2003 and, as part of the same overall transaction, Methven Australia acquired the business of Flexispray Pty Limited (Flexispray, but which now trades as Methven Australia).The remaining 40% interest in Methven Australia is substantially held (beneficially) by the previous managers of the Flexispray business, Graeme and Matthew Crichton, who remained as principal managers and executive directors of Methven Australia following the original acquisition by Methven. It was agreed at the time of the original acquisition in 2003 that if Methven intended to make an initial public offering of shares, then Methven would have the right to buy the remaining 40% of the shares in Methven Australia. Methven has given notice of its intention to exercise this right to buy, and the transaction is to complete immediately prior to Listing. Methven’s decision to exercise this right is based on its confidence in the outlook for Methven Australia and its desire to both consolidate control of its interests in the Australian market and remove the potential for conflicts of interest between Methven and the minority shareholders.The purchase price is $2.9 million, payable in cash on completion. Methven will use a portion of the proceeds of subscriptions for the New Shares to fund the purchase price. The vendors under the Methven Australia Minority Acquisition (or their nominees) have committed to subscribe for 990,751 Shares in the Offer and Methven has reserved a firm allocation of 990,751 Shares in the Offer accordingly. Following completion of the Methven Australia Minority Acquisition, both Graeme and Matthew Crichton will remain as executive directors of Methven Australia, with Matthew remaining as CEO and Graeme as Director of Procurement. More details of the terms of the Methven Australia Minority Acquisition are set out on pages 94 and 95. SPECIAL DIVIDEND Methven will use the balance of the proceeds from the issue of New Shares under the Share Offer (after the deduction of Offer costs) to substantially fund the payment of the Special Dividend, totalling $13.0 million, to the Selling Shareholders.The Special Dividend will allow the Selling Shareholders to receive the benefits of current imputation credits which would otherwise be lost on Listing. The Selling Shareholders wish to realise approximately 50% of the value of their interest in the Company and will achieve the majority of such realisation through the sale of the Existing Shares under the Share Offer.The balance of the value will be realised by the payment of the Special Dividend.The Special Dividend will also allow the Selling Shareholders to receive the benefits of current imputation credits which would otherwise be lost on Listing.The Special Dividend was declared by the Board on 2 November 2004 (by reference to a Record Date of 2 November 2004) with all shares on issue as at that date immediately declared ex-dividend. Methven will pay amounts owing to the Selling Shareholders under the Special Dividend immediately prior to Listing. page sixteen METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 6. Shareholding structure The shareholding structure of Methven, both as at the date of the Offer Document and as at the date of Listing (assuming completion of the Offer) is shown in the table below1. SHAREHOLDING STRUCTURE SHAREHOLDERS SHAREHOLDING AS AT DATE OF OFFER DOCUMENT SHARES % SHAREHOLDING AS AT DATE OF LISTING 3 SHARES % 2 EXISTING SHAREHOLDERS 2 AMP Capital Investments No 11 Limited AMP Capital Investments No 3 Limited Colin Bartlett Rick Fala Stuart Gray Johannes Krill Gary Nel NEW INVESTORS 625,000 (B) 375,000 (B) 200,000 200,000 200,000 200,000 200,000 31.25 18.75 10.00 10.00 10.00 10.00 10.00 7,998,250 4,798,950 2,559,441 2,559,441 2,559,441 2,559,441 2,559,441 15.63 9.37 5.00 5.00 5.00 5.00 5.00 Senior Staff 5 6 100.00 277,624 990,751 24,326,030 51,188,810 0.54 1.94 47.52 100.00 Vendors under Methven Australia Minority Acquisition Other Investors in the Offer 2,000,000 NOTES: 1. The Directors will only proceed with the Offer if the Company receives valid applications for all 25,316,781 Shares offered under the Share Offer. 2. All shares in the Company on issue as at the date of this Offer Document are Class A ordinary shares except those held by AMP Capital Investments No 11 Limited and AMP Capital Investments No. 3 Limited, which are Class B ordinary shares. All shares are fully paid. As at the date of Listing all shares in the Company on issue will be designated as ordinary shares. 3. The share numbers shown in this column reflect a 20:1 share split to be carried out immediately prior to Listing following which (and assuming completion of the Offer and Listing) the Company will have 51,188,810 shares on issue. 4. (a) As at the date of this Offer Document (and up to the date of Allotment) Colin Bartlett, Rick Fala, Stuart Gray, Johannes Krill and Gary Nel are the legal and registered owner of (i) the Existing Shares which they will each transfer to investors under the Share Offer; and (ii) their proportion of the shares to be transferred under the Senior Staff Share Offer. As at the date of Listing, all of the shares shown as being held by each of Colin Bartlett, Rick Fala, Stuart Gray, Johannes Krill and Gary Nel will be held by trustees of trusts of which they are beneficiaries. (b) On Listing, AMP Capital Investments No 11 Limited and AMP Capital Investments No 3 Limited will hold, in aggregate, 25% of the voting securities of Methven. An associate of these two persons, AMP Capital Investors (New Zealand) Limited (which, as at the date of this Offer Document, also has a relevant interest in more than 5% of the voting securities of Methven, as described in page 93), is proposing to subscribe for Shares in the Share Offer, such subscription being pursuant to the Takeovers Code (Class Exemptions) Notice (No 2) 2001. Following any such subscription, as at (and beyond) the date of Listing, the maximum control percentage held by AMP Capital Investors (New Zealand) Limited and/or any of its associates (which include AMP Capital Investments No. 3 Limited, AMP Capital Investments No. 11 Limited, AMP Life Limited and AMP Private Capital NZ Fund Limited) will be, in aggregate 33.2%. 5. Contemporaneously with the Offer, the Selling Shareholders will also offer 277,624 (in aggregate) of their Existing Shares to Eligible Senior Staff (not being any other existing shareholder or Director of any member of the Methven Group) under the Senior Staff Share Offer. Eligible Senior Staff who are offered Shares under the Senior Staff Share Offer will also be offered Senior Staff Options under the Senior Staff Option Scheme, with the number of Senior Staff Options offered to each Senior Staff Member equalling the number of Shares purchased by such Eligible Senior Staff member under the Senior Staff Share Offer. As at the date of Listing, and assuming that all Shares and Senior Staff Options offered under the Senior Staff Share Offer and the Senior Staff Options Offer are applied for, the Company will have 277,624 Senior Staff Options on issue, representing 0.54% of the Company. For further details of the Senior Staff Share Offer see pages 97 to 99. For further details of the Senior Staff Option Offer, see Section 4. 6. For further details of the Methven Australia Minority Acquisition, see page 16. page seventeen 7. Summarised financial and dividend information SUMMARY FINANCIAL INFORMATION The following summarised financial information relates to the consolidated Methven business, including 100% of Methven Australia, from 1 July 2003. Proforma figures have been extracted from the financial statements and management accounts of Methven and the Methven business under previous ownership (prior to the February 2001 MBO) and have been adjusted to align balance dates to 31 March and to exclude material one-off items, as described below.The summarised financial information should be read in conjunction with the notes appearing below the table. FINANCIAL PERFORMANCE PROFORMA UNAUDITED 12 MONTHS TO 31 MARCH 2000 PROFORMA UNAUDITED 12 MONTHS TO 31 MARCH 2001 PROFORMA UNAUDITED 12 MONTHS TO 31 MARCH 2002 AUDITED 12 MONTHS TO 31 MARCH 2003 AUDITED FORECAST 12 MONTHS TO 12 MONTHS TO 31 MARCH 31 MARCH 2004 2005 $MILLION $MILLION $MILLION $MILLION $MILLION $MILLION Operating Revenue EBITDA EBITA Net Profit After Tax (NPAT) before minority interests $31.1 $4.3 $3.4 $28.2 $4.7 $4.0 $30.9 $5.5 $4.8 $33.5 $7.0 $6.3 $47.3 $9.9 $8.7 $52.8 $11.4 $10.1 $2.1 $2.8 $1.5 $3.1 $5.0 $6.2 In the above table, EBITDA means earnings before interest, tax, depreciation and amortisation costs, EBITA means earnings before interest, tax and amortisation costs, and NPAT means net profit after tax (before any adjustments for minority interests which are forecast to cease at the time Methven acquires the remaining 40% interest in Methven Australia as part of the Methven Australia Minority Acquisition). BASIS OF PREPARATION balance date or financial year (FY).The 31 March 2000 results have also been adjusted to exclude one-off (extraordinary) restructuring costs of $1.0 million (or $0.7 million after tax) relating to the consolidation of manufacturing operations on the current Auckland site, and the closure of the previous Dunedin manufacturing operation. The proforma financial information for 31 March 2001 has been extracted from a combination of the MCK Group tapware division, which was part of the MCK Group Pty Limited 31 July 2000 audited financial statements and un-audited management accounts to 28 February 2001 (at which time the MBO of the business was completed) and Methven’s March 2001 unaudited management accounts (post MBO). The 31 March 2001 results have also been adjusted to exclude further one-off (extraordinary) costs of $0.3 million (or $0.2 million after tax) relating to the consolidation of manufacturing operations as referred to above. The proforma financial information for the year ended 31 March 2000 has been extracted from the unaudited management accounts of the business, which was part of the MCK Group Pty Limited.The Group accounts for this period were audited.The business at that time comprised the entities of the New Zealand tapware division of MCK Group Pty Limited (MCK Group tapware division). Adjustments have been made to the 31 July 2000 audited financial statements (based on the management accounts) to derive the 31 March 2000 figures, and hence align the figures with the current page eighteen METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT The proforma financial information for 31 March 2002 has been extracted from Methven’s audited financial statements for the 13 months ended 31 March 2002, adjusted to a 12 month basis based on Methven’s March 2001 un-audited management accounts. The financial information for 31 March 2003 and 31 March 2004 has been extracted directly from Methven’s audited financial statements.The 31 March 2004 results include 100% of the Methven Australia results since the acquisition of a majority interest in July 2003. No adjustments have been made for one-off (extraordinary) items including one-off costs and provisions accrued in respect of Methven’s obligation to replace the asbestos cladding on its Avondale leasehold premises of $0.15 million in FY2003 and $0.44 million in FY2004 (or $0.1 million and $0.3 million after tax respectively). Detailed Prospective Financial Information for the year ending 31 March 2005 including principal assumptions are set out in Section 13. page nineteen 7. Summarised financial and dividend information CONTINUED KEY OFFER STATISTICS 1 Fully paid shares on issue Market Capitalisation Enterprise Value 4 3 2 51,188,810 $73.2 million $77.6 million 6.79 x 7.69 x Enterprise Value / EBITDA (forecast in respect of 2005 financial year) 5 Enterprise Value / EBITA (forecast in respect of 2005 financial year) 5 Earnings Per Share before goodwill amortisation and minority interests (forecast in respect of 2005 financial year) 6 Earnings Per Share after goodwill amortisation and before minority interests (forecast in respect of 2005 financial year) 6 Gross dividend per share Net dividend per share 8 7 12.67 cents 12.12 cents 3.61 cents 2.42 cents Price to Earnings Ratio before goodwill amortisation and minority interests (forecast in respect of 2005 financial year) 9 Price to Earnings Ratio after goodwill amortisation and before minority interests (forecast in respect of 2005 financial year) 9 Annualised gross dividend yield Annualised net dividend yield 11 10 11.29 x 11.80 x 7.57% 5.08% NOTES: 1. The forecast multiples and yield should be read in conjunction with the assumptions underlying the forecasts set out on pages 51 to 53 and the risk factors set out on pages 55 to 58. 2. Fully paid shares in Methven on issue as at the date of Listing. 3. Calculated as fully paid shares on issue at the date of Listing multiplied by Offer Price per share. 4. Calculated as Market Capitalisation plus forecast Net Debt of $4.4 million as at the date of Listing. 5. Methven believes that EBITDA and EBITA provide a useful measure of the Company’s operating performance but should not be considered as an indication of, or alternative to, Net Profit After Tax as an indicator of financial performance or as an alternative to cash flow as a measure of liquidity.These terms are defined in the Glossary of Terms. 6. Calculated as forecast Net Profit After Tax, before minority interests and before and after goodwill amortisation divided by fully paid shares on issue. 7. Forecast cash dividend per share for the period from the date of Listing to 31 March 2005, and including imputation credits, based on a 33% tax rate, which the Company forecasts will be available. 8. Forecast cash dividend per share for the period from the date of Listing to 31 March 2005. 9. Calculated as Offer Price per share divided by Earnings per Share (before minority interests and before and after goodwill amortisation). 10. Calculated as annualised forecast cash dividend divided by Offer Price per share and including imputation credits, based on a 33% tax rate, which the Company forecasts will be available. 11. Calculated as annualised forecast cash dividend per share divided by Offer Price per share. page twenty METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT DIVIDEND POLICY The Company expects to pay dividends of 60% of Net Profit After Tax (after goodwill amortisation) subject to a number of factors, including the level of investment expenditure required by the Company in order to pursue growth opportunities and the Company’s objective to provide shareholders with appropriate returns. In respect of each financial year, the Company expects to pay interim dividends in December and a final dividend in June.The first dividend payment is expected to be in June 2005. Based on such a 60% payout ratio, the Directors expect, as set out in the Prospective Financial Information (on pages 48 to 53) including the assumptions (set out on pages 51 to 53), to declare a fully imputed gross dividend for the period from the date of Listing to 31 March 2005 of 3.61 cents per share (2.42 cents per share net) in June 2005, with available imputation credits attached to dividends at the maximum level possible. However, the Company cannot give any guarantee as to the level or frequency of any future dividend (or other distributions, if any) payable on shares on issue or as to the level of imputation credits, if any, attached to dividends. The Directors reserve the right to amend the dividend policy at any time to accommodate changes in the prospects for Methven and the Methven Group and the need to apply available funds towards achieving growth. page twenty one 8. Corporate governance, Directors and Senior Management CORPORATE GOVERNANCE The Board of Methven is responsible for the strategic direction of the Company and ensuring that the Company is managed properly and for the benefit of shareholders. Some of the key responsibilities of the Board include: • developing the strategic direction of Methven, in conjunction with Methven’s senior management team; • monitoring the performance of management and the overall financial performance of the Company and the Methven Group; • monitoring Methven’s regulatory and legislative compliance and risk management processes; • ensuring effective policies and procedures concerning disclosure to the market and shareholders. The Board has adopted what it believes to be appropriate corporate governance policies and procedures, which it intends to review on an on-going basis.The principal corporate governance policies concern the appointment and retirement of Directors, Directors' access to independent professional advice and the constitution and operation of Board Committees namely, the Audit, Compliance and Risk Management Committee and the Remuneration Committee. DIRECTORS RICHARD CUTFIELD Non Executive Chairman specialist sub-manager of AMP Capital private equity investments. Richard also represents Pencarrow on the boards of Design Mobel Group Limited, Donaghys Industries Limited and Formway Furniture Limited. Former directorships include Eskimo Logistics Group Limited, Hurricane Wire Products Limited and Rodd & Gunn Limited. Prior to joining Pencarrow in 1993, Richard spent 10 years with international accounting firm Deloitte Touche Tohmatsu in Wellington and London where he specialised in the provision of financial and management consulting and corporate finance related services. Richard holds a Bachelor of Business Studies degree from Massey University and is a member of the Institute of Chartered Accountants of New Zealand. Richard lives in Wellington. RICK FALA Managing Director and Group CEO Rick became Chief Executive Officer of the Methven business in 1998, having previously held the Chief Financial Officer position since 1996. Rick led the management team that acquired the Methven business in the 2001 MBO. During his time with Methven and its predecessor companies, Rick has been instrumental in developing the current business model and strategy. Under his leadership, Methven has built a track record of earnings growth through a combination of effective operational management and strategic initiatives that have both grown the Company and improved its efficiency. Rick plays a significant role in Methven’s Australian and international expansion initiatives. Prior to joining the Methven business in 1996, Rick held various financial management roles within McKechnie plc’s New Zealand group companies from 1991. He was previously employed as an accountant with Ernst & Young and its predecessor firms in New Zealand. Rick is a qualified accountant. Rick lives in Auckland. Richard has been a Director and Chairman of Methven since March 2001, having been instrumental in facilitating the AMP Private Capital backed MBO of the Methven business in February 2001. Richard is an Executive Director of Pencarrow Private Equity Limited (‘Pencarrow’), one of New Zealand’s longest established private equity investment managers. Pencarrow is a joint venture partner of AMP Capital Investors (New Zealand) Limited (‘AMP Capital’) and a page twenty two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT JOHANNES KRILL Executive Director and General Manager of Operations Johannes is responsible for Methven’s manufacturing, procurement and distribution operations, and was a member of the management team that acquired the Methven business in the 2001 MBO. Johannes has worked in manufacturing for the majority of his professional career. He first joined Hardware Manufacturing Company Limited (HMC), a predecessor of today’s Methven, in 1994 as Manufacturing Manager. During Johannes’ time with the Methven business he has implemented significant changes in the Company’s manufacturing operations, including the introduction of increasingly sophisticated manufacturing processes and technologies. Johannes also oversaw the amalgamation of the Dunedin and Auckland manufacturing plants on the current Auckland site. Johannes emigrated to New Zealand from Germany in 1982.Whilst in Germany, he studied Production Engineering at the Cologne Technical University after completing a Toolmaker’s apprenticeship. Johannes lives in Auckland. PHIL LOUGH Independent Director Phil holds a number of directorships, including Port Nelson Limited,Tatua Co-operative Dairy Company Limited, Livestock Improvement Corporation Limited and is a member of the Board of the Massey University Foundation. Phil is also Chairman of New Zealand Trade and Enterprise, which is an amalgamation of the former Industry New Zealand and Trade NZ organisations. Phil has attended the Advanced Management Program at Harvard University and holds a Bachelor’s degree in Technology from Massey University. Phil lives in Nelson. PETER STANES Independent Director Peter has many years of experience running international manufacturing and marketing companies. He has recently served on a number of boards, including ZESPRI Group Limited,Wellington Drive Technologies Limited and Aragorn Limited and is currently Chairman of Rembrandt Suits Limited. He joined Trigon Industries Limited in 1990 as Managing Director, overseeing several years of rapid Northern Hemisphere growth, and remained with Trigon until the company's sale to USA based Sealed Air Corporation in 1995. Peter has previously served as Managing Director, and later as Executive Chairman, of Feltex NZ Limited, during a five year period when it expanded globally to become Feltex International Limited, having acquired offshore investments in building products and systems furniture. Prior to Feltex, he held senior management positions over thirteen years with Alex Harvey Industries Limited, the last five years of which were as General Manager of the Building Products Group. Peter began his career in an engineering role with the DSIR and as a systems engineer with IBM in the UK. Peter holds a Bachelor of Science degree in Physics and Maths and a Bachelor of Engineering degree with honours from Auckland University. Peter lives in Auckland. Phil has a depth of experience in developing successful international businesses. Phil was most recently Chief Executive Officer of Sealord Group Limited from 1994 to 2002, and was instrumental in the company’s profitable overseas growth in that period, including building Sealord’s international joint ventures and global marketing and its processing and fishing networks. Prior to Sealord, Phil was Deputy Chief Executive of the New Zealand Dairy Board between 1987 and 1994, a role which also involved a substantial focus on developing overseas markets for the organisation. page twenty three 8. Corporate governance, Directors and Senior Management CONTINUED SENIOR MANAGEMENT COLIN BARTLETT General Manager, Export and Business Development management roles with the Auckland Regional Council and prior to that was Finance Manager for Matthew Clark Plc in London, having commenced her career in chartered accounting. Deidre is a member of the Institute of Chartered Accountants of New Zealand. MATTHEW CRICHTON CEO, Methven Australia Colin’s role encompasses management of Methven’s export sales as well as the development of new international market opportunities for Methven’s technologies and products. Colin joined the Methven business in 1999 as Business Development Manager and was part of the 2001 MBO management team. Colin was instrumental in Methven’s expansion into the Australian market. He is also involved in Methven’s current SatinJet licensing initiatives in the USA and Europe. Colin has over 15 years of sales and marketing experience which he gained whilst working in the building products industry in the UK, Europe, Australia and New Zealand. He was formerly Sales and Marketing Manager for tap and sanitaryware manufacturer, Caroma Industries (NZ) Limited. Colin holds a Bachelor of Commerce degree from Auckland University. DEIDRE CAMPBELL Chief Financial Officer Matthew is based at Methven Australia’s Melbourne offices and has overall responsibility for the Methven Australia business, reporting directly to the Methven Group CEO (Rick Fala). Matthew took up his role as CEO of Methven Australia in 2003 following Methven’s acquisition of a majority stake in his family owned business, Flexispray. Matthew was Managing Director of Flexispray at the time of the Methven acquisition, having succeeded his father Graeme in that role in 2002. During his time with Flexispray, Matthew held the roles of Sales Manager, Logistics Manager and General Manager. Matthew brings a depth of experience and understanding of the Australian tap and showerware market, and of international product sourcing. Matthew holds a Certificate of Logistics Management from the Australian Institute of Management and is studying for an MBA at Latrobe University in Australia. Deidre is responsible for the Methven Group finance function, including financial management and reporting and management accounting functions. Deidre joined Methven in June 2001 as Financial Accountant shortly after the MBO and was promoted to the Chief Financial Officer role in 2003. During her time with Methven, Deidre has been instrumental in developing Methven’s financial management disciplines and the integration of Methven Australia’s financial systems into the Group. Prior to joining Methven, Deidre held various financial page twenty four METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT STUART GRAY General Manager, New Zealand Sales and Marketing Stuart is based in Methven’s Dunedin offices, and is responsible for Methven’s New Zealand sales and marketing activities, as well as establishing and maintaining the Company’s brand portfolio. Stuart joined the Methven business in 1991 as Marketing Manager, was appointed to his current position in 1998 and was part of the 2001 MBO management team. Stuart managed the consolidation of the HMC and the Methven businesses’ sales and marketing functions in 1998 and has overseen the development of the Methven brand and the various Methven sub-brands since that time. Prior to joining the Methven business, Stuart was the Business Development Manager for Fletcher Fishing Limited having started his career as an industrial chemist with Fletcher Agriculture Limited. Stuart holds a Bachelor of Science degree with honours from Otago University. GARY NEL Head of Design Gary is responsible for Methven’s design, research and development and production engineering functions. Gary joined the Methven business in April 1996 and was part of the 2001 MBO management team. Gary has led the team that designed and developed Methven’s SatinJet technology, as well as a wide range of market-leading tap, showerware and valving designs. Prior to joining the Methven business, Gary worked in a variety of engineering and product design roles, both in New Zealand and in his native South Africa. Gary holds a Masters degree in Project Management from the University of Technology, Sydney, as well as a number of trade and technical qualifications. page twenty five METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 9. Industry overview MARKET SIZE Methven estimates the wholesale value of the New Zealand markets for tap and showerware and domestic water control valves to be $70 million and $10 million per year respectively. The equivalent Australian markets are estimated to be worth A$250 million and A$80 million per year respectively1. Methven’s Australian product offering is focused on the showerware market (estimated at A$40 million per annum), the single lever segment of the tapware market (estimated at A$65 million per annum) and the merchant supplied segment of the domestic water control valve market (estimated at A$50 million per annum). In future Methven is intending to target international markets. Research indicates tap and showerware market sizes for the USA of around NZ$3.1 billion per annum and for Europe of around NZ$2.5 billion per annum, including around NZ$650 million for the UK.2 MARKETS, DRIVERS AND MARKET CYCLES stable than new dwelling construction levels, partly due to relative ease and affordability.This relative affordability has made renovation activity more resilient in times of economic slow down. By contrast, new dwelling construction activity levels have been more volatile, influenced by significant swings in net migration levels, Government incentives (in Australia) and investor speculation, particularly in apartment construction. New Zealand’s current peak in new dwelling construction is also believed by Methven to have caused some deferral of renovation activity, due to tradesman shortages. RELATIVE ACTIVITY TRENDS IN RENOVATION AND NEW DWELLING PERMIT NUMBERS (EXCLUDING APARTMENT PERMITS) IN NEW ZEALAND, 1997-2004 35,000 33,000 31,000 29,000 27,000 25,000 23,000 21,000 19,000 17,000 15,000 Renovation permits New dwelling permits There are two main markets for tap and showerware and valving products, the new dwelling market and the renovation and replacement market.Whilst the new dwelling and refurbishment and replacement markets are both influenced by general factors such as economic prosperity, affordability, interest rates and consumer confidence, they also have certain differing characteristics and drivers.There is also a distinct market for institutional tap and showerware for hospitals, laboratories and commercial projects such as offices, hotels and public facilities. The majority of Methven’s sales are made to what it considers to be the more stable renovation and replacement market. In New Zealand and Australia, renovation activity levels have historically been more ANNUAL PERMIT APPLICATIONS 1997 1998 1999 2000 2001 2002 2003 2004 SOURCE: Statistics New Zealand Methven believes that the renovation and replacement market for tap and showerware products is greater, in value terms, than the new dwelling market in both New Zealand and Australia.Whilst building consent numbers provide a guide to the size of new dwelling and renovation and replacement markets, not all renovations include bathrooms or kitchens. However a significant proportion of renovation work (particularly bathroom renovation) is not subject to permit applications, and therefore not reported in government statistics. 1. Market value and market share estimates are based on private market research carried out by Methven over the past two years combined with sales data from industry participants, suppliers and distributors. 2. The Worldwide Market for Sanitaryware - BSRIA - February 2003 page twenty seven 9. Industry overview CONTINUED Methven believes that the overall market for tap and showerware is growing and that, aside from population related growth in housing stock, there are two principal reasons for this. First, a growing home renovation and design culture, anecdotally evidenced by popular television programming, is shortening renovation cycles of bathrooms and kitchens. Secondly, growing residential property values, household wealth and homeowner aspirations are driving increases in both the number of bathrooms per dwelling and the amount of expenditure per bathroom renovation. Australian industry research indicates that the average number of bathrooms installed per dwelling has increased from 1.2 to 1.6 (an increase of 33%) over the past 18 years and that the average spend per bathroom has increased from A$5,209 to A$5,679 or 9% between 2002/2003 and 2003/20041. VALUE OF BATHROOM RENOVATIONS, AUSTRALIA, 1986 - 2005 3,000 New Zealand is expected to harmonise its water efficiency regulations with Australia shortly. COMPETITIVE ENVIRONMENT The market for tap and showerware is very competitive internationally, but local manufacturers tend to have the largest share of their respective home markets. For example, US manufacturer, Moen, has the largest share of the North American market and Australian manufacturer, Dorf, has the largest share of the Australian market. Similarly, Methven believes that it has the largest share of the New Zealand market with an estimated market share of more than 40%, despite the fact that there are at least 60 competing brands of tap and showerware available in New Zealand . Local advantage in the tap and showerware markets is thought to be a reflection of the particular plumbing and regulatory environments in each country, differences in aesthetic tastes and trade support and service issues2. In New Zealand's case, the plumbing environment is unusual in that around 60% of dwellings, most of which were built before the mid 1980’s, have low hot water pressure installations.The UK and parts of Australia and South America are other major markets with a similar plumbing environment. Such plumbing environments offer a competitive advantage to suppliers like Methven who have technology that performs better under these conditions, particularly in the renovation and replacement market. Local advantage aside, Methven’s research indicates that a number of manufacturers and brands have achieved reasonable scale internationally in the mid and upper-end segments of the tap and showerware market. Examples include companies with strong design, brand and quality heritages such as Hansgrohe AG from Germany and Vola A/S from Denmark. Conversely, a large number of lowend suppliers based largely in low cost countries such as China, manufacture commodity products which also compete internationally, largely on the basis of price. 2,000 1,000 1999/00 2001/02 2003/04e 1990/91 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 SOURCE: Housing Industry Association Economics Group Kitchens and Bathrooms report July 2004 Water conservation issues in Australia also provide a growth opportunity for suppliers of products like SatinJet that are more water efficient and which comply with current and proposed new legislation. Restrictions on tap and showerware flow rates are being introduced throughout Australia, with most new houses now being required to be built using water efficient tap and showerware. Incentives are being offered in some states, including NSW,Victoria and Queensland to convert households to more water efficient products. Similar regulations apply within the USA and in Europe, and 1. Housing Industry Association Economics Group – Kitchens and Bathrooms report July 2004. 2. Based on private market research undertaken by Methven and publicly available sales information. page twenty eight 2004/05f 1989/90 1991/92 1993/94 1986/87 1987/88 1988/89 1995/96 1997/98 0 $MILLION METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT In contrast to the market for tap and showerware, the market for water control valves is smaller, more specialised and more aggregated in a supplier sense, with significant barriers to entry. These barriers relate to technical and regulatory aspects of valve design which are often peculiar to geographic markets, manufacturing economies of scale and existing channel relationships. The world market generally is led by a small number of manufacturers, including Australian-based Reliance Worldwide (RMC) and USA-based Watts Water Technologies Inc.. Competition in this market is generally on the basis of product performance, completeness of range, price and service. CHANNELS TO MARKET Tap and showerware, and valving products are generally sold through specialist plumbing merchants and building hardware merchants.While the ultimate end customers for these products are generally home owners and developers, the purchase decision is heavily influenced by installing plumbers, specifying architects and merchant sales staff. The plumbing installation and architecture industries are highly fragmented, and comprise many sole traders, small businesses and individual practices. In Australia and New Zealand, aggregation of major plumbing and building merchant chains has resulted in a number of groups holding significant market shares. Building merchant (DIY) chains are also aggressively targeting growth in the plumbing products categories. In New Zealand, four plumbing merchant chains (two of which are under common ownership) now account for around 70% of Methven’s domestic sales.This degree of channel or customer concentration is typical of the New Zealand, Australian and other international plumbing products markets. Competitiveness of product offering and strength of brand will therefore remain fundamental to gaining and maintaining merchant channel support. page twenty nine METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 10. Introduction to Methven, its products, brands and technology Methven aspires to be the New Zealand and Australian market leader in the design and supply of quality tap and showerware, and valving. The Company’s international aspirations are more specifically focused on achieving market leadership in the design and supply of water delivery systems for the shower environment, primarily targeting the UK, European and North American markets. Methven is New Zealand’s largest designer, manufacturer and supplier of tap and showerware, enjoying a domestic market share of more than 40%.The Company has significant but smaller shares of the domestic water control valve markets in both New Zealand and Australia. Methven is also a supplier of showerware in Australia through its recently acquired Australian subsidiary, Methven Australia.The Company entered the Australian tapware and shower mixer market earlier this year, which it considers to be its most immediate and highest priority growth opportunity. Methven is also advanced in initiatives to license or establish market channels for its latest innovation, SatinJet shower technology, through established industry-related companies in Europe and the USA.1 Currently, sales of tap and showerware account for around 82% of Methven’s revenue.The balance of sales come from domestic water control valves (16%), other specialist valves and fabricated sheet metal products (2%). Around 65% of Methven’s revenue is generated in New Zealand with most of the balance from domestic water control valve and showerware sales in Australia. Methven’s products are marketed mainly under the Methven (tap and showerware), Flexispray (showerware) and NEFA (valving) brands.These products are distributed primarily through plumbing and building merchant (DIY) channels in New Zealand and Australia. Methven’s sales and marketing team comprises 18 in New Zealand, including a sales and customer services call centre in Dunedin, with a further 12 staff in Australia. In addition, an independent company in Australia (Aquadux Pty Limited) distributes valving products and, in the South Island, sales of tap and showerware and valving products are handled by an independent distributor (G&A Distributors Limited). Methven aims to deliver product within 24 hours of order. A network of qualified service plumbers ensures in-market product support is maintained. The Company carries out its product design, development and testing using purpose built facilities and equipment located within its Avondale premises. Methven’s integrated design and production engineering function represents a strategic focal point and major driving force behind the business, employing a skilled workforce of 21 engineers and industrial designers. The Methven Group markets around 1,300 different models of tap and showerware and valves. Selected low-end products, specialist fittings and componentry are outsourced, to Methven’s design specifications, to both domestic and offshore (mainly European and Chinese) contract manufacturers. A workforce of around 62 permanent staff is employed in manufacturing with a further 15 staff employed in sourcing and supply functions in Auckland. A further 30 staff fulfil these functions in the Australian business. Australian and international market development initiatives are overseen by a team of six staff, including product managers dedicated to supporting tap and showerware, and valving product categories respectively. Methven’s senior management team are all integrally involved in the Company’s international licensing and market development initiatives. Management and administration functions are performed at the Avondale head office and at the Methven Australia office in Melbourne. The Methven Group currently employs 216 staff, of which 54 are based in Australia. 1. Market value and market share estimates are based on private market research carried out by Methven over the past two years combined with sales data from industry participants, suppliers and distributors. page thirty one 10. Introduction to Methven, its products, brands and technology CONTINUED HISTORY OF THE METHVEN BUSINESS Methven is New Zealand’s longest established tap and showerware supplier and has been manufacturing tapware since soon after the foundation of G Methven and Company in Dunedin 118 years ago. Over the years Methven’s business has had various changes in its ownership and the scope of its manufacturing activities has varied. Since 1997, the business has been exclusively focused on designing and manufacturing tap and showerware and domestic water control valves. In 2001, the business returned to standalone ownership following an AMP Capital backed MBO from Australian based MCK Group Pty Limited. 1886 Methven founded in Dunedin by George Methven 1930 Methven lists on NZ Stock Exchange 1936 Methven de-lists from stock exchange 1947 HMC founded in Auckland 1962 Methven acquired by McKechnie Bros Plc & Peglers Ltd Fastflow technology launched 1995 1997 Methven & HMC management merged 1998 Sale to MCK Group Pty Limited 1999 Methven & HMC factories consolidated Australian valve range certified and launched 2001 AMP Capital backed MBO of Methven business from MCK Group 2003 Methven acquires 60% of Flexispray (renamed Methven Australia) Australian Tapware range launched SatinJet technology launched 2004 2004 IPO of Methven Group (including 100% of Methven Australia) 1987 Crichton family interests acquire Flexispray Pty Limited 1992 Flexispray supplies Methven shower fittings page thirty two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT The Methven business began its history in 1886 as an iron and brass foundry and in 1906 began manufacturing taps and copper laundry vessels. In 1939 the business was involved in manufacturing munitions in support of the war effort. From the beginning of the post-war building boom, which ran from the mid 1940’s to the early 1960’s, the business’ focus turned to the manufacture of tapware and valving products.Today, Methven is a product of the amalgamation of the original Dunedin based operations, which are synonymous with tapware and bathroom fittings, and the Auckland based HMC, a company which can trace its origins back to 1947. The Methven business has had various changes in ownership, including a brief period as a listed company between 1930 and 1936. In 1962 the business was acquired by UK based companies McKechnie Brothers plc and Peglers Ltd, which also subsequently purchased Auckland based tapware manufacturer HMC. In 1997 the Methven and HMC businesses were consolidated under one management team.The following year McKechnie plc’s New Zealand interests, including the Methven and HMC businesses, were sold to Australian interests.The businesses’ tap and showerware products were consolidated under the Methven brand and the two factories were combined on the former HMC site in Auckland in April 1999. The business was acquired by the current Methven shareholders, who include senior managers, in the AMP Capital backed MBO in February 2001. EXPANSION INTO AUSTRALIA AND FLEXISPRAY ACQUISITION valves with Aquadux Pty Limited. Sales of valving in Australia have grown strongly since launch. In 2003, Methven acquired a 60% interest in the Australian showerware business of longstanding Methven supplier, Flexispray Pty Limited.The Flexispray business is now operated under the name of Methven Australia.The Methven Australia shareholding was acquired to give the Company access to the Australian tap and showerware market. Methven Australia’s complementary showerware offering and existing trading relationships enabled it to introduce selected Methven tapware ranges to the Australian market in early 2004. Methven Australia has integrated well into Methven, performing ahead of expectations set at the time of the acquisition, and has continued to deliver sales and earnings growth over the past year. Methven Australia’s previous owners, Matthew and Graeme Crichton, have continued their involvement in the business since its acquisition by Methven. Both have brought to Methven valuable skills and insight into the Australian market as well as assistance in the development of Methven’s procurement strategy. Methven will, on Listing, own 100% of the shares in Methven Australia.The vendors of the 40% interest that Methven will acquire have also committed to subscribe for 990,751 Shares in the Share Offer (as described on page 17). Full details of the Methven Australia Minority Acquisition are set out in Section 5. In 2001, Methven successfully entered the Australian domestic water valving market through an exclusive distribution arrangement for its domestic water control page thirty three C O R P O R AT E B R A N D Extra Icon Tapware and Showerware Lifestyle Tapware and Showerware CORE BRANDS Institutional Tapware Domestic Valves ENDORSED BRANDS V ISE N TI Value Tapware and Showerware Laboratory Fittings Premium European Tapware and Showerware S TA N D A L O N E BRAND page thrity four T H I R D PA RT Y BRAND T H I R D PA RT Y BRAND N METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 10. Introduction to Methven, its products, brands and technology CONTINUED ISIS - ICON SERIES METHVEN’S PRODUCTS AND BRAND PORTFOLIO Methven’s Australasian product offering comprises more than 1,300 individual tap and showerware products, and 45 valve and valve fitting models.These products are grouped into 28 distinct product families or ranges and marketed under a portfolio of brands, targeting various segments of the tap and showerware and valving markets. The Methven corporate brand acts as an overall ‘umbrella brand’ for the whole business.The geometric wave form of the Methven logo is an acknowledgement of the Company’s design focus, association with water and pride in its New Zealand origin. The Icon and Extra Sensory Showers brands are recent additions to Methven’s brand portfolio, targeting the discerning upper-end market segment including home owners and architects. Products under these brands form a key part of the Company’s Australian and international growth strategy, as well as serving to enhance Methven’s local brand image and reach.The Isis tapware range (pictured alongside) was the first Methven tapware range specifically designed for the high-end and international markets.The Extra Sensory Showers brand is being developed to create a new category of better feeling showers. SatinJet is being developed as an ingredient technology brand within this new category, following international brand precedents such as ‘Intel Inside’ in the computer industry. Methven’s core tap and showerware offering is marketed under the Lifestyle brand, targeting the quality conscious end user and plumber, or mid-market, segment, in New Zealand and Australia. Pictured alongside are examples of products from the 11 families offered under this brand in New Zealand, reflecting the variety of styles offered. The Flexispray showerware brand and product range is the core brand of Methven’s recently acquired Australian subsidiary and is well established in the Australian market primarily as a mid-market brand.The Flexispray SATINJET - EXTRA SENSORY SHOWERS GENESIS - LIFESTYLE SERIES MINIMALIST- LIFESTYLE SERIES page thirty five 10. Introduction to Methven, its products, brands and technology CONTINUED product offering comprises a broad range of slide showers, shower roses and associated fittings, sourced either in component form or fully built up from Italian and Chinese suppliers. Methven Australia also supplies a number of ‘house’ or ‘customer’ branded ranges of showerware to Australian plumbing and building merchant (DIY) customers. Echo tapware was successfully established in 2003 as a stand-alone brand, under which Methven markets a range of Chinese sourced tap and showerware products. The product offering is targeted primarily at the price conscious housing project and renovation market segments, and is supplied mainly through building merchant (DIY) channels. Echo tapware is manufactured to Methven’s specifications, quality endorsed and supported by Methven’s sales and service team. However, it is carefully differentiated from the core Methven brands. Steriline, Methven’s brand of specialist institutional tapware and fittings is marketed mainly to hospitals, laboratories and schools.To complement Methven’s Steriline offering the Company has recently secured the New Zealand distribution rights for Broen, a world leading Danish institutional tapware and fittings brand. Methven also has the exclusive Australasian agency for leading Italian tap and showerware brand Visentin. Visentin showerware products have a significant share of the Italian domestic market and are positioned in the upper market segment in the Australasian market, alongside Methven’s own Icon tapware brand. Methven’s New Zealand and Australian domestic water control valve ranges are all marketed under its NEFA brand. NEFA is a long established brand in the New Zealand plumbing market.The brand is also gaining recognition and support in the Australian market.The 45 valve and valve fittings offered under this brand cover all the common functional requirements of pressure, temperature, safety and water quality regulation in domestic and commercial plumbing environments for both countries. Other ancillary products currently produced by the Company include assorted plumbing fittings and gas flues. PRODUCT DESIGN, DEVELOPMENT AND TECHNOLOGY Methven considers its expertise in fluid dynamics and its integrated design and engineering capabilities to be a key strategic focal point and the major driving force behind its business. In recent years Methven has refocused itself from being an innovative, mainly local market-led business, towards being a design driven business with international aspirations. Significant resources have been committed to the development of new platform technologies and internationally marketable products. Methven currently commits around 5% of revenue to product, process and market development activities. Methven’s dual capability in both tap and showerware and valving design distinguishes it from most of its competitors.The Company has a portfolio of 14 patents and 5 patents pending, mostly innovations relating to fluid dynamics.These innovations have arisen out of a continuing focus on developing better performing showers and safer, more reliable plumbing systems. In some cases these innovations have been developed in response to the challenges of low-pressure domestic hot water systems prevalent in New Zealand, but have further potential application in other markets. Methven’s designers combine form and function to create contemporary and classically styled products. Methven’s design and production engineering team comprises 21 skilled industrial designers and engineers (currently representing around 10% of the total page thirty six METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT workforce) committed to researching, designing, developing and testing the Company’s products and its production processes. In-house skills are complemented by out-sourcing and collaborative arrangements with other industrial design, rapid prototyping and toolmaking specialists. Methven’s in-house design and engineering processes and capabilities are all vertically integrated, from field and in-house laboratory (Wet-Lab) research and testing, through product and process design and tool making, utilising up-to-date Computer Aided Design (CAD) for both products and tooling. Methven’s design and product development effort is directed across three distinct development ‘horizons’, namely, maintenance or upgrading of the existing product portfolio, expansion of existing product range and development of new platform technologies and products. The Company’s expenditure in respect of each of these development horizons reflects its design and innovation focus with approximately 50% of the development budget allocated to new platform technology and product development. Formal product development criteria and assessment processes are designed to ensure that research and product development is strategically focused on commercially viable design concepts. All design and development projects are managed according to well-researched design or project briefs, incorporating defined milestones and acceptance criteria and stakeholder approval processes. page thirty seven 10. Introduction to Methven, its products, brands and technology CONTINUED PLATFORM PRODUCT TECHNOLOGIES Methven has incorporated a series of market leading and proprietary technologies into its tap and showerware and valving product offering.The Company has a pipeline of other technologies and products under development which offer future market potential both in Australasia and beyond. A core Methven platform technology is its patented Fastflow venturi system. Fastflow provides a simple solution to the unequal hot and cold water pressure found in more than 60% of New Zealand dwellings.The system uses stronger cold water mains pressure to draw hot water to point of use, producing a higher flow rate and a more satisfying shower. Fastflow technology is embedded in selected shower mixer and tapware ranges making them suitable for high and unequal pressure installations. By continuously refining and improving this technology, Methven has been able to create a genuine point of difference in the marketplace and earn plumbing industry support for its products.The potential for this technology also extends to other markets where low pressure hot water installations are prevalent, notably certain parts of Australia and the UK. Methven’s most recently developed platform technology is its SatinJet shower head innovation. SatinJet uses precisely controlled collisions of water to create a spray pattern with a unique, ‘soft intensity’ feel. A key benefit is that this feel can be delivered using less water and energy than conventional showers. SatinJet technology, together with its innovative method of manufacture, was developed over a period of almost two years prior to its New Zealand market launch in September this year. New Zealand, USA and international (PTC) patent applications have been filed for SatinJet technology which, Methven believes, will offer considerable potential in New Zealand, Australia and in other international markets. Outsourced technologies incorporated into Methven products include leading ceramic disc and thermal element technologies. Methven has exclusivity of supply of some of these technologies for the New Zealand and Australian markets. page thirty eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT page thirty nine METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 11. Product manufacturing, sourcing, sales and marketing Methven considers its ability to quickly bring new products to market, through the integration of its manufacturing and product development capabilities, to be a key strength. Methven carries out its manufacturing and New Zealand distribution operations from its 13,500 square metre leasehold premises in Avondale, Auckland. In Australia, showerware assembly and tap and showerware distribution is undertaken from Methven Australia’s 3,200 square metre leasehold premises in Melbourne, with six additional contracted stocking points located across Australia. Australian valving warehousing and distribution is undertaken by Methven’s exclusive distribution partner, Aquadux Pty Limited, from its premises in Melbourne, Perth and Brisbane. Methven’s manufacturing operation incorporates the core technologies and processes required to convert raw brass ingot into well engineered and finished tapware and valving products.The manufacturing process starts with low pressure die casting of tapware and valve body components.This process is computer controlled and semi-automated, ensuring high repeatability and consistent quality. Cast bodies and components are then precision machined and prepared for electroplating using a variety of robotic and computer controlled (CNC) machine tools, mechanical and manual processes. Electroplating to a high lustre chrome finish is carried out on Methven’s automated plating line. A number of other components are sourced from third party suppliers. Many of these components are manufactured to Methven's design specifications.The products are assembled and rigorously tested for both leakage and function prior to packaging and dispatch. Purpose built assembly and testing stations and equipment ensure an appropriate degree of consistency and efficiency in these processes. Customer service levels and quality are maintained through ISO 9001:2000 certified quality assurance systems and continuous staff training. page forty one 11. Product manufacturing, sourcing, sales and marketing CONTINUED Methven operates an integrated Enterprise Resource Planning (ERP) system which helps Methven’s management team to co-ordinate production, procurement and inventory levels based on continual demand forecasting. Methven has a policy of 24-hour order delivery lead time to customers and manages its inventory accordingly. Customer orders can be received and invoices transmitted via Electronic Data Interface in both New Zealand and Australia. The Company continually reviews its manufacturing performance and quality standards. Significant investment has been committed to the upgrade and automation of many of Methven’s core in-house production processes and systems.Within the last three years Methven has commissioned a new plating line, a multi-axis CNC lathe and robotic linishing technology and has upgraded its low pressure die casting machine to a newer, more automated and higher capacity model. Implementation of Cell Manufacturing techniques has also improved manufacturing throughput and efficiency. Continual upgrade and improvement of the Company’s manufacturing technologies and processes allow Methven to manufacture its new designs and high-end product offerings in New Zealand. Methven sources some of its products and components from other manufacturers, mainly in China, Europe and New Zealand. In these circumstances, Methven specifies designs and quality standards, which it enforces through review and testing prior to acceptance or market release. Methven is also considering the establishment of its own Chinese based procurement operation to manage the further development of these supply lines and strengthen quality management at source. However, in future, Methven may seek to develop other in-house manufacturing capabilities (such as plastic injection moulding) to assist in manufacturing new product designs such as SatinJet shower heads. SALES AND MARKETING Methven’s tap and showerware and valving products are sold through specialist plumbing and building merchant channels in New Zealand and Australia.While the ultimate end customers for Methven’s products are usually homeowners or developers, the purchase decision is heavily informed and influenced by installing plumbers, specifying architects, and merchant showroom buyers and sales staff. Methven’s sales and marketing addresses distinctly different audiences. At the end customer level, Methven promotes its tap and showerware through distinctive advertising and point of sale material, including brochures and showroom display stands.The Company advertises in consumer magazines and merchant publications aimed at homeowners and occasionally (in New Zealand) on television. Methven also promotes its products directly to residential and commercial project developers, with sales passed though its merchant channel partners. Methven promotes its products to plumbers and architects through a variety of specific media and trade publications. Direct contact is also maintained, particularly with plumbers in New Zealand, through a series of formal and informal promotional and product training events. Methven's sales representatives market the Company and its products directly to plumbing and building merchants, provide product training to their showroom and trade counter staff and support joint advertising and promotional initiatives. Plumber support of Methven in New Zealand, particularly for the Company's innovative Fastflow and valving technologies, has been an important part of the Company's success to date. page forty two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT The independent plumbing contractor market in New Zealand is highly fragmented and primarily made up of sole traders, with around 3,500 practicing registered plumbers.1 Understanding and supporting plumbers with prompt professional service backup and product information is vital to Methven’s business. Many of Methven’s marketing staff have backgrounds in the industry and bring an understanding of market and technical issues.These staff also channel valuable feedback from the plumbing industry, enabling Methven to identify and respond to product improvement opportunities. Methven’s success is also influenced by the support and relative success of its merchant channel partners. The aggregation of plumbing merchant ownership and the aggressive expansion by building merchant groups into the plumbing product category, creates both opportunities and threats to Methven as it seeks to maintain and grow its own market share in New Zealand and Australia respectively.The scale of Methven’s New Zealand market presence means that it shares a mutual dependency with its merchant channel partners. However, as in the past, the competitiveness of Methven’s offering and strength of its brand will remain fundamental to the Company’s continuing success. 1. Based on data from New Zealand Plumbers and Gasfitters Board page forty three METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 12. Growth prospects and strategy Through a design driven business strategy, Methven intends to maintain its market position in New Zealand, continue to increase its share of the Australian tap and showerware and domestic water control valve markets, and develop new markets for its proprietary technologies and products in North America, Europe and the UK. The Company’s global vision is to be ‘the world leader in the design and supply of water delivery systems into the shower environment’. Methven is forecasting underlying earnings (EBITDA) growth of 15% for FY2005 based on its forecast EBITDA of $11.4 million (consolidated, including a full 12 months trading of Methven Australia). Growth in earnings (EBITDA) is expected to be maintained in FY2006, notwithstanding an anticipated softening in New Zealand residential construction and renovation activity1. Methven’s plans for the following 12 months are to: • Seek to maintain Methven’s New Zealand market position through new and upgraded product offerings, continued promotional initiatives and channel partner service support; • Continue to implement production efficiency and component sourcing initiatives; • Pursue opportunities for growth of Methven branded tap and showerware and NEFA branded valving products in the Australian market; • Exploit opportunities for licensing of Methven proprietary technology in Europe and North America; and • Maintain commitment to design and investment in the development of platform technologies and internationally marketable product offerings. GROWTH IN NEW ZEALAND Methven is expecting to maintain earnings (EBITDA) growth in its New Zealand business through FY2005 and FY2006.Whilst the Company anticipates a modest overall decline in its New Zealand market sales for FY2006, cost saving initiatives and increased manufacture of tapware for Australia are expected to underpin continued earnings (EBITDA) growth in that year. Methven expects incremental sales increases in New Zealand from the release of new SatinJet products and other offerings targeting the retrofit, institutional tapware and low-end tapware market segments. Based on current economic forecasts, Methven expects overall residential construction to decline by 2% in FY2005, and a further 10% in FY2006.This anticipated decline is largely driven by expected declines in new dwelling construction of around 4% and 16% in these periods respectively. Reductions in renovation activity, where Methven believes its relative strength lies, are expected to be more modest at less than 0.5% and 5% for FY2005 and FY2006 respectively. Methven expects its sales of existing products to track more in line with renovation activity than overall residential construction, as has been the case historically. Accordingly, Methven’s like for like New Zealand sales are expected to remain relatively constant in the year to March 2005 and to decline by a little less than 8% in the March 2006 year, before the impact of new product offering initiatives. The impact of this anticipated market contraction in New Zealand is expected to be more than off-set by the impact of new product offering initiatives, cost saving initiatives and a planned increase in manufacture of tapware products for sale in Australia.The Company will also look to strengthen its outsourcing relationships to supplement its own manufacturing base with high volume, low cost manufacture of components and products destined for northern hemisphere markets. 1. Further information on the forecast financial results to 31 March 2005 can be found under Section 13, Prospective Financial Information, between pages 48 to 53. page forty five 12. Growth prospects and strategy CONTINUED GROWTH IN AUSTRALIA Methven believes its most immediate and highest priority growth opportunities lie in the Australian tap and showerware and domestic water control valve markets. The Company has already made good progress in its Australian market growth strategy, which began with the successful launch of its domestic water control valve range in 2001.The acquisition of the majority shareholding in Methven Australia in 2003 has also provided an ideal platform for the launch of selected Methven tapware ranges in Australia early in 2004. Methven’s newly released SatinJet shower technology is also expected to assist the growth of the Company’s tapware sales in Australia. Tap and Showerware Aside from SatinJet’s unique feel, its water saving benefits have appeal in Australia as a result of the current water shortage problems. SatinJet can be optimised to produce a good shower experience even at low flow rates of 9 litres per minute compared to the usual 13-22 litres per minute. Australian water saving legislation is also likely to assist Methven’s tap and showerware growth. Restrictions on tap and showerware flow rates are being introduced throughout Australia. Incentives are being offered in some states to convert households to more water efficient products. Furthermore, compulsory labelling of water efficient devices is being introduced. Methven does not expect much of the low-end tap and showerware currently imported into Australia to comply with the proposed new legislation from the outset, whereas the majority of Methven’s products are either already compliant or readily compliant with the proposed new standards. In light of the opportunities identified for Australian expansion, new product development proposals believed to have Australian market appeal are being given high priority by Methven. A number of promising projects are currently in development. Australian Valving Methven Australia is currently the fourth largest supplier of showerware to the Australian market with what it estimates to be a market share of around 20% and current turnover of more than A$10 million per annum.1 Methven Australia launched selected Methven tapware ranges into the Australian market in February 2004 and is targeting significant growth in this category over the medium term. Methven believes its Australian tapware growth prospects are enhanced by the Company’s complementary showerware product offering, its established trading relationships with major Australian plumbing and building merchants and its established sales force and infrastructure. Awareness of Methven’s tap and showerware brand in Australia is being built through creative advertising campaigns and point of sale promotion. Opportunities to package tap and showerware and valving products to compete for sales to larger development schemes have also shown promise and are being actively pursued. Methven is targeting additional growth from the introduction of SatinJet shower technology in Australia. Methven believes SatinJet will assist efforts to grow its tap and showerware brand and sales, by providing a shower product with a compelling point of difference. Methven’s NEFA domestic water control valves were launched in the Australian market in July 2001 following 18 months of market research, product development and certification to relevant Australian standards.The initial range of 13 valves received market acceptance for their quality, performance and competitive pricing. NEFA is now a well-established brand in the Australian market, and is available through all of the major plumbing merchant groups. Methven estimates that NEFA’s market share has grown from 6% in its initial 12 months to approximately 14% today. In Australia, NEFA products are distributed exclusively by Aquadux Pty Limited. Australian market growth will continue to be targeted through further promotional activity, and through extending the NEFA range beyond its current 28 1. Market value and market share estimates are based on private market research carried out by Methven over the past two years combined with sales data from industry participants, suppliers and distributors. page forty six METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT variants. NEFA’s growing reputation in the Australian plumbing industry for quality and performance is also expected to assist Methven’s Australian tap and showerware growth strategy. EXPANSION INTO EUROPE AND NORTH AMERICA In Europe and North America, Methven is pursuing a strategy of licensing SatinJet as an ingredient technology and brand along the lines of precedents set in other industries by brands such as ‘Intel Inside’ or ‘Dolby Digital’. As part of this strategy, the Company is also aiming to establish OEM type supply arrangements with licensees for Methven designed and supplied SatinJet shower heads. Discussions with potential partners in Europe and North America are advancing. Methven intends to retain the right to distribute its own branded SatinJet products into these markets wherever possible. EXPANSION INTO THE UNITED KINGDOM The UK plumbing products market has a number of parallels to the New Zealand market, with a range of water pressure systems in operation including equal-low and unequal pressure systems. Methven’s Fastflow shower mixing valve and SatinJet shower technology offer performance advantages in such environments, providing the potential to successfully market products incorporating these technologies in this significant market. Preliminary research has already been undertaken to define potential product offering requirements, product development issues, certification requirements and channels to market. Current design and product development initiatives, including thermostatic mixing valve technology development, support the Company’s aspiration to create a compelling, mid-market and high end product offering for the UK market. Methven is targeting entry to the UK market for around 2006. page forty seven 13. Prospective financial information Prospective financial information for the consolidated Group consists of forecast financial information and the underlying assumptions as presented on pages 51 to 53. Prospective financial information includes prospective statements of financial performance, financial position and cash flows for the year ending 31 March 2005 and a prospective statement of cash flows for the twelve months ending 4 November 2005. Actual audited results for the six months ended 30 September 2004 have been incorporated into the forecast for the year ending 31 March 2005. The Directors have sought to give due care and attention to the prospective financial information. Prospective financial information is based upon a number of estimates and assumptions, including particularly the assumptions listed on pages 51 to 53. Prospective financial information is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Group. Accordingly, actual results are likely to vary from the prospective financial information, and variations may be material.Therefore, the Directors cannot and do not guarantee the achievement of their financial forecasts. Prospective financial information has been prepared in accordance with New Zealand Generally Accepted Accounting Practice. International Financial Reporting Standards (‘IFRS’) are required to be implemented for the year ending 31 March 2008 and therefore any potential impact has not been incorporated in the prospective financial information, as IFRS will not be in place for the 31 March 2005 and 4 November 2005 period ends. FORECAST STATEMENT OF FINANCIAL PERFORMANCE FOR THE 12 MONTHS ENDING 31 MARCH 2005 GROUP $000 Operating revenue 52,832 Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation Earnings before interest, tax and amortisation (EBITA) Amortisation of goodwill Earnings before interest and income tax (EBIT) Interest expense Net profit before tax Taxation expense Net profit after tax Net profit after tax attributable to minority interest1 Net profit after tax attributable to parent shareholders (NPAT) 11,424 1,334 10,090 284 9,806 467 9,339 3,137 6,202 201 6,001 1. The minority interest entitlement is forecast to cease at the time Methven acquires the remaining 40% interest in Methven Australia as part of the Methven Australia Minority Acquisition. page forty eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT FORECAST STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2005 GROUP $000 LIABILITIES Term loan Total non current liabilities Payables, accruals and provisions Total current liabilities Total liabilities ASSETS 4,301 4,301 8,081 8,081 12,382 Fixed assets Future tax benefit Intangible assets Total non current assets Bank Accounts receivables and prepayments Inventories Total current assets Total assets Net assets SHAREHOLDERS’ FUNDS 6,928 476 6,006 13,410 13 7,237 9,800 17,050 30,460 18,078 Share capital Retained earnings Foreign currency translation reserve Total equity 17,222 975 (119) 18,078 page forty nine 13. Prospective financial information CONTINUED FORECAST STATEMENT OF CASH FLOWS GROUP 31 MAR 2005 $000 GROUP 4 NOV 2005 $000 FOR THE 12 MONTHS ENDING 31 MARCH 2005 AND 4 NOVEMBER 2005 Net cash from operating activities INVESTMENT ACTIVITIES 5,803 8,067 Cash was provided from Proceeds from the sale of fixed assets Cash was applied to Purchase of property, plant and equipment Purchase of minority interest Net cash used in investment activities FINANCING ACTIVITIES 100 - (3,250) (2,927) (6,077) (2,521) (2,927) (5,448) Cash was provided from Issue of ordinary shares Repayment of shareholder advances Cash was applied to Repayment of borrowings Payment of dividends Costs of share issue Net cash used in financing activities Net increase in cash held Effect of foreign exchange rates Cash at beginning of year Cash at balance date (4,695) (13,144) (778) (2,117) (2,391) (118) 2,522 13 (2,178) (14,237) (778) (693) 1,926 (6) 1,143 3,063 16,000 500 16,000 500 page fifty METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT PRINCIPAL ASSUMPTIONS UNDERLYING THE PROSPECTIVE FINANCIAL INFORMATION The principal assumptions upon which the prospective financial information is based, are summarised below and should be read in conjunction with Section 14, Trade Factors and Risks. The prospective financial information for the year ending 31 March 2005 and the prospective statement of cash flows for the twelve months ending 4 November 2005 (‘the forecast periods’) on pages 48 to 50 constitute a forecast as defined by the New Zealand Reporting Standard No.29, ‘Prospective Financial Information’ and have been prepared on the basis of assumptions as to future events that the Directors reasonably expect to occur associated with the actions the Directors reasonably expect to take as at the date the information was prepared. A forecast is not a projection. A projection is prospective financial information prepared using hypothetical assumptions which are possible outcomes, but not necessarily the most probable outcome. Investors must consider the assumptions described below in order to fully understand the prospective financial information. The Directors approved the forecasts on 2 November 2004 and are satisfied that the assumptions adopted are in line with the actions they intend to take. The prospective financial information has been prepared for the purposes of this Offer Document and may not be suitable for any other purpose.There is no present intention to update this prospective financial information or to publish prospective financial information in the future. ASSUMPTIONS construction and renovation activity, of 2% in FY2005 and 8% in the 12 months to 4 November 2005 (compared to the same period in the prior year). Legislative and regulatory environment There will be no material change in the legislative or regulatory environment in which Methven operates. Industry conditions There will be no material changes to competitive activity, industry structure, general industry conditions or the employee and independent contractor environments in the markets in which Methven operates. Competitive environment There will be no material changes to the competitive markets in which Methven operates and no new entrants will materially change the competitive environment.There will be no loss of key customers in the forecast period. Taxation There will be no change to the New Zealand or Australian tax regimes, including no change to the corporate tax rates of 33% and 30% respectively. B) GROUP SPECIFIC ASSUMPTIONS Methven staff Methven’s Senior Staff and other key people will continue in their current roles during the forecast periods. Methven brand and intellectual property There will be no events that adversely affect the Methven brand or intellectual property during the forecast periods. Additionally, Methven will not infringe the intellectual property of others. Supply The prospective financial information is based on events and conditions existing at the date of the Offer Document and assumes the following: A) GENERAL ASSUMPTIONS Economic environment There will be sufficient capacity within Methven’s operations to deliver the forecast revenue and growth assumption and there will be no material disruption of supply from key suppliers or material change in costs of key supplies. Disruptions to operations There will be no material change in the general economic environments of New Zealand or Australia, although Methven does expect, and has made allowance for, an expected decline in the New Zealand residential There will be no material disruption to Methven’s operations by events, including natural disaster, fire, explosion or long term information technology or power failures. page fifty one 13. Prospective financial information CONTINUED Accounting policies In preparing the forecast financial information, the accounting policies set out on pages 68 to 69 as part of the Group financial information have been applied without change.There is no expectation of any change to the accounting policies that would require a material change in the reporting of Methven’s activities in the forecast periods. Revenue 1 April 2005.The level of sales for the period to 4 November 2005 is forecast to be immaterial. Cost of sales Cost of sales is forecast to continue at current levels over the forecast periods adjusted for inflation and the impact of purchasing cost savings that have been identified and are in the process of being implemented. Operating and administration costs Operating revenue is stated after deducting sales rebates and incentives. Group sales The overall impact of the specific revenue assumptions below equates to expected growth in Group Sales of approximately 5% in FY2005 (adjusting for Methven Australia full-year sales) and 5% in the 12 months to 4 November 2005 (compared to the same period in the prior year). New Zealand The forecast assumes a decline in domestic demand in the forecast periods, due to an anticipated contraction in residential construction and renovation activity.This decline is offset by increased sales from new product initiatives.The net effect of these two assumptions is for New Zealand revenue to grow by 5% in FY2005 and decline 1% for the 12 months to 4 November 2005 (compared to the same period in the prior year). Further discussion of New Zealand revenue assumptions is included in Section 12 under the heading ‘Growth in New Zealand’. Australia Australian tap and showerware sales are forecast to grow over the forecast periods, assisted by the introduction of SatinJet shower technology. Australian NEFA valve sales are also forecast to grow modestly over the forecast periods. Australian revenue is forecast to grow by 6% in FY2005 (adjusting for Methven Australia full-year sales) and 10% for the 12 months to 4 November 2005 (compared to the same period in the prior year). International Sales of SatinJet products to international export markets are not forecast to commence until after Operating and administration costs are assumed to continue at current levels over the forecast periods adjusted for anticipated increases and other factors. There will be no significant costs arising from product failure or warranty costs in the forecast periods. Selling costs Selling costs are forecast to grow by 18% in FY2005 (adjusting for Methven Australia full-year expenses) and 8% to the 12 months to 4 November 2005. This increase reflects investment in export marketing and resources to develop Australian and international markets. Goodwill Forecast goodwill amortisation is based on the current level of amortisation subject to an anticipated increase arising from the goodwill on the acquisition of the remaining 40% of Methven Australia. Interest Interest rates have been forecast to increase to a maximum rate of 7.5% in FY2005 and then to 8.0% in the seven months to 4 November 2005. The interest expense includes all margins and borrowings costs paid to lenders and the existing interest rate hedge contracts that Methven has in place. Gain share The Group has an informal arrangement with New Zealand employees to pay them a percentage of the profits that exceed budget. It is forecast that this arrangement will continue in the same manner as it has operated to date. Dividends The Directors forecast that approximately 60% of Group Net Profit After Tax will be paid as dividends subsequent to Listing on the NZSX.The Directors propose to page fifty two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT declare fully imputed dividends, forecast at $1.2 million payable in June 2005, in respect of the period from Listing to 31 March 2005. In addition to the above, a special dividend of $13.0 million is forecast to be declared prior to Listing (to utilise current imputation credits which would otherwise be lost on Listing) and payment in November 2004 is to be substantially funded from the proceeds of the Offer of New Shares. Working capital There will be no material change to the working capital profile over the forecast periods. Fixed assets Capital expenditure for FY2005 is forecast to be $3.3 million based on actual, authorised and proposed capital expenditure, approximately $0.6 million of which relates to the potential purchase and development of property adjoining the Methven Australia premises in Melbourne (to provide increased warehousing capacity to support growth of the Australian operation). Of the remaining $2.7 million, approximately $1.8 million relates to major upgrades to manufacturing equipment and systems, and product development facilities, and to expansion of Methven’s product portfolio (tooling and patent costs) and point of sale display assets to underpin growth.The remaining $0.9 million represents capital expenditure required to maintain, as opposed to upgrade, the operating capability of the business. Approximately $1.8 million (of the $3.3 million) is forecast to have been spent prior to the Listing date and has been reflected in forecast net debt on Listing. Having completed the major upgrades, capital expenditure is projected to reduce to approximately $1.0 million for the period from 1 April 2005 to 4 November 2005, including an allowance of $0.5 million to complete the potential development of the additional warehousing facility in Melbourne (which is intended to be sold and leased back on completion). Shareholder advances The shareholder advances are forecast to be repaid in November 2004 following the payment of the Special Dividend. Term debt There are adequate finance facilities in place and available to Methven to cover anticipated funding requirements for the forecast period.The current finance facilities in place with the Methven Group’s bankers are three year facilities and are due for renewal in March 2007. Methven Australia Minority Acquisition Methven will use a portion of the proceeds of the offer of New Shares to fund the Methven Australia Minority Acquisition in November 2004. Cash consideration is forecast at $2.9 million.The goodwill acquired is forecast at $2.0 million.The profits attributable to the minority interests have been incorporated into the FY2005 forecasts up to the date that the minority interests are acquired. Capital structure It is forecast that $16.0 million will be received from the issue of new shares on listing. Significant outflows from the proceeds are forecast to include the special dividend of $13.0 million and the Methven Australia Minority Acquisition, $2.9 million. Net debt (interest bearing debt net of cash holdings) is forecast to increase by $0.7 million as a result, to $4.4 million at Listing date. Offer costs The Group will pay its share of the costs (forecast to be $0.778 million) directly attributable to the Offer and will be accounted for as a reduction in equity. Foreign exchange The following rates have been assumed for both periods: NZD/AUD NZD/USD NZD/EUR AUD/USD (net exporter) (net importer) (net importer) (net importer) 0.93 0.60 0.52 0.70 Methven’s policy is to take out forward cover for a percentage of future forecast cashflow requirements. For FY2005 the Group currently has approximately 56% of NZD/AUD, 63% of NZD/USD, 84% of NZD/EURO and 86% of AUD/USD forecast requirements covered at an average rate of 0.9312, 0.6205, 0.5264 and 0.7107 respectively. page fifty three METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 14.Trade factors and risks Like any business, Methven operates in an environment where its future financial performance is dependent on a number of trade factors and risks.While the Company uses a number of strategies to mitigate the effects of these trade factors and risks, many are beyond its control. Accordingly, there can be no assurances that any of the trade factors and risks highlighted below will not have a material adverse impact on Methven’s financial performance or position.The following description of business specific and general trade factors and risks and mitigating factors should be read in conjunction with the risks outlined in Section 16, Investment Statement. Building cycle - Many of Methven’s products are used in the course of residential construction and renovation activity, which occurs as part of the building cycle. Methven is exposed to the risk that a sustained decline in either residential construction or renovation activity, especially in New Zealand, may materially affect its sales and financial performance. The majority of Methven’s sales are made into the renovation and replacement segments of the market, which have historically been more stable than the new dwelling construction market. However, the risk remains that a downturn in the building cycle may cause a reduction in Methven’s sales and financial performance, and there can be no guarantee that Methven will be able to mitigate the impact of a long-term decline in residential construction or renovation activity. Increased domestic and imported product competition - The market for Methven’s products is highly competitive. Methven faces the risk that competition from imported and domestic products will cause Methven to lose market share, affecting the Company’s sales and financial performance. Competition from domestic and imported products may also affect Methven’s international expansion. Methven aims to remain competitive by delivering innovative new products, offering superior aftermarket service and building support for its brands with customers. Additionally, Methven maintains its price competitiveness by offering a range of products addressing a range of price points, including low cost targeted brands, and through component and range sourcing initiatives. Loss of key customers - Methven is exposed to the risk that a key customer, such as a plumbing or building merchant chain, stops supporting or distributing Methven’s products. Four plumbing merchant chains account for 70% of Methven’s New Zealand sales.Two of these chains are under common ownership.The loss of support from any one of these chains would have a significant adverse affect on Methven’s financial performance. Methven is also exposed to the risk that plumbing or building merchants may use their market position to influence price and supply arrangements. Methven believes that its value for money offering, the support it enjoys from New Zealand installing plumbers and end customers and the mutual dependence it shares with its channel partners partially offset these risks which are common to the industry. However there can be no guarantee that either a loss of support or pricing pressure from merchants will not result in an adverse effect on Methven’s sales and financial performance. Loss of support of installing plumbers - There is a risk that Methven could lose the support of New Zealand installing plumbers which it views as a key element of its market. A widespread loss of such support could have an adverse affect on Methven’s financial performance. Methven considers that the most likely causes of such loss of support would be as a result of prolonged interruption to product supply, product failures, reduction in service levels or erosion of Methven’s value proposition (or a combination of these factors). Methven believes that its commitment to product innovation, service standards, quality control systems, commitment to supporting the plumbing trade and its competitive product offering could reduce this risk. Methven acknowledges that it must continue to perform at the level that has won it the support of the plumbing trade to date. page fifty five 14.Trade factors and risks CONTINUED Interruption to supply - Methven is exposed to risks relating to the cost and certainty of supply of critical inputs to the Company’s manufacturing process, the sufficiency of capacity within Methven’s operations as its business expands and to the interruption of its manufacturing processes due to equipment failure or labour issues.These risks could affect the Company’s ability to complete customer orders and control manufacturing costs, either of which could have an adverse impact on Methven’s financial performance. Methven endeavours to mitigate supply risks through a system of minimum safety stock levels, which include prudent quantities of critical components. Additionally, Methven has alternate supplier and subcontractors on hand, disaster recovery plans and material damage and business interruption insurance. Expansion - Methven is exposed to the risk that its international expansion strategy could lead to the Company over-extending its management, production or supply capacity, or over spending or mismanaging its international growth.These factors may mean that Methven’s international expansion prospects are damaged or give rise to losses, which may materially affect the Company’s financial performance. Methven believes that a well planned, adequately resourced and focussed approach to growth will assist it in mitigating its international expansion risks. Methven’s experienced management team and track record of successful expansion into Australia provide it with a sound basis for its planned international growth. Market regulation risk - Methven’s markets, and particularly its target international markets, are each subject to local trade and industry regulations. Any change in these regulations, such as product certification changes or the introduction of prohibitive trade barriers and duties, could restrict market access and have an adverse effect on Methven’s sales and financial performance. Entry into new international markets may involve costs to comply with local regulations, which could also affect the Company’s financial performance. Methven endeavours to actively manage these risks through target market research and participation in industry standards committees, particularly in Australia. Exchange rate risk - Methven is a net importer of products priced in foreign currencies including the US Dollar and Euro. Methven is also a net exporter of Australian Dollar priced products. Fluctuations in the value of these currencies against the New Zealand Dollar may result in a material impact on Methven’s overseas asset values and financial performance. Methven aims to mitigate this risk in the short-term through a treasury policy which provides for prudent hedging of forward foreign currency exposures. In the longer-term, Methven’s competitive position is supported by the fact that the Company’s domestic competitors are largely exposed to the same currency risks. As Methven’s international sales grow, natural currency hedges may also develop where costs and income can be offset in foreign currency terms. However, there can be no assurance that Methven’s foreign exchange hedging will fully compensate for fluctuations in exchange rates, and that a sustained movement in exchange rates will not have an adverse impact on future financial performance. Product failure, warranty liability and brand damage - In common with many manufacturers, Methven is exposed to the risk of product failure, leading to warranty liabilities and brand damage impacting its financial performance. Plumbing product failure can also lead to costly damage being incurred around an installation, and hence increased potential warranty issues. Methven’s focus on continuous development of new and proprietary products may expose it to a higher risk of product failure. Methven endeavours to manage this risk by maintaining stringent quality controls over all aspects of its product design and manufacturing processes. Methven is accredited under a range of international quality assurance standards including ISO 9001:2001 and tests 100% of its safety critical components, such as domestic water control valves, prior to sale. Methven also applies thorough quality assurance and control procedures to all externally supplied products and components. page fifty six METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT New technology - Methven is exposed to the risk that its proprietary technologies (including SatinJet) may be superceded by new technologies developed or supplied by competitors, leading to an adverse effect on Methven’s market share and financial performance.There is also the risk that Methven’s new technologies will not achieve the market support that Methven anticipates which could have a material adverse effect on Methven’s financial performance and prospects. Methven endeavours to constantly develop new technologies and products to ensure that it remains technologically competitive. In addition to its proprietary technology, Methven’s existing brand loyalty, market leadership and aftermarket support are believed to be important factors in maintaining the Company’s competitiveness and market position. Intellectual property - Methven faces risks of competitors successfully copying its proprietary products or successfully challenging its intellectual property.The Company also faces the risk that it may inadvertently infringe on the intellectual property of others in the course of developing new products and technologies. Either of these risks could adversely impact Methven’s financial performance. In order to manage this risk, Methven works with experienced intellectual property lawyers to ensure that appropriate intellectual property protection is maintained and infringement risks mitigated.To date, no competitor has successfully challenged Methven’s intellectual property. Credit risk - Methven is exposed to the risk that the counter-party to a transaction with the Company will fail to discharge its obligations, causing the Company to incur a financial loss and impacting the Company’s financial position and performance. Methven seeks to mitigate this risk through appropriate terms of trade and credit management disciplines and, in New Zealand, and debtors insurance. Legislative, regulatory and environmental issues Methven is required to comply with relevant government and industry legislation and regulation, changes in which are outside the Company’s control. Legislation and regulation relating to consumer protection, labour relations, environmental impact, corporate taxation and other issues, have a direct bearing on the Company, and in particular on Methven’s manufacturing operations. There is therefore the risk Methven could fail to comply with one or more of its obligations or that legislative or regulatory changes could give rise to unanticipated obligations, either of which could have an adverse impact on the Company’s financial position or performance. Further, environmental regulations or other environmental exposures not currently known, affecting the Company’s manufacturing operations or sites, could result in a material impact on the Company’s financial position and performance. Methven endeavours to manage these risks through appropriate risk management and legislative compliance programmes. Loss of key personnel - In the normal course of business, Methven faces the risk of loss of one or more key individuals.There is also a risk that the performance of Board members and senior managers does not meet expected or required standards, either individually or collectively. Either case could adversely impact on the Company’s financial performance. This risk is partly mitigated by the depth of experience of the senior management team, and logical succession for most positions. Methven’s senior management are shareholders in the business and the Company has, within its senior management and Board, a number of people capable of covering the loss of an individual either permanently or while a replacement is recruited. Team structures operating within Methven, further reduce the exposure to any particular individual. Industrial relations - Methven shares with all businesses the potential for employees to take industrial action or for individual employees to take legal action for perceived injustices. However, the Company prides itself on its employee relations and believes very good relations exist between senior management and other employees. Changes to interest rates - Methven is exposed to interest rate risk in respect of its bank borrowings. There is the risk that a significant increase in interest rates will adversely impact the Company’s financial page fifty seven 14.Trade factors and risks CONTINUED performance, and impact the Company’s ability to borrow sufficient sums to fund growth. Methven’s business currently has a relatively low level of interest bearing debt relative to earnings. Change in taxation rates - If there is a change in the Australian and New Zealand taxation regimes, including the corporate taxation rates of 30% and 33% (respectively), there is a risk that Methven’s financial performance will be adversely affected. Loss of borrowing facilities - Methven is exposed to the risk that it may, at some stage in the future, be unable to meet its obligations to lenders. Any consequential restrictive actions of lenders or loss of the Company’s borrowing facilities would have a material adverse effect on the Company‘s financial position and performance. Methven currently has a relatively low level of borrowings relative to its earnings and asset base, and has never been in breach of its banking covenants. However the Company’s continued ability to satisfy its obligations under its financing agreements will depend upon its future financial performance. Economic downturn - Methven is exposed to the risk of economic downturns affecting customers’ ability or willingness to buy products. FORWARD LOOKING STATEMENTS implied by such forward-looking statements. Such factors include, among other things, general economic and business conditions, regulatory risk, labour relations and other factors presented in this Offer Document. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forwardlooking statements. In addition, under no circumstances should the inclusion of such forward-looking statements in this Offer Document be regarded as a representation or warranty by the Company or the Selling Shareholders or any other person with respect to the achievement of the results set out in such statements, or that the underlying assumption used will in fact be the case. The Company disclaims any responsibility to update any such risk factors or publicly announce the result of any revisions to any of the forward-looking statements contained in this Offer Document to reflect future developments or events, other than where it is required to do so by the Securities Act, the Securities Regulations or the NZX Listing Rules. Certain statements in the Offer Document constitute forward-looking statements, including the assumptions described on pages 51 to 53. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements of the Company to be materially different from any future results, performance or achievements expressed or page fifty eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 15. Historical financial information The historical financial information summarised below is derived from the audited financial statements of Methven for the thirteen month period ended 31 March 2002 and the year ended 31 March 2003, and from the audited consolidated financial statements of the Methven Group for the year ended 31 March 2004 and the six months ended 30 September 2004. As the Company was incorporated on 12 February 2001, no historical financial information has been disclosed preceding the thirteen month period ended 31 March 2002. The accounting policies as set out on pages 68 to 69 have been consistently applied (except where stated below) for all the financial periods presented. SUMMARY OF HISTORICAL FINANCIAL INFORMATION STATEMENTS OF FINANCIAL PERFORMANCE COMPANY AUDITED 13 MONTHS PERIOD ENDED 31 MARCH 2002 COMPANY AUDITED 12 MONTHS YEAR ENDED 31 MARCH 2003 GROUP AUDITED 12 MONTHS YEAR ENDED 31 MARCH 2004 GROUP AUDITED 6 MONTHS PERIOD ENDED 30 SEPT 2004 $000 $000 $000 $000 Operating revenue Expenditure Earnings before interest and tax (EBIT) Total interest expense Net profit before tax Taxation expense Net profit after tax Minority Interest Dividends paid or payable Profit retained in the Group Dividends – cents per share Gross dividends - cents per share 33,505 28,496 5,009 2,494 2,515 923 1,592 1,592 - 33,537 27,424 6,113 1,319 4,794 1,671 3,123 168 2,955 8.4 12.5 47,340 38,934 8,406 922 7,484 2,487 4,997 202 1,268 3,527 63.4 94.6 27,785 22,530 5,255 316 4,939 1,675 3,264 181 150 2,933 7.5 10.0 page sixty METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 15. Historical financial information CONTINUED STATEMENTS OF FINANCIAL POSITION COMPANY AUDITED AS AT 31 MARCH 2002 COMPANY AUDITED AS AT 31 MARCH 2003 GROUP AUDITED AS AT 31 MARCH 2004 GROUP AUDITED AS AT 30 SEPT 2004 $000 $000 $000 $000 Total tangible assets Intangible assets Total assets Total liabilities Total equity Net tangible assets (‘NTA’) Number of shares issued (000s) NTA backing per share (cents) Adjusted NTA 1 17,962 4,447 22,409 18,817 3,592 (855) 2,000 (43) n/a n/a 17,969 4,207 22,176 15,629 6,547 2,340 2,000 117 n/a n/a 23,736 4,375 28,111 17,215 10,896 6,521 2,000 326 n/a n/a 25,411 4,292 29,703 15,822 13,881 9,589 2,000 479 Refer below Refer below Adjusted and diluted NTA NOTE: 1. Based on 51,188,810 million shares to be on issue as at the Offer date. 2. In accordance with clause 8(5) of the First Schedule to the Regulations, set out below is the adjusted and diluted net tangible asset backing per share as at 30 September 2004. REFLECTING ALL PROCEEDS (A) ADJUSTED NTA BACKING PER SHARE ADJUSTED AND DILUTED NTA BACKING PER SHARE REFLECTING SPECIAL DIVIDEND (B) ADJUSTED NTA BACKING PER SHARE ADJUSTED AND DILUTED NTA BACKING PER SHARE As at 30 September 2004 (cents) The above table has been calculated based on the following assumptions 48 49 24 25 a) The ‘Reflecting All Proceeds’ columns show the Adjusted NTA and the Adjusted and Diluted NTA including the receipt of the proceeds from the IPO (i.e. $16m less the payment of offer related costs of $778k). b) The “Reflecting Special Dividend” columns show the Adjusted NTA and the Adjusted and Diluted NTA including the receipt of the proceeds from the IPO i.e. $16m, less the payment of offer related costs of $778k and less the payment of $13.0m of the special dividend (as described on page 16) funded by the IPO. c) The share split described on page 17 has occurred. The Adjusted and Diluted NTA backing per share assumes, in addition to (a) and (b) above, that the Options have been allocated and proceeds received. 3. In August 2002 Methven sold its Rosebank Road property and entered into an arm’s length leaseback arrangement. 4. In June 2003 Methven acquired 60% of the shares in Methven Australia Pty Ltd, which in turn purchased the Flexispray business. 5. The March 2003 results are after one off costs of $154,000 to replace asbestos cladding on its Avondale leasehold premises. 6. The March 2004 results are after one off costs and provisions accrued in respect of Methven’s obligation to replace the remaining asbestos cladding on its Avondale leasehold premises of $440,000. page sixty one METHVEN GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMEBER 2004 STATEMENT OF FINANCIAL PERFORMANCE METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 NOTE $000 $000 $000 Continuing activities Operating revenues Operating expenses Operating profit before tax Income tax expense Net profit after tax Minority interest in profits of subsidiaries Net profit attributable to parent shareholders 17 9 1 3 27,785 (22,846) 4,939 (1,675) 3,264 (181) 3,083 47,340 (39,856) 7,484 (2,487) 4,997 (202) 4,795 33,537 (28,743) 4,794 (1,671) 3,123 3,123 STATEMENT OF MOVEMENTS IN EQUITY METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 NOTE $000 $000 $000 Equity at beginning of period comprising Parent shareholders interest Minority interest 10,082 814 10,896 Net profit for the period comprising Parent shareholders interest Minority interest Movement in foreign currency translation reserve Total recognised revenues and expenses Distribution to shareholders of the Parent Distribution to minority interest Minority interest in contribution from owners Net increase in equity Equity at period end comprising Parent shareholders interest Minority interest Equity at end of period The accompanying notes form part of these financial statements 6,547 6,547 3,592 3,592 3,083 17 181 (129) 3,135 5 17 17 (100) (50) 2,985 4,795 202 8 5,005 (1,268) 612 4,349 3,123 3,123 (168) 2,955 12,936 17 945 13,881 10,082 814 10,896 6,547 6,547 page sixty two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT METHVEN GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMEBER 2004 STATEMENT OF FINANCIAL POSITION METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 NOTE $000 $000 $000 Equity Share capital Retained earnings Foreign currency translation reserve Parent shareholders’ equity Minority interests Total equity Non-current liabilities Term loans Total non-current liabilities Current liabilities Trade creditors Employee accruals Other creditors and accruals Provisions Income tax payable Current portion of term loans Total current liabilities Total liabilities Total liabilities and equity Non-current assets Property, plant and equipment Patents and trademarks Future tax benefit Intangible assets Investments in subsidiaries Total non-current assets Current assets Cash and bank balances Trade receivables Prepayments and other assets Inventories Due from related parties Total current assets Total assets The accompanying notes form part of these financial statements 4 5 2,000 11,057 (121) 12,936 2,000 8,074 8 10,082 814 10,896 2,000 4,547 6,547 6,547 17 945 13,881 10 5,496 5,496 - 4,000 4,000 4,114 1,180 3,541 19 564 927 10 10,326 15,822 29,703 3,015 1,028 3,036 580 560 8,996 17,215 17,215 28,111 2,662 609 2,495 613 5,250 11,629 15,629 22,176 12 13 8 14 16 5,839 99 404 4,193 10,535 5,115 57 433 4,318 9,923 3,424 197 4,207 7,828 1,492 7,279 489 15 18 9,383 525 19,168 29,703 2,522 6,168 171 8,777 550 18,188 28,111 3,070 4,024 50 6,652 552 14,348 22,176 page sixty three METHVEN GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMEBER 2004 STATEMENT OF CASH FLOWS METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 OPERATING ACTIVITIES $000 $000 Cash was provided from: Receipts from customers Interest received 26,615 67 26,682 Cash was applied to: Payments to suppliers Payments to employees Interest paid Income tax paid (15,271) (5,695) (316) (1,279) (22,561) Net cash inflows (outflows) from operating activities INVESTMENT ACTIVITIES 47,002 103 47,105 32,927 79 33,006 (28,290) (9,712) (922) (2,776) (41,700) 5,405 (18,554) (7,976) (1,361) (1,109) (29,000) 4,006 4,121 Cash was provided from: Proceeds from sale of fixed assets 100 100 Cash was applied to: Purchase of Australian business assets (Note 16) Purchase of property, plant and equipment (1,472) (1,472) Net cash inflows (outflows) from investment activities FINANCING ACTIVITIES - 3,528 3,528 (2,763) (2,288) (5,051) (5,051) (1,317) (1,317) 2,211 (1,372) Cash was provided from: Proceeds from borrowings Proceeds from minority share issue in subsidiary (Note 16) Cash was applied to: Repayment of borrowings Dividends paid to shareholders (3,500) (150) (3,650) Net cash inflows (outflows) from financing activities Net increase (decrease) in cash held Foreign currency translation adjustment Cash at beginning of period Cash at end of period Composition of Cash Cash and bank balances The accompanying notes form part of these financial statements 3,746 612 4,358 - (4,000) (1,268) (5,268) (910) (556) 8 3,070 2,522 (4,250) (168) (4,418) (4,418) 1,799 1,271 3,070 (3,650) (901) (129) 2,522 1,492 1,492 2,522 3,070 page sixty four METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT METHVEN GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMEBER 2004 STATEMENT OF CASH FLOWS CONTINUED METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Reconciliation with Operating Surplus Net profit attributable to Parent Net profit attributable to Minority Interest 3,083 181 3,264 Items not involving cash flows Goodwill amortisation expense Patent and trademark amortisation expense Depreciation expense Movement in future tax benefit 125 8 598 29 760 Impact of changes in working capital items Trade receivables Inventories Prepayments and other assets Tax refund due Amount owing from related parties Trade creditors Employee accruals Other creditors, accruals and provisions Income tax Settlement of trading assets and liabilities acquired (Note 16) (1,111) (606) (311) 18 1,099 152 489 367 97 Items classified as investing activities Loss (surplus) on disposal of assets Net cash flow from operating activities The accompanying notes form part of these financial statements 4,795 202 4,997 3,123 3,123 247 1,269 (236) 1,280 235 694 (55) 874 (2,144) (2,125) (121) 2 353 419 1,121 (53) 1,667 (881) (592) (498) (46) 48 2 486 (33) (4) 613 (24) 4,121 9 5,405 33 4,006 page sixty five STATEMENT OF ACCOUNTING POLICIES FOR THE SIX MONTHS ENDED 30 SEPTEMEBER 2004 ENTITIES REPORTING The financial statements are for the ‘Group’ comprising Methven Limited (‘the Parent’) and its subsidiaries. STATUTORY BASE Methven Limited is a company registered under the Companies Act 1993. The financial statements have been prepared in accordance with the requirements of the Securities Regulations 1983. MEASUREMENT BASE The financial statements have been prepared on the historical cost basis. ACCOUNTING POLICIES The financial statements are prepared in accordance with New Zealand generally accepted accounting practice.The accounting policies that materially affect the measurement of the financial performance, financial position and cash flows are set out below. GROUP FINANCIAL STATEMENTS Subject to the requirements of the Securities Regulations 1983, the Group financial statements consolidate the financial statements of subsidiaries using the purchase method. Subsidiaries are entities that are controlled, either directly or indirectly, by the Parent. All material transactions between subsidiaries or between the Parent and subsidiaries are eliminated.The results of subsidiaries acquired during the period are included in the consolidated statement of financial performance from the date of acquisition. OPERATING REVENUES Sales revenue represents revenue earned from the sale of the Group’s products and services, net of returns, sale rebate incentives, duties and taxes paid. Interest is accounted for as earned. INVENTORIES Raw materials, work-in-progress and finished goods are stated at the lower of cost and anticipated net realisable value. Cost is recognised on a first in, first out basis and in the case of manufactured goods, includes direct materials, labour and production overheads. PROPERTY, PLANT AND EQUIPMENT The cost of purchased property, plant and equipment is the value of the consideration given to acquire the assets and the value of other directly attributable costs which have been incurred in bringing the assets to the location and condition necessary for their intended service. The cost of self-constructed assets includes the cost of all materials used in construction, costs of obtaining Resource Management Act consents and financing costs that are directly attributable to the project. Costs cease to be capitalised as soon as the asset is ready for productive use and do not include any inefficiency costs. DEPRECIATION Depreciation of property, plant and equipment is calculated on a straight line basis so as to expense the cost of the assets to their residual values over their useful lives as follows: Motor vehicles Plant and equipment Fixtures, fittings and office equipment 5-10 years 3-20 years 3-12.5 years Gains and losses on the disposal of fixed assets are taken into account in determining the operating result. INCOME TAX The income tax expense recognised for the period is based on the accounting surplus, adjusted for permanent differences between accounting and tax rules. The impact of all timing differences between accounting and taxable income are recognised as a deferred tax liability or asset.This is the comprehensive basis for the calculation of deferred tax under the liability method. A future tax benefit, or the effect of losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is virtual certainty that the benefit of the timing differences, or losses, will be utilised. RECEIVABLES Receivables are carried at anticipated realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at period end. Bad debts are written off during the period in which they are identified. GOODS AND SERVICES TAX (GST) The statement of financial performance and statement of cash flows have been prepared so that all components are stated exclusive of GST. All items in the statement of financial position are stated net of GST, with the exception of receivables and payables which include GST invoiced. LEASED ASSETS Operating leases Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased items, are included in the determination of the operating surplus in equal instalments over the lease term. Finance leases Assets under finance leases are recognised as non-current assets in the statement of financial position. Leased assets are recognised initially at the lower of the present value of the minimum lease payments or their fair value. A corresponding liability is established and each lease payment allocated between the liability and interest expense. Leased assets are depreciated on the same basis as equivalent property, plant and equipment. RESEARCH EXPENDITURE All research costs are recognised as an expense when incurred. INVESTMENTS Investments in subsidiaries are stated at cost in the statement of financial position of the Parent. INTANGIBLE ASSETS The excess of cost over the fair value of the net assets at the date of acquisition is recognised as goodwill and is amortised to the statement of financial performance over 20 years. page sixty six METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT PATENTS AND TRADEMARKS The registration costs of patents and trademarks are capitalised from the date of application and are amortised over the shorter of the estimated period for which economic benefits will flow from the related product and the estimated useful life of the patent or trademark. Capitalised costs relating to applications that are turned down are expensed immediately into the statement of financial performance. EMPLOYEE ENTITLEMENTS Employee entitlements to salaries and wages, annual leave and other benefits are recognised when they accrue to employees. Long service leave liabilities are determined using actuarial estimation techniques. IMPAIRMENT The Directors assess the carrying value of each asset at the end of each accounting period.When the estimated recoverable amount of the asset is less than its carrying amount, the asset is written down. The impairment loss is recognised in the statement of financial performance. WARRANTY A liability is recognised for the expected value of claims on product sales that are still under warranty at balance date. Expected costs are based on historical data relating to product returns. DEFERRED MAINTENANCE A liability is recognised to cover a contractual obligation to perform remedial work at the Parent’s Auckland premises.The provision is based on third party quotations and is released as and when expenditure is incurred.The level of the liability is reassessed annually. FOREIGN CURRENCIES Transactions Transactions denominated in foreign currencies during the period have been translated to New Zealand dollars at the rates of exchange ruling at the dates of the transactions, except when forward currency contracts have been taken out to cover short term forward currency commitments.Where short-term forward currency contracts have been taken out, the transaction is translated at the rate contained in the contract. Offshore receivables, payables and bank accounts at balance date which are not covered by forward currency contracts have been translated to New Zealand dollars at the following closing rates: 30 SEPTEMBER 31 MARCH 2004 Australian Dollar US Dollar EURO 0.927 0.671 0.543 2004 0.880 0.649 0.532 31 MARCH 2003 0.916 0.545 0.502 foreign operations are recognised in the foreign currency translation reserve, together with unrealised gains and losses on foreign currency monetary liabilities that are identified as hedges against these operations. FINANCIAL INSTRUMENTS Recognised Financial instruments carried on the statement of financial position include cash and bank balances, loans to shareholders, receivables, trade creditors and borrowings.The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. Financial instruments that are designated as hedges of specific items are recognised on the same basis as the underlying hedged items. Financial instruments that do not constitute hedges are stated at market value and any resultant gain or loss is recognised in the statement of financial performance. Unrecognised The premium paid on interest rate options is amortised to the statement of financial performance over the period of the underlying liability. Forward exchange contracts entered into as hedges of foreign exchange assets and liabilities are valued at exchange rates prevailing at period end. Any unrealised gains or losses are offset against unrealised foreign exchange gains and losses on the related asset or liability. STATEMENT OF CASH FLOWS The following are the definitions of the terms used in the statement of cash flows: (a) Operating activities include all transactions and other events that are not investing or financing activities. (b) Investing activities are those activities relating to the acquisition, holding and disposal of property, plant and equipment and of investments. Investments can include securities not falling within the definition of cash. (c) Financing activities are those activities that result in changes in the size and composition of the capital structure.This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. (d) Cash is considered to be cash on hand and the current accounts in banks, net of bank overdrafts. CHANGES IN ACCOUNTING POLICIES There have been no changes in accounting policies in the current financial period from those adopted in the year ended 31 March 2004. In the March 2004 financial period there was a change in the accounting policy adopted for warranty costs to ensure consistency of Group accounting policies. Under the new policy a liability was recognised for the expected value of claims on product sales still under warranty at balance date. Formerly, all warranty costs were expensed as incurred. As a result of this change, period end liabilities were increased by $155,000 with a corresponding decrease in the operating profit before tax for the year ended 31 March 2004. In addition, the future tax benefit was increased and the income tax expense was decreased by $51,000 in the same period. Gains and losses arising from exchange fluctuations are taken to the statement of financial performance in the period in which they occur. FOREIGN OPERATIONS Revenues and expenses of independent foreign operations are translated to New Zealand Dollars at the exchange rates in effect at the date of the transaction, or rates approximating them. Assets and liabilities are translated to New Zealand Dollars at the rates of exchange ruling at balance date. Exchange differences arising from the translation of independent page sixty seven NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 1. OPERATING REVENUES OPERATING REVENUES METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Sales revenue Interest received 27,736 49 27,785 47,239 101 47,340 33,460 77 33,537 2. SEGMENTAL REPORTING The Group operates in one industry segment, being the manufacture and supply of tap and showerware and domestic water control valves. The Group operates in two geographical segments, and information on these segments is as follows: SEGMENTAL REPORTING METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 SALES REVENUE $000 $000 New Zealand (see below) Australia Consolidated OPERATING PROFIT BEFORE TAXATION 21,210 6,526 27,736 38,643 8,596 47,239 33,460 33,460 New Zealand Australia Consolidated SEGMENT ASSETS 4,293 646 4,939 6,764 720 7,484 4,794 4,794 New Zealand Australia Intersegment eliminations Consolidated SEGMENT LIABILITIES 25,887 6,658 (2,842) 29,703 25,213 5,844 (2,946) 28,111 22,176 22,176 New Zealand Australia Intersegment eliminations Consolidated 13,331 4,030 (1,539) 15,822 15,441 3,228 (1,454) 17,215 15,629 - 15,629 New Zealand sales revenue includes export sales, principally to Australia of $3,274,000 (March 2004: $6,122,000; March 2003: $5,070,000). The operating profit is that of the Group before income tax and minority interests. Intersegment sales are on an arm’s length basis. page sixty eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 3. OPERATING EXPENSES OPERATING EXPENSES METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 OPERATING EXPENSES INCLUDE: $000 $000 Bad debts written off Increase in estimated doubtful debts Interest expense Interest expense in relation to finance leases Depreciation - Plant, fixtures, fittings and office equipment - owned Depreciation - Plant, fixtures, fittings and office equipment - leased Depreciation - Motor vehicles - owned Depreciation - Motor vehicles - leased Total depreciation Goodwill amortisation Patent and trademark amortisation Directors’ fees Donations Rental expense Loss on sale of fixed assets Research Audit fees paid to auditor Fees paid for other services provided by the auditor Unusual item Deferred maintenance on leased property (note 19) 6 312 4 574 12 9 3 598 125 8 23 1 301 1,627 40 - 13 8 917 5 1,234 16 16 3 1,269 247 30 1 552 9 2,179 40 46 1,319 694 694 235 20 1 263 33 1,715 26 10 - 425 - Fees amounting to $55,000 from PricewaterhouseCoopers have been accrued for that relate to other accounting and assurance services provided to the Group.These costs have been capitalised at 30 September 2004. page sixty nine NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 4. SHARE CAPITAL SHARE CAPITAL METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 ISSUED AND PAID UP CAPITAL $000 $000 Balance at beginning of period Share issue made during the period Balance at end of period Ordinary shares 2,000 2,000 2,000 2,000 2,000 2,000 At 30 September 2004 there were 2,000,000 shares issued and fully paid (March 2004: 2,000,000; March 2003: 2,000,000). All ordinary shares rank equally with one vote attached to each fully paid ordinary share. 5. RETAINED EARNINGS RETAINED EARNINGS METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Balance at beginning of period Net profit for the period Dividends paid Balance at end of period 8,074 3,083 (100) 11,057 4,547 4,795 (1,268) 8,074 1,592 3,123 (168) 4,547 6. EARNINGS PER SHARE EARNINGS PER SHARE METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 Number of ordinary shares on issue (period end) Number of ordinary shares on issue (weighted average) Net profit per share (based on weighted average number of shares on issue) 2,000,000 2,000,000 154¢ 2,000,000 2,000,000 240¢ 2,000,000 2,000,000 156¢ 7. IMPUTATION BALANCES IMPUTATION BALANCES METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 IMPUTATION CREDIT ACCOUNT $000 $000 Balance at beginning of period Tax payments, net of refunds Credits attached to dividends paid Balance at end of period 4,275 1,230 (49) 5,456 2,095 2,805 (625) 4,275 1,113 1,065 (83) 2,095 page seventy METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 8. FUTURE TAX BENEFIT FUTURE TAX BENEFIT METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Balance at beginning of period On profit for period Balance at end of period 433 (29) 404 197 236 433 142 55 197 9. INCOME TAX INCOME TAX METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Operating profit before income tax Permanent differences Profit subject to tax Tax at 33% Under (over) estimation in prior period Reduced tax on foreign income due to different tax rate Income tax expense recognised in statement of financial performance COMPRISING 4,939 196 5,135 1,695 (20) 1,675 1,646 29 1,675 7,484 273 7,757 2,560 (51) (22) 2,487 2,723 (236) 2,487 4,794 269 5,063 1,671 1,671 1,726 (55) 1,671 Current income tax charge Decrease (increase) in future tax benefit Income tax expense 10. BORROWINGS Borrowing repayments are due as follows: BORROWINGS METHVEN GROUP REPAYMENT DATE SEPT 2004 MARCH 2004 MARCH 2003 $000 $000 $000 BNZ term loan BNZ term loan BNZ term loan BNZ term loan RELATED PARTIES August 2003 February 2004 April 2004 March 2007 February 2006 5,496 5,496 8,996 8,996 125 5,125 4,000 9,250 AMP – Mezzanine Total borrowings During the period to 30 September 2004 the Group renewed its BNZ term loan facility. page seventy one NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 Security Bank borrowings are secured by way of a debenture over the Parent’s assets, and have been advanced to the Parent subject to compliance with certain financial covenants. Interest rates INTEREST RATES METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 Weighted average effective interest rate on bank borrowings Weighted average effective interest rate on AMP borrowings 7.25% 6.49% 15.0% 6.92% 15.0% 11. FINANCIAL INSTRUMENTS The Group is subject to a number of financial risks, which arise as a result of its debt portfolio and trading activities. To manage and limit the effects of those financial risks, the Group has implemented policy guidelines and authorised the use of various financial instruments.The policies and financial instruments being utilised at balance date are outlined below: Currency risk In addition it is the Group’s policy to hedge a portion of trade receivables and trade payables denominated in a foreign currency where these are not hedged by foreign currency denominated bank account balances. On a monthly basis, hedges over estimated foreign currency exposure in respect of sales and purchases are taken out.The notional or principal contract amounts of foreign exchange instruments outstanding at period end are: CURRENCY RISK METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 $000 $000 AUD Bank account USD Bank account EURO Bank account Total foreign currency bank accounts 345 1 31 377 979 74 90 1,143 1,065 42 20 1,127 page seventy two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 It is the Group’s policy to hedge net foreign currency non trading fixed asset and investment expenditure positions which exceed NZD $100,000. Any hedges beyond estimated foreign currency exposure are to be closed out immediately. In addition it is the Group’s policy to hedge a portion of trade receivables and trade payables denominated in a foreign currency where these are not hedged by foreign currency denominated bank account balances. On a monthly basis, hedges over estimated foreign currency exposure in respect of sales and purchases are taken out. The notional or principal contract amounts of foreign exchange instruments outstanding at period end are: CURRENCY RISK METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 $000 $000 Sale commitments forward exchange contracts Purchase commitments forward exchange contracts Call option contracts sold Interest rate risk 819 2,378 520 952 576 - - Financial instruments sensitive to interest rate risk include funds with banks and the BNZ term loan facility.The interest rates related to these are variable and reviewed at frequent intervals. As a condition of the Group treasury policy an interest rate hedging programme has been entered into.The notional principal outstanding at balance date is: INTEREST RATE RISK METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 $000 $000 Option Collar (5.7% floor – 6.42% ceiling) Interest rate swap agreement (Fixed Qtr 6.3%) 3,000 2,000 3,000 - 5,250 - The option collar matures in September 2005.The interest rate swap agreement is effective from October 2005 and terminates in March 2007. Costs incurred in obtaining interest rate hedges are expensed as incurred. It is Group policy to minimise the net funding cost by applying any cash reserves surplus to operational requirements, against debt repayment. Credit risk The Group incurs credit risk from transactions with trade receivables and financial institutions in the normal course of its business. Group Management and the Board of Directors reviews exposure to trade receivables on a regular basis. Credit insurance is taken to cover collection of offshore and domestic receivables. Four plumbing merchant chains account for 70% of New Zealand sales. The counterparties used for banking and finance activities are financial institutions with high credit ratings. The related party loans are secured over the shares owned by the shareholders. page seventy three NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 11. FINANCIAL INSTRUMENTS Fair values CONTINUED The carrying values of cash at bank, bank overdraft, receivables, trade creditors and term loans are substantially equivalent to their fair values. The fair values of forward exchange contracts, interest rate swaps and options held by the Group at period end are outlined below: FAIR VALUES METHVEN GROUP SEPT 2004 FAIR VALUE SEPT 2004 CARRYING VALUE $000 $000 Interest rate swaps Options Forward contracts 7 1 (115) - METHVEN GROUP MARCH 2004 FAIR VALUE MARCH 2004 CARRYING VALUE $000 $000 Interest rate swaps Options Forward contracts (4) - METHVEN GROUP MARCH 2003 FAIR VALUE MARCH 2003 CARRYING VALUE $000 $000 Interest rate swaps Options Forward contracts - - The fair values of the above financial instruments are based on valuations provided by the Group’s bankers. page seventy four METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 12. PROPERTY, PLANT AND EQUIPMENT PROPERTY, PLANT AND EQUIPMENT SEPTEMBER 2004 METHVEN GROUP COST ACCUMULATED DEPRECIATION NET BOOK VALUE $000 GROUP $000 $000 Plant, fixtures, fittings and office equipment – owned Plant, fixtures, fittings and office equipment – leased Motor vehicles – owned Motor vehicles – leased Capital work in progress 7,418 75 108 35 937 8,573 2,677 27 24 6 2,734 MARCH 2004 4,741 48 84 29 937 5,839 METHVEN GROUP COST ACCUMULATED DEPRECIATION NET BOOK VALUE $000 GROUP $000 $000 Plant, fixtures, fittings and office equipment – owned Plant, fixtures, fittings and office equipment – leased Motor vehicles – owned Motor vehicles – leased Capital work in progress 6,900 80 116 38 586 7,720 2,570 16 16 3 2,605 MARCH 2003 4,330 64 100 35 586 5,115 METHVEN GROUP COST ACCUMULATED DEPRECIATION NET BOOK VALUE $000 GROUP $000 $000 Plant, fixtures, fittings and office equipment 4,794 4,794 1,370 1,370 3,424 3,424 During the period the Group conducted a review of the useful lives, residual values and depreciation methods used to depreciate items of property, plant and equipment to ensure that they continued to be appropriate.The Directors believe that the carrying values are reasonable approximations of the fair value of the assets. In August 2004 the Group paid AUD $50,000 for a non-refundable option to purchase a property adjoining its premises in Australia for a fixed price.The option has a maturity date of 7 January 2005.This is recorded as a prepayment at 30 September 2004. page seventy five NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 13. PATENTS AND TRADEMARKS PATENTS AND TRADEMARKS METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 $000 $000 Patent and trademarks Less accumulated amortisation 107 (8) 99 57 57 - 14. INTANGIBLE ASSETS INTANGIBLE ASSETS METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Goodwill at cost Accumulated amortisation at beginning of period Unamortised balance at beginning of period Goodwill arising on acquisition of subsidiary Current period amortisation Unamortised balance at end of period COMPRISING: 5,059 (741) 4,318 (125) 4,193 4,701 (494) 4,207 358 (247) 4,318 4,701 (259) 4,442 (235) 4,207 Goodwill (gross) Accumulated amortisation 5,059 (866) 4,193 5,059 (741) 4,318 4,701 (494) 4,207 15. INVENTORIES INVENTORIES METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 $000 $000 Raw materials Work in progress Consumables Finished goods 2,974 1,503 103 4,803 9,383 2,935 1,430 92 4,320 8,777 2,937 1,966 117 1,632 6,652 page seventy six METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 16. INVESTMENTS On 30 June 2003 Methven Limited acquired a 60% shareholding in Methven Australia Pty Limited, which was incorporated to acquire the business assets and certain liabilities of Crilacy Pty Limited and Crilacy Sheetmetal Pty Limited. Methven Australia Pty Limited has a 100% shareholding in Methven Voumard Pty Limited. Methven Limited holds an option to acquire the remaining 40% shareholding in Methven Australia Pty Limited in the event of certain trigger events occurring. On 30 June 2003 Methven Australia Pty Limited and Methven Voumard Pty Limited purchased the business assets and certain liabilities of Crilacy Pty Limited and Crilacy Sheetmetal Pty Limited respectively, for a cash consideration of AUD $2,244,571. Both Methven Australia Pty Limited and Methven Voumard Pty Limited have 31 March balance dates. Summary of the effect of the purchase of the business of Crilacy Pty Limited and Crilacy Sheetmetal Pty Limited: INVESTMENTS METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Trade receivables Inventories Other assets Trade payables Other payables Net current assets acquired Fixed assets acquired Goodwill Purchase price FUNDED AS FOLLOWS: - 1,157 2,130 37 (1,306) (351) 1,667 738 358 2,763 - Equity investment by Methven Limited in Methven Australia Pty Ltd Equity investment by minority interest in Methven Australia Pty Ltd Third party debt financing Acquisition costs - 918 612 996 237 2,763 - 17. MINORITY INTERESTS MINORITY INTERESTS METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 $000 $000 Balance at beginning of period Share of surplus in subsidiaries Dividends paid to minority interests Acquisition of subsidiary (note 16) Balance at period end 814 181 (50) 945 202 612 814 - page seventy seven NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 18. RELATED PARTY INFORMATION The Parent has advanced loans to its shareholders of $500,000 (March 2004: $500,000 ; March 2003: $500,000).The interest receivable at 30 September 2004 on these loans is $25,000 (March 2004: $50,000 ; March 2003: $52,000).The interest rate charged on the shareholder loans is 10% per annum (March 2004: 10% per annum ; March 2003: 10% per annum) and the loans are secured by mortgages over the shares owned by the shareholders. As at 30 September there are no loans outstanding between the Group and AMP (March 2004: nil ; March 2003: $4,000,000). No interest has been paid to AMP during the most recent financial period (March 2004: $448,000 ; March 2003: $965,000).The AMP loan was repaid in full during the year ended 31 March 2004. 19. PROVISIONS PROVISIONS METHVEN GROUP 6 MONTHS SEPT 2004 12 MONTHS MARCH 2004 12 MONTHS MARCH 2003 $000 WARRANTY PROVISION $000 $000 Balance at beginning of period Current period provision Warranty expenses incurred Balance at end of period DEFERRED MAINTENANCE PROVISION 155 132 (123) 164 155 155 - Balance at beginning of period Current period provision Maintenance expenses incurred Balance at end of period 425 (25) 400 564 425 425 580 - Warranty provision: A liability has been recognised for the expected value of claims on product sales that are still under warranty at balance date.The terms of the warranty provide that the Company will repair or replace items that fail to perform satisfactorily. Expected costs are based on historical data relating to product returns. On average, warranty expenses are incurred in a 12 month period following the sale of product. Deferred maintenance: A liability has been recognised to cover a contractual obligation to perform remedial work at the Parent’s Auckland premises.The provision is based on third party quotations and is released as and when expenditure is incurred. Under the deed of lease for its Auckland premises, Methven Limited is obligated to replace all asbestos cladding attached to the buildings with material that conforms to specifications outlined in the lease.The work is required to be undertaken at the earlier of: a) the date on which a notice (if any) received from the relevant authority requiring the work expires; and b) 2 August 2010. page seventy eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2004 20. OPERATING LEASE COMMITMENTS OPERATING LEASE COMMITMENTS METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 OPERATING LEASES – NON CANCELLABLE $000 $000 Within one year One to two year Two to five year Beyond five year 691 474 1,260 1,897 4,322 776 497 1,289 2,066 4,628 718 528 1,339 2,409 4,994 The Group has operating leases for Auckland, Dunedin and Melbourne premises, vehicles, plant and equipment. There are no options to purchase in respect of these leases. 21. FINANCE LEASE COMMITMENTS FINANCE LEASE COMMITMENTS METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 FINANCE LEASES $000 $000 Within one year One to two year Two to five year Beyond five year 35 32 18 85 38 38 53 129 - The Group has finance leases for a vehicle and computer equipment held in Australia. Capitalised lease obligations are secured over the assets under lease. 22. CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES CAPITAL COMMITMENTS AND CONTINGENT LIABILITIES METHVEN GROUP SEPT 2004 MARCH 2004 MARCH 2003 $000 $000 $000 Capital commitments Undrawn Letters of Credit There are no contingent liabilities at 30 September 2004 (March 2004: nil; March 2003: nil). 40 - 564 278 41 23. EVENTS OCCURRING AFTER BALANCE DATE There have been no events occurring after balance date which would materially affect the accuracy of these financial statements. page seventy nine AUDITOR’S REPORT The Directors Methven Limited Private Bag 19996 Avondale Auckland 4 November 2004 Dear Directors As auditors of Methven Limited (‘the Company’) we have prepared this report pursuant to clause 42 of the First Schedule of the Securities Regulations 1983 for inclusion in a Prospectus to be dated 4 November 2004. DIRECTORS’ RESPONSIBILITIES The Company’s Directors are responsible for the preparation and presentation of: (a) the financial statements which give a true and fair view of the state of affairs of Methven Limited and its subsidiaries (‘the Group’) as at 31 March 2004 and 30 September 2004 and its financial performance and cash flows for the year ended 31 March 2004 and the six-month period ended 30 September 2004, as required by as required by clauses 23 to 38 of the First Schedule of the Securities Regulations 1983; (b) the summary of financial statements of the Company for the thirteen-month period ended 31 March 2002 and the year ended 31 March 2003 and of the Group for the year ended 31 March 2004 and the six-month period ended 30 September 2004 as required by as required by clauses 8(2) and 8(3) of the First Schedule of the Securities Regulations 1983; and (c) the prospective financial information of the Group for the year ending 31 March 2005 and the prospective statement of cash flows of the Group for the twelve months ending 4 November 2005 (together ‘the prospective financial information’), including the assumptions on which they are based. AUDITOR’S RESPONSIBILITIES We are responsible for expressing an independent opinion on the financial statements of the Group for the year ended 31 March 2004 and the six month period ended 30 September 2004 presented by the Directors and reporting our opinion in accordance with in accordance with clause 42(1) of the First Schedule of the Securities Regulations 1983. We are also responsible for reporting, in accordance with clauses 42(1)(g) and 42(2) of the First Schedule of the Securities Regulations 1983, on the following matters which have been prepared and presented by the Directors: (a) the amounts included in the summary of financial statements of the Company for the thirteen month period ended 31 March 2002 and the year ended 31 March 2003 and of the Group for the year ended 31 March 2004 and the six month period ended 30 September 2004; and (b) the prospective financial information of the Group for the year ending 31 March 2005 and the prospective statement of cash flows of the Group for the twelve months ending 4 November 2005, including the assumptions on which they are based. We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacities as providers of assurance (including audit) and taxation services. BASIS OF OPINION ON THE FINANCIAL STATEMENTS An audit of the financial statements includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and (b) whether the accounting policies used and described on pages 66 to 67 are appropriate to the circumstances of the Group and Company, consistently applied and adequately disclosed. We have conducted our audit in accordance with generally accepted auditing standards in New Zealand.We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of the information in the financial statements. BASIS OF OPINION ON THE SUMMARY OF FINANCIAL STATEMENTS We have undertaken procedures to provide reasonable assurance that the amounts set out in the summary of financial statements of the Company and of the Group on pages 60 to 61, pursuant to pursuant to clauses 8(2) and 8(3) of the First Schedule of the Securities Regulations 1983, have been correctly taken from the audited financial statements of the Company for the thirteen month period ended 31 March 2002 and the year ended 31 March 2003 and of the Group for the year ended 31 March 2004 and the six month period ended 30 September 2004. page eighty METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT BASIS OF OPINION ON THE PROSPECTIVE FINANCIAL INFORMATION To meet our reporting responsibilities we have examined the prospective financial information of the Group for the year ending 31 March 2005 and the prospective statement of cash flows of the Group for the twelve months ending 4 November 2005 to confirm that, so far as the accounting policies and calculations are concerned, the prospective financial information has been properly compiled on the footing of the assumptions made or adopted by the Directors as set out on pages 51 to 53 of this Prospectus and are presented on a basis consistent with the accounting policies normally adopted by the Group. UNQUALIFIED OPINION ON THE FINANCIAL STATEMENTS AND THE SUMMARY OF FINANCIAL STATEMENTS We have obtained all the information and explanations we have required. In our opinion: (a) proper accounting records have been kept by the Group as far as appears from our examination of those records; (b) the financial statements of the Group, on pages 62 to 79 of this Prospectus, as required by as required by clauses 23 to 38 of the First Schedule of the Securities Regulations 1983, and that are required to be audited, have been drawn up to: (i) comply with the Regulations; (ii) subject to those Regulations, comply with generally accepted accounting practice in New Zealand; and (iii) give a true and fair view of the state of affairs of the Group as at 31 March 2004 and 30 September 2004 and its financial performance and cash flows for the year ended 31 March 2004 and the six-month period ended 30 September 2004; (c) the amounts or details set out in the summary of financial statements, on pages 60 to 61 of this Prospectus, as required by as required by clauses 8(2) and 8(3) of the First Schedule of the Securities Regulations 1983, have been correctly taken from the audited financial statements of the Company and of the Group from which they were extracted. UNQUALIFIED OPINION ON THE PROSPECTIVE FINANCIAL INFORMATION In our opinion, the prospective financial information of the Group for the year ending 31 March 2005 and the prospective statement of cash flows of the Group for the twelve months ending 4 November 2005 as set out on pages 48 to 50 so far as the accounting policies and calculations are concerned, have been properly compiled on the footing of the assumptions made or adopted by the Directors of the Company as set out on pages 51 to 53 of this Prospectus and are presented on a basis consistent with the accounting policies normally adopted by the Group. Actual results are likely to be different from the prospective financial information since anticipated events frequently do not occur as expected and the variation could be material. Accordingly, we express no opinion as to whether the prospective financial information will be achieved. Yours faithfully PricewaterhouseCoopers Chartered Accountants Auckland page eighty one METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 16. Investment Statement - Answers to important questions This Offer Document is a combined investment statement and registered prospectus prepared for the purposes of the Securities Act and the Securities Regulations.The purpose of this section of the Offer Document is to provide certain key information that is likely to assist a prudent but non-expert person to decide whether or not to subscribe for Shares or Senior Staff Options under the Offer. However, investors should note that other important information about the Offer is available in the remainder of this Offer Document. A.WHAT SORT OF INVESTMENT IS THIS? Exercise Period beginning on 30 November 2006 and ending on 29 November 2009.The Senior Staff Options will lapse if they are not exercised by the end of the Exercise Period or if the Option Holder ceases to be employed within the Methven Group or if certain other circumstances exist. Further information on the terms and conditions of the Senior Staff Option Offer are set out on pages 14 to 15 and pages 97 to 99. Shares Each share in Methven gives the holder: • the right to an equal share in dividends and other distributions paid in respect of shares; • the right to attend and vote at a meeting of shareholders of the Company including the right to cast one vote on a poll; • the right to an equal share in the distribution of surplus assets in any liquidation of the Company; • the right to be sent certain information, including notices of meetings and Company reports, sent to shareholders generally; and • all other rights that are conferred on shareholders by the Companies Act 1993 and the Constitution. Constitution Methven has adopted a new constitution that will apply from and including the date of Listing (the ‘Constitution’). In addition, the Constitution incorporates by reference the requirements of NZX (as appearing in the NZX Listing Rules and on the NZX website at www.nzx.com).The Constitution is available for inspection on the Companies Office website at www.companies.govt.nz and at the registered office of the Company set out in the Directory on page 109. Takeover provisions Investors will become subject to the Takeovers Code following any allotment or transfer of Shares to them pursuant to the Share Offer.The Takeovers Code, amongst other things, prohibits any person (together with their Associates, as defined in the Takeovers Code) Share Offer This is an offer of 25,316,781 ordinary fully paid Shares in Methven comprising the offer of the New Shares and offers of the Existing Shares.The terms of the New Shares are identical to the terms of the Existing Shares and rank equally in all respects with the Existing Shares. No person who receives any Existing Shares under the Share Offer will be entitled to receive any dividends that have been declared but which remain unpaid as at the date of such transfer. Assuming the Share Offer is fully subscribed, the Shares so offered will represent 50% of shares in Methven on issue as at the date of Listing. The Offer will not proceed unless all 25,316,781 Shares offered are subscribed for. Senior Staff Option Offer Contemporaneously with the Share Offer, the Selling Shareholders are offering 277,624 of their shares to certain Senior Staff of the Methven Group under the Senior Staff Share Offer representing 0.54% of shares on issue or at the date of Listing. In addition, Eligible Senior Staff will be offered one Senior Staff Option for each share they acquire under the Senior Staff Share Offer. Each Senior Staff Option entitles the Option Holder upon exercise, to purchase one share in Methven.The Senior Staff Options can only be exercised on written notice to Methven within an page eighty three 16. Investment Statement - Answers to important questions CONTINUED from becoming the holder or controller of more than 20% of the voting rights in the Company other than in compliance with the requirements of the Takeovers Code. Investors are advised to seek legal advice in relation to any act, omission or circumstance which may result in that investor breaching or becoming in breach of any provision of the Takeovers Code. Dividends The Company’s dividend policy is set out on page 21. NZSX quotation Application has been made to NZX for permission to list the shares of Methven on the NZSX, and all the requirements of NZX that can be complied with on or before the date of this Offer Document have been duly complied with. However, NZX accepts no responsibility for any statement in this Offer Document. Methvens shares are expected to be quoted and tradeable from 30 November 2004. Methven does not intend to list the Senior Staff Options on the NZSX. Other terms of the Offer The above is a simplified and general description of some of the rights and obligations of shareholders in Methven. All terms of the Share Offer, the Senior Staff Option Offer, the Shares and the Senior Staff Options, except those rights and obligations implied by law, are set out elsewhere in this Offer Document, or in the Constitution, both of which are available for public inspection on the Companies Office electronic register (located at www. companies.govt.nz) or at the registered office of the Company (set out in the Directory on page 109). B.WHO IS INVOLVED IN PROVIDING IT FOR ME? Issuer - Methven Methven is the issuer of the Shares and the Senior Staff Options. Methven’s registered office is at 447 Rosebank Road, Avondale, Auckland. Methven was incorporated in February 2001. Its principal activities include the design, manufacture and distribution of tap and showerware and domestic water control valves in New Zealand and Australia. Additional information about Methven and its business can be found in the section entitled ‘Introduction to Methven, its products, brands and technology’ on page 31. Offerors In addition to the New Shares, the Existing Shares are being offered by the Selling Shareholders (comprising AMP Capital Investments No 11 Limited, AMP Capital Investments No 3 Limited, Colin Lindsay Bartlett, Richardson Moses Fala, Stuart George Gray, Johannes Krill and Gary Zirk Nel) under the Share Offer. The registered office of AMP Capital Investments No 11 Limited and AMP Capital Investments No 3 Limited is Level 14, HP Tower 171 Featherston Street,Wellington. Each of Colin Bartlett, Rick Fala (Methven Group CEO), Stuart Gray, Johannes Krill and Gary Nel are senior managers of Methven. Rick Fala and Johannes Krill are also Directors. Each of Colin Bartlett, Rick Fala, Johannes Krill and Gary Nel have their principal residence in Auckland, and Stuart Gray has his principal residence in Dunedin.They can all be contacted at (or through) Methven, 447 Rosebank Road, Auckland. Promoters The promoters of the securities offered under this Offer Document (the ‘Promoters’) are Pencarrow Private Equity Limited (‘Pencarrow’) and its directors. The registered office of Pencarrow is at Level 14, Axon House, 1-3 Willeston Street,Wellington. page eighty four METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT C. HOW MUCH DO I PAY? Shares The price for Shares under the Share Offer is $1.43 per Share, payable on application. Applications must be for a minimum of 1,500 Shares and thereafter in multiples of 500 Shares. Applications to subscribe for or purchase Shares must be made on the Share Application Form (included with and forming part of this Offer Document), and in accordance with the application instructions set out on the back of the Share Application Form. Applications must be accompanied by cheque payments in full for the Shares being applied for. Cheques should be made out to ‘Methven Limited Share Offer’ and crossed 'Non Transferable'. Institutional investors or professional investors that are successfully allocated Shares must settle their allocation prior to 5pm on 26 November 2004 via Austraclear or in cleared funds under notification to the Lead Manager. Cheques will be banked as they are received and must not be post-dated. Completed Share Application Forms, together with payment, should be received by the Share Registrar no later than 5.00pm New Zealand time on the Closing Date (26 November 2004), at the following address: BK Registries Limited 138 Tancred Street PO Box 384 ASHBURTON Alternatively, applications for Shares can be lodged with any Primary Market Participant, the Lead Manager or any other channel approved by NZX in time to enable the application form to be forwarded to and be received by the Share Registrar by 26 November 2004. Applications received after the Closing Date may be accepted at the discretion of the Company (in consultation with the Lead Manager). If you have received a firm allocation of Shares from the Lead Manager or any other NZX Firm, you must return your completed application form and application monies to the Lead Manager or that NZX Firm in time for them to be forwarded to and received by the Share Registrar by 5pm New Zealand time on the Closing Date of 26 November 2004. Full details on how to apply for Shares and make payment are set out under the heading ‘Instructions and Terms of Share Application and Share Application Forms’ on page 103. Senior Staff Options There is no application fee or other sum payable for the Senior Staff Options. However, an Exercise Price will be payable by Option Holders wishing to exercise their Senior Staff Options.The Exercise Price will vary depending on when, during the Exercise Period, the Senior Staff Options are exercised, as set out in the table below: EXERCISE DATE EXERCISE PRICE Between 30 November 2006 and 29 November 2007 Between 30 November 2007 and 29 November 2008 Between 30 November 2008 and 29 November 2009 $1.65 $1.78 $1.91 Option Holders wishing to exercise any Senior Staff Options must give written notice to Methven specifying which are to be exercised and must accompany this notice with payment for the total amount of the Exercise Price by cheque payable to Methven. Payment must be received by the Company before expiry of the Exercise Period at the following address: Chief Executive Officer Methven Limited 447 Rosebank Road Avondale Auckland NEW ZEALAND D.WHAT ARE THE CHARGES? Investors offered Shares under the Share Offer and Senior Staff offered Senior Staff Options under the Senior Staff Option Offer are not required to pay any charges to Methven or the Offerors or any associated person in relation to the Share Offer or the Senior Staff Option Offer (respectively) other than, in the case of the page eighty five 16. Investment Statement - Answers to important questions CONTINUED Share Offer, the price payable for Shares on application or, in the case of the Senior Staff Option Offer, the Exercise Price payable on exercise of the Senior Staff Options. Issue expenses for the Offer are estimated to amount to approximately $1,650,000, of which $778,000 will be paid by the Company.These expenses include lead management fees, legal and accounting fees, advertising, printing and other costs incurred by Methven in making the Offer. Details of brokerage and any other commissions payable in respect of the Share Offer are set out on page 12. E.WHAT RETURNS WILL I GET? future dividend (or other distribution, if any) payable on its shares or as to the level of imputation credits, if any, attached to any dividends. Senior Staff Options Option Holders under the Senior Staff Option Offer are not entitled to any returns from the Senior Staff Options until they are converted to shares in Methven and, in particular, are not entitled to any dividends or other distributions, and are not entitled to dispose of their Senior Staff Options other than by having them converted to shares in Methven upon exercise. Shares issued on conversion of Senior Staff Options will rank equally in all respects with all other shares in Methven on issue as at the date on which the Senior Staff Options are exercised and will accordingly be entitled to the same returns as described in relation to shares, except for any dividend with a Record Date that precedes that date. Tax implications on returns This summary addresses certain New Zealand tax consequences for New Zealand tax residents who are natural persons. All references to taxation (whether in this paragraph or elsewhere in this Offer Document) are of a general nature only and are not (and should not be interpreted as) legal or tax advice to any investor.There may be other tax considerations that may be relevant to a decision to purchase, sell or hold Shares or Senior Staff Options. It is strongly recommended, therefore, that all prospective investors obtain professional advice relevant to their own particular circumstances. Shares Dividends - Dividends paid to shareholders will be subject to New Zealand withholding tax and income taxes but liability in respect of such taxes may be reduced or satisfied to the extent the dividends have imputation credits attached. Sale of shares - A profit on the sale of shares could be subject to New Zealand income tax in certain circumstances. Gains on the sale of shares by a New Zealand tax resident will be subject to New Zealand income tax if the seller is in the business of dealing in shares or if the shares were acquired for the purpose of Shares Shareholders may receive returns from their shares in two ways. First, shareholders will be entitled to receive any dividends or other distributions paid or provided by the Company and any other returns attaching to shares in Methven. Secondly, shareholders may also benefit from any increases in the market price of their shares if they sell them (although the market price may also decline). Methven will be legally liable to pay any dividends declared on its shares. If a Shareholder sells any shares, the purchaser will be legally liable to pay the purchase price for those shares. Methven does not make any promise or guarantee of any amount of returns, whether by way of dividends paid, proceeds of sale or in any other form. The dividend policy of the Board of Methven is set out on page 21.The Company expects to pay an interim dividend in December and a final dividend in June each year.The ability of Methven to pay dividends, and the market price of Methven's shares, will depend on a number of factors including economic conditions in New Zealand and elsewhere, the operational and financial performance of Methven, prevailing government policies interest rates and currency values, as well as other factors discussed in this Offer Document under the sub-heading ‘What are my Risks?’ on page 87 and Section 14,Trade Factors and Risks. Methven can give no promise or guarantee as to the level or frequency of any page eighty six METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT sale or if the shares were sold as part of a profit-making undertaking or scheme. Senior Staff Options There will be no tax implications until such time as the Senior Staff Options are exercised. Upon exercise, the holder of the Senior Staff Option will be taxed on the difference between the Exercise Price and the market price of Methven shares at the time the Senior Staff Option was exercised. Once a Senior Staff Option converts to shares in Methven the same tax implications as described for shares (above) will apply. F.WHAT ARE MY RISKS? the business risks of the Methven Group as a whole. Risk factors exist that are both specific to Methven’s business activities and of a general nature.These factors may, individually or in combination, affect the future operating performance of Methven and the value of a shareholders investment in Methven. Senior Staff Options Once an Option Holder has paid the Exercise Price and has been issued with Methven shares, he or she will be subject to the same risks as any shareholder, as generally set out in this section. Company specific risks There are certain trade and risk factors that are specific to Methvens business activities and which potential investors should consider when making their investment decision. A description of the trade factors and risks facing Methven is set out in Section 14. Investment risks Stock market investment The price of Methven shares on the NZSX may rise or fall due to numerous factors which may affect the market price of Methven shares. Such factors include: • General economic conditions, including performance of the New Zealand dollar on world markets, inflation rates and interest rates; • Variations in the global market for listed stocks (in general) or for New Zealand stocks (in particular); • Changes to government policy, legislation or regulations; and • General operational and business risks. In particular, investors have in recent times experienced wide fluctuations in the market value of shares. Such fluctuations may reflect a wide range of general (and non-company specific) influences such as acts of terrorism and the general state of the world economy. Such market fluctuations could adversely affect the market price for Methven shares. Liquidity and realisation risk Prior to completion of this Offer there has been no public market for Methven shares.There can be no guarantee that an active market in Methven shares will Principal risks Shares The principal risk to investors under the Share Offer is that they may not be able to recoup their original investment or that they may not receive the returns they expect.This could happen for a number of reasons including that: • The price at which the Methven shares trade may be lower than the price paid for them; • There is no ready market for Methven shares; • Methven does not have funds available to pay dividends; • Methven becomes insolvent or does not have sufficient assets to pay returns to holders of the Shares; • The operational and financial performance of Methven falls below expectation; and/or • The Company is placed in receivership, liquidation or statutory management. The Shares will be fully paid ordinary shares and holders of the Shares will have no liability to Methven for any further payment in respect of the Shares. Many factors will affect the market price of the Methven shares including economic conditions in New Zealand and elsewhere, the operational and financial performance of Methven, changes in government policies and regulations in countries where Methven operates and movements in interest rates or currency exchange rates. An investor in Methven shares will also be exposed to page eighty seven 16. Investment Statement - Answers to important questions CONTINUED develop or that the Methven shares will trade in any such market subsequent to completion of the Offer, at or above the Offer Price. Changes in taxation Any change to the rate of company income tax has the potential to impact on shareholder returns. Changes to the rates of income tax applying to individuals and/or trusts similarly will impact after-tax shareholder returns. Forward-looking statements Certain statements in the Offer Document constitute forward-looking statements, including the assumptions described on pages 51 to 53. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance and achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, general economic and business conditions, regulatory risk, labour relations and other factors presented in this Offer Document. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements. In addition, under no circumstances should the inclusion of such forward-looking statements in this Offer Document be regarded as a representation or warranty by the Company or the Selling Shareholders or any other person with respect to the achievement of the results set out in such statements, or that the underlying assumption used will in fact be the case.The Company disclaims any responsibility to update any such risk factors or publicly announce the result of any revisions to any of the forward-looking statements contained in this Offer Document to reflect future developments or events, other than where it is required to do so by the Securities Act, the Securities Regulations or the NZX Listing Rules. Consequences of insolvency and/or winding up Shares If Methven becomes insolvent, shareholders will not be liable to anyone for payment of any money. In these circumstances, Methven shareholders would not receive any return of money in respect of shares until Methven had paid all its other creditors, both secured and unsecured, including the costs of liquidation, receivership or statutory management. Any assets remaining after the payment of Methven’s debts would be distributed to Methven shareholders in proportion to their respective shareholdings and may not be sufficient to repay Methven shareholders in full. Senior Staff Options If Methven becomes insolvent, Option Holders would not be liable to anyone for payment of any money. Option Holders are not entitled to share in any assets of the Company. G. CAN THE INVESTMENT BE ALTERED? Share Offer The full terms of the Share Offer including the amounts payable on application for the Shares, are set out in this Offer Document in Section 3.Those terms may be altered by Methven by an amendment to this Offer Document, although after an Application for Shares has been accepted, those terms cannot be altered without investor consent. The rights attaching to the Shares are governed by the Companies Act 1993 and the Constitution.The Constitution may be altered by a special resolution of shareholders, subject to the rights of interest groups under the Companies Act 1993, or in certain circumstances by Court order. Section 117 of the Companies Act 1993 restricts a company from taking any action which affects the rights attached to the Shares unless that action has been approved by a special resolution of shareholders whose rights are affected by the action. Under certain circumstances, a shareholder whose rights are affected by a special resolution may require the company to purchase its Shares. page eighty eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT Senior Staff Option Offer The full terms of the Senior Staff Option Offer (including the amounts payable on exercise) are set out in Section 4.The terms of the Senior Staff Option Offer may be altered by Methven by an amendment to this Offer Document, details of which must be filed with the Registrar of Companies. However the terms of the Senior Staff Option Offer cannot be altered without investor consent after an application for Senior Staff Options has been accepted.The terms and conditions attaching to the Senior Staff Options are set out in the rules of the Senior Staff Option Scheme which are set out in full on pages 97 to 99.These cannot be altered if such alteration will substantially adversely affect the financial position of any Option Holder unless that Option Holder consents to such alteration or the alteration is consented to by at least 75% of all the current Option Holders. H. HOW DO I CASH IN MY INVESTMENT? Under the Companies Act 1993, Methven can cancel its shares under a reduction of capital, share buy-back or other form of capital reconstruction. Subject to this, neither the Methven shareholders, Methven, nor any other person has any right to terminate, cancel, surrender, or otherwise make or obtain payment of the returns from Methven shares, other than as referred to in this Offer Document under the section titled ‘What Returns Will I Get’ on page 86. Senior Staff Options The Senior Staff Options offered under the Senior Staff Option Offer will not be listed on the NZSX and cannot be transferred or cashed in. Option Holders wishing to cash in their Senior Staff Options will only be able to do so by exercising those Senior Staff Options in accordance with their terms and by selling the Methven shares issued upon such exercise. I.WHO DO I CONTACT WITH ENQUIRIES ABOUT MY INVESTMENT? Shares Shareholders in Methven will be able to cash in their investment by selling their shares. Methvens shares will be tradable subject to compliance with the Constitution and other relevant legislation and regulations (including the Takeovers Code, the NZX Listing Rules and applicable securities laws and regulations), and to the continuation of an active market. At the date of registration of this Offer Document, there is no established market for Methven shares. Application has been made to NZX for permission to list the Shares on the NZSX and all requirements of NZX relating thereto that can be complied with on or before the date of the distribution of this Offer Document have been duly complied with. However, NZX accepts no responsibility for any statement in this Offer Document. It is expected that the Shares will be quoted on the NZSX on or about 30 November 2004 and the Company is of the opinion that a ready market for Methven shares will develop. No charges are payable to Methven or any associated person of Methven on any such sale, although a shareholder may be liable to pay charges to other persons, such as brokerage fees. Enquiries about the Share Offer (or the Shares) can be directed to: The Methven Limited Share Offer BK Registries Limited 138 Tancred Street PO Box 384 ASHBURTON Phone: 03 308 8887 Facsimile: 03 308 1311 Enquiries about the Senior Staff Option Offer (or the Senior Staff Options) can be directed to: The Group Chief Executive Officer Methven Limited 447 Rosebank Road Avondale AUCKLAND Phone: 09 829 0429 Facsimile: 09 829 0439 page eighty nine 16. Investment Statement - Answers to important questions CONTINUED J. IS THERE ANYONE TO WHOM I CAN COMPLAIN IF I HAVE PROBLEMS WITH THE INVESTMENT? Complaints about either the Share Offer (or the Shares) or the Senior Staff Option Offer (or the Senior Staff Options) can be directed to: The Group Chief Executive Officer Methven Limited 447 Rosebank Road Avondale AUCKLAND Phone: 09 829 0429 Facsimile: 09 829 0439 There is no ombudsman to whom complaints can be made. K.WHAT OTHER INFORMATION CAN I OBTAIN ABOUT THIS INVESTMENT? A copy of this Offer Document, Methven’s financial statements (and other documents of or relating to Methven and the Offer) are also available for public inspection on the Companies Office public register at www.companies.govt.nz.The Companies Office may charge a fee for this service. Shareholders will receive periodic statutory reports relating to Methven, including an annual report containing Methven’s annual audited financial statements in respect of each financial year. OTHER INFORMATION Further information about the Share Offer, the Shares, the Senior Staff Option Offer and the Senior Staff Options, and further information about Methven, is contained or referred to in this Offer Document (which also contains a copy of Methven’s financial statements). Copies of this Offer Document and Methven’s most recent financial statements can be obtained free of charge by written request to: The Group Chief Executive Officer Methven Limited 447 Rosebank Road Avondale AUCKLAND Methven shareholders may obtain (free of charge) copies of Methven’s most recent annual report, its most recent financial statements (which will include, in relevant periods, a comparison of actual returns against the prospective financial information set out in this Offer Document) and this Offer Document by requesting such information in writing from: The Methven Limited Share Offer BK Registries Limited 138 Tancred Street PO Box 384 ASHBURTON Phone: 03 308 8887 Facsimile: 03 308 1311 Phone: 09 829 0429 Facsimile: 09 829 0439 page ninety METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 17. Statutory information The following includes, but is not limited to, particulars given pursuant to the First Schedule of the Securities Regulations 1983. STATUTORY INDEX AS REQUIRED BY REGULATION 5(6) OF THE SECURITIES REGULATIONS PAGE immediately prior to Allotment. 3. DETAILS OF INCORPORATION OF THE ISSUER 1. 2. 3. 4. 5. 5A. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22-38. 39. 40. 41. 42. Main Terms of Offer Name and Address of Offeror Details of Incorporation of Issuer Principal Subsidiaries of Issuer Directorate and Advisors Restrictions of Directors Powers Substantial Equity Securities Holders of Issuer Description of Activities of Issuing Group Summary of Financial Statements Prospects and Forecasts Provisions Relating to Initial Flotations Acquisition of Business and Subsidiary Securities Paid Up Otherwise than in Cash Options to Subscribe for Securities of Issuing Group Appointment and Retirement of Directors Directors Interests Promoters Interests Material Contracts Pending Proceedings Preliminary and Issuing Expenses Restrictions on Issuing Group Other Terms of Offer and Securities Financial Statements Places of Inspection of Documents Other Material Matters Directors Statements Auditors Report 92 92 92 92 92 92 93 93 93 93 93 94 94 94 94 94 95 95 95 95 95 95 95 95 95 96 96 Methven was incorporated under the provisions of the Companies Act 1993 (New Zealand) on 12 February 2001 in Auckland under registered number 1111463. The public file relating to Methven, including this Offer Document, can be viewed on the Companies Office website at www.companies.govt.nz. Where the relevant documents are not available on the website, a request for the documents can be made by contacting the Companies Office Contact Centre on 0508 266 726. 4. PRINCIPAL SUBSIDIARIES OF THE ISSUER At the date of this Offer Document the Company had the following subsidiaries whose total tangible assets exceed 5% of the amount of the total tangible assets of the Methven Group: • Methven Australia Pty Limited; and • Methven Voumard Pty Limited. At the date of this Offer Document the Company owns 60% of the issued share capital of Methven Australia and Methven Australia owns 100% of the issued share capital of Methven Voumard.As at Listing (following completion of the Methven Australia Minority Acquisition), the Company will own 100% of the issued share capital of Methven Australia. 5. DIRECTORATE AND ADVISORS 1. MAIN TERMS OF OFFER Methven is the issuer of the New Shares and the Senior Staff Options which are offered pursuant to this Offer Document. Methven has its registered office at 447 Rosebank Road,Avondale,Auckland. A description of the Shares (being the New Shares and the Existing Shares) and Senior Staff Options offered under this Offer Document, including the maximum number of Shares and Senior Staff Options being offered and the price to be paid for them is set out on page 83. 2. NAMES AND ADDRESSES OF OFFERORS The names, addresses and technical or professional qualifications of every Director are set out on pages 22 to 25. The names of the Directors employed directly by the Company are: • Rick Fala – Methven Group Chief Executive Officer; and • Johannes Krill – General Manager of Operations. No other Directors are employees of Methven or any of its subsidiaries. No Director has been adjudged bankrupt during the five years preceding the date of this Offer Document. The names of the Company’s auditors, securities registrar and any sharebrokers, bankers and solicitors who have been involved in the preparation of this Offer Document are set out in the Directory, on page 109. There are no experts named in this Offer Document, and the Offers of Shares and Senior Staff Options made under this Offer Document are not underwritten. 5A. RESTRICTIONS OF DIRECTORS POWERS In addition to the New Shares being offered for subscription by Methven, each of AMP Capital Investments No 11 Limited,AMP Capital Investments No 3 Limited, Colin Lindsay Bartlett, Richardson Moses Fala, Stuart George Gray, Johannes Krill and Gary Zirk Nel are offering the Existing Shares for sale pursuant to this Offer Document. Each such person is an issuer of the Existing Shares for the purposes of the Securities Act, subject only to the terms of the Securities Act (Methven Limited) Exemption Notice 2004, as described on page 95. The registered office of AMP Capital Investments No 11 Limited and AMP Capital Investments No 3 Limited is: Level 14 HP Tower 171 Featherston Street WELLINGTON The principal residence of each of Rick Fala, Colin Bartlett, Johannes Krill and Gary Nel is Auckland and the principal residence of Stuart Gray is Dunedin.They can each be contacted at (or through): Methven Limited 447 Rosebank Road There are no other modifications, exceptions or limitations on the powers of the Board imposed by the Constitution, other than those limitations and other requirements that apply to every company registered under the Companies Act 1993, or pursuant to the NZX Listing Rules, which require the approval of shareholders to various matters including major transactions, material transactions and related party transactions. The Companies Act 1993 contains a number of provisions which would have the effect or consequence, in certain circumstances, of restricting the powers of Directors. Such provisions are common to all companies registered under that Act, and include requirements that: • a major transaction (as defined in the Companies Act 1993) must have the approval of a special resolution of shareholders; • any action by the Company affecting the rights attached to any shares must be approved by special resolution of each interest group (as defined in the Companies Act 1993) affected; • distributions (including dividends) may not occur if the solvency test (as defined in the Companies Act 1993) is not satisfied; and • the board of Directors may not delegate certain powers conferred on it as specified in the Second Schedule of the Companies Act 1993. 6. SUBSTANTIAL EQUITY SECURITY HOLDERS OF ISSUER AUCKLAND Methven received the net amount of $0.05 per share in respect of the original allotment of the Existing Shares being offered for sale by each of the Selling Shareholders.These amounts have been calculated (where appropriate) taking into account the 20:1 share split to be undertaken page ninety two The following table sets out names of all registered holders of shares in the Company as at the date of registration of this Offer Document. None of these persons undertake any liability in respect of, or guarantee, the Shares or the Senior Staff Options offered pursuant to this Offer Document. METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT HOLDER NUMBER OF SHARES HELD AS AT DATE OF OFFER DOCUMENT PERCENTAGE HELD AS AT DATE OF OFFER DOCUMENT AMP Capital Investments No.11 Limited AMP Capital Investments No. 3 Limited Colin Lindsay Bartlett Richardson Moses Fala Stuart George Gray Johannes Krill Gary Zirk Nel Total NOTES 625,000(B) 31.25 375,000 (B) 200,000 200,000 200,000 200,000 200,000 2,000,000 18.75 10 10 10 10 10 100% securities held by AMP Capital Investments No 11 Limited; d) AMP Private Capital NZ Fund Limited has a beneficial relevant interest in the 375,000 voting securities held by AMP Capital Investments No 3 Limited; and e) AMP Capital Investors (New Zealand) Limited has a beneficial relevant interest in 1,000,000 voting securities (comprising the 625,000 voting securities held by AMP Capital Investments No 11 Limited and in the 375,000 voting securities held by AMP Capital Investments No 3 Limited). 7. DESCRIPTION OF THE ACTIVITIES OF THE ISSUING GROUP 1.The numbers of shares referred to in this table do not take account of the 20:1 share split which will take place immediately prior to Allotment, (as described on page 17). For details of the share structure of the Company as at the date of Listing, see Shareholding Structure on page 17. 2. As at the date of this Offer Document, all of the shares in Methven are designated as Class A ordinary shares, except those held by AMP Capital Investments No. 11 Limited and AMP Capital Investments No 3 Limited which are Class B ordinary shares. All shares carry equal voting and dividend rights. All Shares will, however, as at Listing, be designated as ordinary shares ranking equally with respect to dividends and voting rights. 3. On Listing, AMP Capital Investments No 11 Limited and AMP Capital Investments No 3 Limited will hold, in aggregate, 25% of the voting securities of Methven. An associate of these two persons, AMP Capital Investors (New Zealand) Limited (which, as at the date of this Offer Document, also has a relevant interest in more than 5% of the voting securities of Methven, as described below), is proposing to subscribe for Shares in the Share Offer, such subscription being pursuant to the Takeovers Code (Class Exemptions) Notice (No 2) 2001. Following any such subscription, as at (and beyond) the date of Listing, the maximum control percentage held by AMP Capital Investors (New Zealand) Limited and/or any of its associates (which include AMP Capital Investments No. 3 Limited, AMP Capital Investments No. 11 Limited, AMP Life Limited and AMP Private Capital NZ Fund Limited) will be, in aggregate, 33.2%. The business activities of the Company (carried out since Methven’s incorporation on 11 February 2001) and its subsidiaries, Methven Australia and Methven Voumard (carried out since their acquisition by Methven in June 2003) include the design, manufacture and sale of tap and showerware, domestic water control valves and gas flues and accessories. For more details on the activities of the Company (since Methven’s incorporation) and its subsidiaries (since their acquisition), see page 32. The principal fixed assets of Methven and its subsidiaries are: a) its business premises (at 447 Rosebank Road,Avondale in Auckland; 34 Teviot Street, Dunedin; and at 59 – 61 Banbury Road, Resevoir, Melbourne,Australia) which are held under lease, by Methven (or a subsidiary); and b) the plant and equipment, fixtures and fittings used by Methven or its subsidiaries when carrying on its business at the above premises, which are owned by Methven (or a subsidiary). 8. SUMMARY OF FINANCIAL STATEMENTS A summary of financial information for Methven and its subsidiaries prepared for the purposes of clause 8 of the First Schedule to the Regulations, and the information required by that clause, is set out on page 60. 9. PROSPECTS AND FORECASTS As required by Listing Rule 7.1.15, Methven has, not earlier than 30 days prior to the date of this Offer Document, made a written request pursuant to Sections 28 and 29 of the Securities Markets Act 1988 (as though Methven was already a public issuer within the meaning of that Act) requiring all registered and other holders of relevant interests (as defined in that Act) of 5% or more of voting securities in Methven to provide disclosure of: • any relevant interest; • the nature of that relevant interest; and • where the relevant interest is beneficial ownership, the consideration and other terms and conditions of any transaction under which that interest was acquired within two years before the date of this Offer Document. No person who received this request for disclosure has failed to provide the information requested. The information provided in response to these requests (as at 11 October 2004) is set out below: Non-beneficial relevant interests a) Capital Investments No 11 Limited is the registered legal owner of 625,000 of the voting securities and AMP Capital Investments No 3 Limited is the registered legal owner of 375,000 of the voting securities; b) Each of Colin Lindsay Bartlett, Richardson Moses Fala, Stuart George Gray, Johannes Krill and Gary Zirk Nel is the registered legal owner of 200,000 of the voting securities; Beneficial relevant interests c) AMP Life Limited has a beneficial relevant interest in the 625,000 voting Trading prospects of the Methven Group - The trading prospects of the Methven Group, together with any material information relevant to those prospects, in the Prospective Financial Information set out on pages 48 to 53 of this Offer Document. Trade factors and risks - Trade factors and risks which could materially affect the prospects of the Methven Group are described under the heading ‘Trade Factors and Risks’ on pages 55 to 58 and under the heading ‘What are my Risks?’ on page 87. Capital projects - One of the purposes of the Offer is to raise capital to allow the Company to fund the purchase of the 40% minority interest in Methven Australia (under the terms of the Methven Australia Minority Acquisition, further details of which are set out on page 16). Methven is undertaking the Methven Australia Minority Acquisition so as to consolidate control of its interests in the Australian market and remove the potential for conflicts of interest between Methven and the minority shareholders and is expected to financially benefit the Methven Group as a result. 10. PROVISIONS RELATING TO INITIAL FLOTATIONS Directors plans - The Directors’ plans for the Methven Group during the 12 month period commencing on the date of this Offer Document are set out on page 45.The sources of funds required for the implementation of these plans will be funds on hand, funds generated in the normal course of business and, if required, borrowed funds. Use of proceeds - The intended use of the proceeds of the Offer is set out on page 11. However those proceeds may, notwithstanding the stated Directors' plans, be applied towards any undertaking that the Company may lawfully engage in. Prospective statements of cash flows - Prospective statements of cash flows of the Methven Group (including the principal assumptions on which such cash flows are based) which the Directors expect to occur for the 12 month period following the date of this Offer Document are set out on pages 51 to 53. page ninety three 17. Statutory information CONTINUED For the purposes of section 37(2) of the Securities Act, the minimum amount that, in the opinion of the Directors, must be raised by Methven under the Share Offer in order to fund the purchase by Methven under the Methven Australia Minority Acquisition is $2.9 million (see further in Section 3,‘Use of Proceeds of the Share Offer’). 11. ACQUISITION OF BUSINESS OR SUBSIDIARY No business, subsidiary or body corporate has been acquired by the Company from any person at any time in the period of two years immediately preceding the date of registration of this Offer Document, where the consideration paid or payable for that acquisition was more than one-fifth of the amount of the total tangible assets of the Company as at 30 September 2004. 12. SECURITIES PAID UP OTHERWISE THAN IN CASH No equity or participatory securities have, in the period from the incorporation of Methven on 12 February 2001 to the date of this Offer Document, been issued or allotted, or subscribed for and are to be so allotted by any member of the Methven Group, as fully or partly paid up otherwise than in cash. 13. OPTIONS TO SUBSCRIBE FOR SECURITIES OF ISSUING GROUP The Senior Staff Option Offer is an offer of options to acquire shares in Methven upon the terms and conditions described in Section 4. Subject to those terms and conditions, each Senior Staff Option entitles the Option Holder (on exercise) to acquire one ordinary share in Methven ranking equally in all respects with all other ordinary shares on issue as at the date on which such Senior Staff Option is exercised, except for any dividend in respect of which the Record Date occurred prior to that date. No consideration is payable for the Senior Staff Options but an Exercise Price will apply for the Option Holders wishing to exercise their Senior Staff Options. The Exercise Price will vary depending on when, during the Exercise Period, a Senior Staff Option is exercised, as set out below: EXERCISE DATE EXERCISE PRICE Between 30 November 2006 and 29 November 2007 Between 30 November 2007 and 29 November 2008 Between 30 November 2008 and 29 November 2009 $1.65 $1.78 $1.91 The Senior Staff Options can only be exercised within the Exercise Period (commencing on 30 November 2006 and ending on 29 November 2009). The Senior Staff Options will lapse if they are not exercised by the end of the Exercise Period. All Senior Staff Options will be granted to persons who are employees of Methven or its subsidiaries of which: • 34,965 will be granted to principal officers of Methven or its subsidiaries (but not Directors of Methven or its subsidiaries); and • 242,659 will be granted to other employees. As at the date of Listing, there will be a total of 277,624 Methven shares under option. 14. APPOINTMENT AND RETIREMENT OF DIRECTORS No Director has been appointed in a manner that is materially different from that specified in Sections 153 and 155 of the Companies Act 1993. There are no rules in the Constitution relating to the retirement age of Directors. No person (other than the members of the Company in general meeting or Directors acting as a Board) has the right to appoint a Director or Directors. Directors have the power to appoint alternate Directors under the Constitution, subject to approval by a majority of the other Directors. No alternate Directors have been appointed as at the date of this Offer Document. 15. DIRECTORS’ INTERESTS Rick Fala and Johannes Krill are employed by Methven. Rick Fala is Group page ninety four Chief Executive Officer and Johannes Krill is General Manager of Operations. Both provide executive and management services to Methven and each is entitled to salary and other remuneration and benefits in respect of their employment by Methven. Their employment may be terminated by notice given by the employee or by Methven, in respect of Rick Fala, not less than 9 months and, in respect of Johannes Krill, of not less than 4 months although the Company may make payments in lieu of notice. In the case of redundancy each are entitled to a further payment of 3 months total remuneration. No other compensation is payable on termination. Methven contributes 15% of the annual base salary of each of Rick Fala and Johannes Krill to the superannuation fund nominated by them. Methven may make a payment of a lump sum or pension to a Director who ceases to hold office as a Director, or to a former Director in connection with such Directors retirement or cessation of office, or to any such Directors dependant if the payment, or the method of calculation of the amount of that payment is authorised by an ordinary resolution of shareholders. The Company has granted indemnities, to the fullest extent permitted by the Companies Act 1993, in favour of each of its Directors.The Company also maintains insurance for its Directors and officers to support such indemnities to the extent permitted by the Companies Act 1993. Material transactions a) On 12 February 2001, Methven (as lender) entered into a Shareholder Loan Agreement with each of Rick Fala and Johannes Krill (each as borrowers). Under each such Shareholder Loan Agreement Methven advanced $100,000 to the borrowers to enable them to buy Methven shares (as part of the 2001 MBO). Interest is payable on the advances at 10% per annum and the principal is repayable on demand (provided that no demand shall be made unless certain events occur, including where the respective borrower ceases to be employed by Methven for at least 20 hours per week (or the equivalent) or ceases to own legally or beneficially any of the shares so purchased). Repayment of the amounts outstanding under each Shareholder Loan Agreement is secured by a charge over the shares held by each of the borrowers.As at the date of Listing all amounts outstanding under each of the Shareholder Loan Agreements will be repaid in full and the security released. b) On 27 June 2003, Methven, with each of Tritech Investment Holdings (as trustee of the M&S Crichton Family Trust), Midhurst Services Pty Limited (as trustee of the Midhurst Trust), Graeme Crichton, Matthew Crichton and Ian Hore-Lacy, entered into a shareholders agreement relating to Methven Australia (the "Methven Australia Shareholders Agreement"). The same parties to the Methven Australia Shareholders Agreement have entered into an agreement for sale and purchase of shares in Methven Australia, as described further on page 16. Under or in accordance with the terms of the Methven Australia Shareholders Agreement: i) Methven acquired, from Graeme Crichton, the sole share in Methven Australia (and then subscribed for further shares in Methven Australia amounting to, in aggregate, 60% of the issued shares in Methven Australia); ii) Methven Australia acquired, from Graeme Crichton, the sole share in Methven Voumard; iii) Methven Australia acquired, from Crilacey Pty Limited (formerly Flexispray Pty Limited) under the terms of an agreement for sale of business assets dated 27 June 2003 (the ‘Flexispray Business Sale Agreement’), the business of the sale and distribution of plumbing and building products in Australia carried on by that company as at that date; and iv) Methven Voumard acquired, from Crilacy Sheet Metal Pty Limited under the terms of an agreement for sale of business assets dated 27 June 2003 (the ‘Voumard Business Sale Agreement’), the business of the sale and distribution of plumbing and building products in Australia carried on by that company as at that date. METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT The consideration payable by Methven under the Methven Australia Shareholders Agreement for the sole share in Methven Australia was A$1 (being equal to the cost to the vendor on acquisition of such share).The consideration payable (by Methven Australia and Methven Voumard) under the Flexispray Business Sale Agreement and the Voumard Business Sale Agreement (respectively) was, in aggregate, A$2.245 million.The vendors under the Flexispray Business Sale Agreement and the Voumard Business Sale Agreement originally acquired the relevant assets (under both such agreements) in 1987, at a total cost of approximately A$240,000.There has been significant investment in and development of the business since 1987. c) On 16 September 2004, Methven Australia (as lessee) has entered into a lease of real estate at 57-59 Banbury Road, Reservoir, Melbourne, Australia (being the principal business premises of Methven Australia), for a term expiring on 30 June 2005.The landlord (and lessor) under the lease is G & J Crichton Pty Limited, being a company more than 50% of the shares in which are held, directly or indirectly, by Graeme Crichton (director of Methven Australia and Methven Voumard).The rental payable under this lease is consistent with market rates and is payable monthly in advance, plus operating expenses. G & J Crichton Pty Limited acquired the property that is the subject of the lease in 1990. d) On 16 September 2004, Methven Voumard (as lessee) has entered into a lease of real estate at 61-63 Banbury Road, Reservoir, Melbourne, Australia (being the principal business premises of Methven Voumard), for a term expiring on 30 June 2005.The landlord (and lessor) under the lease is G & J Crichton Pty Limited, being a company more than 50% of the shares in which are held, directly or indirectly, by Graeme Crichton (director of Methven Australia and Methven Voumard). The rental payable under this lease is consistent with market rates and is payable monthly in advance, plus operating expenses. G & J Crichton Pty Limited acquired the property that is the subject of the lease in 1981. Other than as noted above, no material transactions have been entered into in the period since Methven's incorporation and the specified date (or are to be entered into) between Methven or any of its subsidiaries and any of its Directors or any of the persons specified in paragraph 15 of the First Schedule to the Securities Regulations. 16. PROMOTERS’ INTERESTS Except as detailed above, there are no material contracts (other than contracts in the ordinary course of business) which have been entered into by the Company or any of its subsidiaries at any time in the last two years preceding the date of registration of this Offer Document. 18. PENDING PROCEEDINGS There are no legal proceedings or arbitration pending at the date of the registration of this Offer Document that may have a material adverse effect on the Company or its subsidiaries. 19. PRELIMINARY AND ISSUING EXPENSES Issue expenses, including brokerage, lead management fees, legal and accounting fees, advertising, printing and other costs incurred by the Company in making the Share Offer and the Senior Staff Option Offer are estimated at $1,650,000, approximately $778,000 of which is to be paid by the Company. Details of brokerage and any other commissions payable in respect of the Share Offer and the Senior Staff Option Offer are set out on page 12. 20. RESTRICTIONS ON THE ISSUING GROUP The Methven Group has a (secured) debt facility in place with Bank of New Zealand which will remain in place following completion of the Offer. The terms of the debt facility include usual financial covenants in relation to borrowings but with no right to further borrowings without approval from the lender. Other than this there are no restrictions on Methven or its subsidiaries from making a distribution, or borrowing that result from any undertaking given to, or contract or deed entered into by Methven or its subsidiaries. 21. OTHER TERMS OF OFFER AND SECURITIES All other terms of the Offer, and all the terms of the Shares and Senior Staff Options being offered, are set out in this Offer Document except for those implied by law or set out in a document that is registered with a public official and is available for public inspection and is referred to in this Offer Document. 22-38. FINANCIAL STATEMENTS The information required by clauses 22 to 38 (inclusive) of the First Schedule to the Securities Regulations 1978 is contained in Section 15 on pages 60 to 81. 39. PLACES OF INSPECTION OF DOCUMENTS Pencarrow Private Equity Limited and each of its directors are the promoters of the securities offered in this Offer Document. No material transaction has been entered into in the period since Methven's incorporation and the date of this Offer Document (or is to be entered into) between Methven and the Promoters or between any of the persons specified in paragraph 16 of the First Schedule to the Regulations. 17. MATERIAL CONTRACTS The Constitution and the material contracts referred to in paragraph 17 of this Statutory Information section are available for public inspection either on the Companies Office electronic register at (www.companies.govt.nz) or, without payment of any fee, at the registered office of the Company (447 Rosebank Road,Avondale,Auckland) until the date on which the Offer closes.The Companies Office may charge a fee for inspection of certain documents. 40.OTHER MATERIAL MATTERS a) On 27 June 2003 Methven, with each of Tritech Investment Holdings Pty Limited (as trustee of the M&S Crichton Family Trust), Midhurst Services Pty Limited (as trustee of the Midhurst Trust), Graeme Crichton and Matthew Crichton, entered into the Methven Australia Shareholders Agreement (under which Methven acquired 60% of the shares on issue in Methven Australia). On or about the same day, Methven Australia entered into the Flexispray Business Sale Agreement (under which Methven Australia acquired the Flexispray business). Further details of the Methven Australia Shareholders Agreement and the Flexispray Business Sale Agreement are described in paragraph 15 above. b) On 2 November 2004 Methven (as purchaser) with Tritech Investment Holdings Pty Limited and Midhurst Services Pty Limited (as vendors) entered into an agreement for sale and purchase of shares in Methven Australia under which Methven agreed to purchase the remaining 40% of the shares in Methven Australian for the purchase price of $2.9 million.The purchase price is payable in cash on completion, which will take place immediately on completion of the allotment/transfer of Shares under the Share Offer.This transaction (being the Methven Australia Minority Acquisition) is described in more detail on page 16. a) Securities Act (Methven Limited) Exemption Notice 2004 Methven has applied for and has been granted exemptions from regulation 3(1) and regulation 7A(1) of the Regulations to the extent that those provisions require the Offer Document (being a combined registered prospectus and investment statement) to contain information about the Selling Shareholders as issuers of the Existing Shares. However, subject only to such exemptions, each of the Selling Shareholders remains an issuer of the Existing Shares and each have obligations as issuers under the Securities Act and the Securities Regulations. The Securities Commission considered it appropriate to grant the exemptions because: i) where Part II of the Securities Act applies to an offer of the Existing Shares (being,‘previously allotted securities’) both the person offering the securities and the original allotter of the securities have a responsibility for the offer as issuers; ii) information relating to the Selling Shareholders may not be useful to potential investors in considering whether to subscribe for Shares under the Share Offer and may be confusing; and page ninety five 17. Statutory information CONTINUED iii) the Selling Shareholders remain legally responsible as issuers (as noted above). b) Standstill Agreements Each of the Existing Shareholders have agreed, by way of a deed between each such person, Methven and the Lead Manager, that they will hold and/or beneficially own the Restricted Securities from the date of Listing to the date that is six weeks after the announcement of the financial results of Methven for the financial year ending 31 March 2005 and will not, during that period, among other things: (i) dispose of or agree to dispose of any of the Restricted Securities, or any right or interest in any of the Restricted Securities; or (ii) create or agree to create any security interest over the Restricted Securities, without the prior consent of the Company and the Lead Manager. ‘Restricted Securities’ are the number of shares that the relevant shareholder holds in Methven (legally or as a beneficiary) as at the date of Listing. The Standstill Agreement entered into by AMP Capital Investments No 3 Limited and AMP Capital Investments No 11 Limited has also been entered into by NZX (as a Security Agreement for the purposes of the NZX Listing Rules) and if either such shareholder wishes to take any action that would otherwise be in breach of the terms of the Standstill Agreement, it must obtain the prior consent of each the Company, the Lead Manager and NZX. c) Vendor Securities The vendors (or their nominees) under the Methven Australia Minority Acquisition (as described in more detail on page 16) will, on completion of the Offer (and Listing) hold 990,751 shares in Methven (being Vendor Securities as that term is defined in the NZX Listing Rules) and from the date of Listing to the date that is six weeks after the announcement of the financial results for the financial year ending 31 March 2005 will be subject to restrictions on their ability to transfer Vendor Securities, such restrictions being on the same terms as the Standstill Agreements (referred to in (b) above). d) Senior Staff Share Offer The Selling Shareholders will make offers of 277,624 (in aggregate) of the shares held by them as at the date of this Offer Document to Eligible Senior Staff under the Senior Staff Share Offer, such offers being intended as a means to encourage such Senior Staff to become directly involved in the future of Methven and its business. No Director of Methven or director of any member of the Methven Group will be offered shares under the Senior Staff Share Offer.The purchase price of shares purchased by Eligible Senior Staff under the Senior Staff Share Offer will be the Offer Price, less a discount of between 10% and 20% to the Offer Price depending on the total number of shares applied for. The maximum number of shares an Eligible Senior Staff member may apply for under the Senior Staff Share Offer is that number of shares that has a gross purchase price of $50,000.The discount to the purchase price for shares acquired under the Senior Staff Share Offer will only apply where the value of the shares applied for equals or exceeds $10,000 gross. The Senior Staff Option Offer is linked to the Senior Staff Share Offer, in that Methven will make a personal offer to Eligible Senior Staff of one Senior Staff Option for each share applied for by that person under the Senior Staff Share Offer.The terms of the Senior Staff Options and the Senior Staff Option Offer are described in full elsewhere in this Offer Document. Eligible Senior Staff are not restricted in their ability to transfer the shares they acquire under the Senior Staff Share Offer, but if any such share is transferred before the exercise of the Senior Staff Option that relates to such share then such Senior Staff Option will lapse. Shares purchased under the Senior Staff Share Offer will be fully paid ordinary shares ranking equally with all other shares on issue as at the date of Listing and, except as noted above, holders of such shares will have the same rights and obligations as a holder of shares acquired under the Share Offer. page ninety six e) Option to purchase property at 53-55 Banbury Road, Reservoir, Melbourne, Australia On 1 August 2004, Methven Australia and AJ Richardson and Son Pty Limited entered into an agreement under which Methven Australia has an option to purchase the property at 53-55 Banbury Road, Reservoir, Melbourne for the sum of A$370,000, plus GST.The price payable by Methven Australia to acquire such option (A$50,000) will be treated as a deposit if Methven Australia chooses to proceed with the purchase of the property (although will be forfeited if Methven chooses not to proceed with the purchase). Methven Australia has until 7 January 2005 to exercise its option. If Methven Australia decides to proceed with the purchase of the property at 53-55 Banbury Road, it proposes to build warehousing facilities to meet the present and future needs of Methven Australia but then to sell the property and enter into a lease agreement with the purchaser under which Methven Australia will continue to occupy the premises on the terms of such lease.The purchase price of the property and the anticipated cost of development of the site are incorporated into the Prospective Financial Information appearing in Section 13 of this Offer Document. Other than described above, there are no material matters relating to the offer of Shares or Senior Staff Options in this Offer Document other than matters elsewhere set out in this Offer Document and contracts entered into in the ordinary course of business of the Company or its subsidiaries. 41. DIRECTORS’ STATEMENT The Directors, after due enquiry by them in relation to the period between the date of the latest balance sheet set out in this Offer Document and the date of registration of this Offer Document, are of the opinion that no circumstances have arisen that materially adversely affect the trading or profitability of the Company or its subsidiaries, the value of the assets of the Company or its subsidiaries, or the ability of the Company or its subsidiaries to pay its liabilities due within the next 12 months. 42. AUDITOR’S REPORT A copy of the auditors report required by clause 42 of the First Schedule to the Securities Regulations is set out in Section 15. As the Company was incorporated on 12 February 2001, no historical financial information has been disclosed preceding the thirteen month period ended 31 March 2002. This Offer Document was signed by or on behalf of the Directors of the Company (as issuer), the Selling Shareholders (including the directors of AMP Capital Investments No. 3 Limited and the directors of AMP Capital Investments No. 11 Limited (as issuers)) and the Promoters when it was delivered to the Registrar of Companies for registration. Methven Limited and its directors (as Issuer) R G Cutfield R M Fala P V Lough J Krill P J D Stanes The Selling Shareholders (as Issuers) C L Bartlett S G Gray R M Fala J Krill G Z Nel AMP Capital Investments No 11 Limited (and its directors) C M Savage M I D Gribben AMP Capital Investments No 3 Limited (and its directors) C M Savage M I D Gribben Pencarrow Private Equity Limited and its directors (as Promoters) R G Cutfield S Beck R Gethen M McGuinness L Morrison M McDougall METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 18. Rules relating to the Methven 2004 Share Option Scheme (The ‘Rules’) 1. INTRODUCTION 1.1 Name: The name of this scheme is the Methven 2004 Share Option Scheme. 1.2 Purpose: The Scheme is intended to create incentives for, and enable the Company and its Subsidiaries to attract and/or retain, key persons connected to the Company and its Subsidiaries, by conferring on them a right to participate in the equity of the Company. 1.3 Defined Terms: Further definitions specific to this Scheme are set out in clause 9. 2. OFFER OF OPTIONS 2.1 Content of Offer: The Company may make an offer of Options to an Eligible Person. Each offer shall: 2.1.1 be in writing; 2.1.2 enclose details of the Scheme; 2.1.3 specify the Entitlement of the Eligible Person; 2.1.4 specify the number of tranches (if any) of the Options; 2.1.5 specify the Exercise Period or Exercise Periods for exercise of the Options, including tranches (if any) of the Options; 2.1.6 specify the conditions (if any) which must be satisfied before the Options may be exercised; 2.1.7 specify the Exercise Price or Exercise Prices payable for exercise of the Options; 2.1.8 specify the minimum number or multiple of a number of Options for exercise of the Options; and 2.1.9 specify (having regard to clause 3.1) the date by which the offer of Options must be accepted. 2.2 Maximum Number: The maximum number of Options to be offered to any Eligible Person under the Scheme in any 12 month period shall be determined by the Company. 3. ACCEPTANCE OF OFFER OF OPTIONS 3.1 Response: An Eligible Person who wishes to accept an offer of Options must return to the Company a completed acceptance of the offer and completed Scheme Member Undertaking, by the Closing Date. 3.2 Acknowledgement: In accepting an offer of Options, an Eligible Person acknowledges that: 3.2.1 the terms of the Scheme are binding on him or her; and 3.2.2 participation in the Scheme does not affect the terms of the Eligible Person's employment (if any) or prospective employment (if any). In no event shall the Company be deemed, by making an offer of Options, to have represented that any employment or prospective employment shall continue until, during and/or beyond the Exercise Period. 3.3 Grant: On receipt of acceptance of an offer of Options from an Eligible Person the Company shall grant Options, and send an Option Certificate, as soon as practicable to the Scheme Member. 4. EXERCISE OF OPTIONS 4.1 Exercise: Subject to clauses 4.2 and 4.3, Options may be exercised on any Business Day during the Exercise Period provided that no Option shall be exercisable where: 4.1.1 the Company considers that its exercise is not permitted by the Rules; or 4.1.2 there has been a Lapse Event prior to the Exercise Date for that Option; or 4.1.3 the Ordinary Share which corresponds to that Option as set out in the Option Certificate has been sold, assigned, transferred, mortgaged, pledged, charged, subjected to a declaration of trust, or otherwise disposed of or alienated (whether in relation to the legal or the beneficial interest) by the Scheme Member prior to the Exercise Date for that Option; or 4.1.4 any other conditions that must be satisfied before exercise as have been specified by the Company pursuant to clause 2.1.6 have not been satisfied; or 4.1.5 the Option has expired under clause 5. 4.2 Insider Trading: Notwithstanding clause 4.1, Options may only be exercised in the periods contemplated by the Insider Trading (Approved Procedure for Company Officers) Notice 1996, or other relevant insider trading laws. If the final day in the Exercise Period does not fall within one of these periods, then the final date for exercise shall be extended to the fifth Business Day after the commencement of the next such period. 4.3 Exercise Notice: Subject to clause 5 and the terms of grant of Options, a Scheme Member may exercise part or all of the Options (subject to any minimum number or multiple of a number of Options prescribed by the Company from time to time and advised in the offer of Options), by a notice in writing to the Company in such form as the Company may from time to time specify, detailing the Options exercised. 4.4 Payment: Contemporaneously with the exercise notice provided under clause 4.3, on the Exercise Date the Scheme Member shall remit to the Company the Exercise Price payable in respect of the Options exercised and surrender the relevant Option Certificate. If fewer than all the Options comprised in a certificate are exercised, a replacement Option Certificate shall be issued for the remaining Options. 4.5 Minimum Number: The minimum number of Options that may be exercised on any one occasion shall be the lesser of 1,000 Options or the balance then remaining. 4.6 Issue: Subject to the provisions of clause 6, within 5 Business Days after the date on which the Company receives payment of the relevant Exercise Price and the relevant Option Certificate under this clause 4, the Company shall issue, transfer or procure the transfer of Ordinary Shares to the Scheme Member, unless this clause 4 precludes the exercise of Options (in which case, the Company shall give notice to the Scheme Member accordingly, refund the Exercise Price (without interest) and return the Option Certificate). 4.7 Company's Notice: The Company shall give a further notice to a Scheme Member who has been precluded pursuant to clause 4.2 from exercising an Option, as soon as it considers that the exercise would no longer be precluded. 4.8 Ranking: Subject to the provisions of clause 6, Ordinary Shares issued or transferred to a Scheme Member pursuant to the exercise of an Option shall be credited as fully paid and shall rank equally in all respects with all other Ordinary Shares on issue at the Exercise Date, except for any dividend in respect of which the Record Date occurred prior to the Exercise Date. 4.9 Rights Issue: In the event that there is a rights issue prior to the Exercise Date, the Exercise Price shall be reduced in accordance with the formula stipulated by Listing Rule 8.1.7. 4.10 Bonus Issues etc: If there is a bonus issue to the holders of the Ordinary Shares, the number of Ordinary Shares to be received on the exercise of an Option shall be increased (or additional Ordinary Shares may be reserved for issue on exercise of an Option) by the page ninety seven 18. Rules relating to the Methven 2004 Share Option Scheme (The ‘Rules’) CONTINUED number of Ordinary Shares which the Scheme Member would have received if that Option had been exercised before the Record Date for the issue. 4.11 Proportionate Reconstruction: If there is a consolidation or subdivision or similar proportionate reconstruction of the Ordinary Shares, the number of Ordinary Shares to be received on the exercise of an Option may be consolidated or subdivided in the same ratio and the Exercise Price amended in inverse proportion to that ratio. 4.12 Notice: The Company shall give notice of any adjustment to the number of Ordinary Shares to be received on the exercise of Options to all Scheme Members affected. 5. EXPIRATION OF OPTIONS 5.1 Exercise Period Passed: Subject to clause 4.2, an Option shall expire on the expiry of the Exercise Period for such Option. 5.2 Lapse Event: An Option shall expire (subject to a determination by the Board to the contrary) on the occurrence of a Lapse Event. 5.3 Exercise: Nothing in this Scheme as to expiry of an Option shall apply to an Option which has been exercised. 6.VESTING OF SHARES 6.1 Ordinary Shares issued or transferred as the result of the exercise of an Option shall immediately vest in and be issued or transferred to the Scheme Member and shall not in any way be subject to the provisions of the Scheme. 7. MISCELLANEOUS 7.1 Amendment: The Company may from time to time modify or amend all or any of the provisions of the Scheme or the Rules and any such modification or amendment shall be embodied in a Deed executed by the Company and forwarded to all Scheme Members, provided that no modification or amendment may be made which shall substantially adversely affect the financial position of any Scheme Member unless that Scheme Member consents to the modification or amendment or the modification or amendment is consented to in writing by at least 75% of all then current Scheme Members holding Options under the Scheme. 7.2 Spirit of the Scheme: If any circumstance arises which might result in the spirit and intent of the Scheme not being fulfilled, the Company shall use all reasonable endeavours to effect any modification to the Scheme required to preserve that spirit and intent. 7.3 Fractions: If a calculation or adjustment under the Scheme produces a fraction of a cent or Ordinary Share, the product shall be rounded to the nearest whole number favourable to the Scheme Member. 7.4 Delay: No failure, delay or indulgence by the Company in exercising any power or right conferred on it under the Scheme shall operate as a waiver of that power or right nor shall a single exercise of a power or right preclude further exercises of or the exercise of any other power or right under the Scheme. 7.5 Quotation: The Company shall not apply, or be required to apply, for quotation of an Option on the NZX nor does the Company undertake to remain listed on the NZX and/or have Ordinary Shares quoted on the NZX. 7.6 Disputes: Any dispute or difference affecting the issue or exercise of the Options shall be determined by the Company whose decision shall be final and binding in all respects. 7.7 Dispute Resolution: 7.7.1 Written Notice: In the event of a dispute concerning the provisions of this Scheme or any Rules arising between a Scheme Member and the Company, then the person claiming that a dispute has arisen must give written notice to the other specifying the nature of the dispute (‘Dispute Notice’). 7.7.2 Mediation: Any person sending or receiving a Dispute Notice (‘Party’) may require any dispute, which has not been resolved within 10 Business Days of the date of the Dispute Notice, to be referred to mediation. The mediator shall be appointed by both Parties, or failing agreement within 5 Business Days of the date of reference to mediation, appointed by the Chairperson of the New Zealand Chapter of Lawyers engaged in Alternative Dispute Resolution. The mediator shall conduct the mediation in accordance with the guidelines agreed between the Parties or, if the Parties cannot agree within 10 Business Days following appointment of the mediator, in accordance with the guidelines set by the mediator. The costs and expenses of the mediator shall be shared by the Parties equally. 7.7.3 Arbitration: In the event that the dispute is not resolved by mediated agreement or otherwise within 30 Business Days of the date of the Dispute Notice, either Party may by written notice served on the other Party require the dispute to be determined by the arbitration of a single arbitrator. The arbitrator shall be appointed by the Parties or, failing agreement within 5 Business Days of service of the date of reference to arbitration, shall be appointed at the request of either Party by the president or vice-president for the time being of the Auckland District Law Society. The arbitration shall be conducted as soon as possible in accordance with, and subject to the provisions of, the arbitration statutes for the time being in force in New Zealand. 7.8 Correspondence: Any correspondence from a Scheme Member to the Company or the Board concerning the Options shall be delivered or posted to the registered office of the Company or to such other address as may be notified by the Board in writing. Any correspondence from the Company or the Board to a Scheme Member concerning the Options shall be delivered to the Scheme Member or posted to the Scheme Member's last known residential address. 7.9 Employment: If a Scheme Member is an Employee, he or she acknowledges in acceptance of an offer of Options that nothing in the Scheme or issue of the Options is relevant to his or her employment terms. 7.10 Employment Rights: A Scheme Member waives any rights to compensation or damages in consequence of the termination of his or her employment (if any) with the Company or any Subsidiary for any reason whatsoever insofar as those rights arise, or may arise, from his or her ceasing to be entitled to any Options as a result of such termination. page ninety eight METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 8. NOTICES 8.1 Method of Delivery: Any notice or other communications required or permitted under this Scheme and any Rules shall be sufficiently given if in writing and personally delivered or sent by facsimile, post, or by courier, addressed, if to the Company, as follows, or to such other address as the Company shall have given notice of under this Scheme: If to the Company: Address: Methven Limited 447 Rosebank Road Avondale AUCKLAND Attention: Group Chief Executive Officer Telephone number: 09 829 0429 Facsimile number: 09 829 0439 8.2 Change of Details: The notice details given in clause 8.1 may be varied by the Company as appropriate at any time by notice given in accordance with that clause. 8.3 Receipt: Any notice or demand given by either party to the other shall be conclusively deemed to be received by the intended recipient: 8.3.1 in the case of delivery by hand, when actually delivered; 8.3.2 in the case of delivery by post, on the third Business Day after posting; 8.3.3 in the case of facsimile, on the Business Day on which it is despatched or, if despatched on a Non-Business Day or after 5pm (in the place of receipt) on a Business Day, on the next Business Day after the date of despatch. 9. INTERPRETATION In this Schedule, unless the context otherwise requires: ‘Board’ means the board of directors for the time being of the Company; ‘Business Day’ means a day on which the NZX is open for trading; ‘Closing Date’ means the date on which the Initial Public Offer closes; ‘Company’ means Methven Limited; ‘Eligible Person’ means any person whom the Company determines from time to time in its absolute discretion shall be eligible to become a member of a Scheme provided that such person is: a) a person employed by the Company or any Subsidiary; b) a director of the Company or of any Subsidiary; c) a person including an agent, contractor or representative who provides personal services exclusively to the Company or any Subsidiary; ‘Employee’ means a person who, at the date of offer of Options, is an employee of the Company or any Subsidiary; ‘Entitlement’ means the number of Options to be granted to an Eligible Person, which shall be one Option for each Ordinary Share subscribed for and issued to that Eligible Person pursuant to the Management Offer; ‘Exercise Date’ means the date on which an Option is exercised; ‘Exercise Period’ commencing on 30 November 2006 and ending on 29 November 2009; ‘Exercise Price’ in relation to an Option exercised between 30 November 2006 and 29 November 2007 means $1.65, in relation to an Option exercised between 30 November 2007 and 29 November 2008 means $1.78 and in relation to an Option exercised after 29 November 2008 means $1.91; ‘Initial Public Offer’ means the 2004 initial public offer of Ordinary Shares in the Company; ‘Lapse Event’ means the occurrence of an event by which a Scheme Member who (at the date of offer of the relevant Option) is an Employee ceases to be an Employee for any reason whatsoever (including but without limitation, death, normal retirement or resignation, ill health, accident or redundancy, or termination by the Company for cause) provided that the Board may, in its absolute discretion, determine that any given circumstances do not constitute a Lapse Event; ‘Listing Rules’ means the Listing Rules of the NZX; ‘Management Offer’ means the offer of Ordinary Shares and Options made to Eligible Persons by certain shareholders of the Company as at the date of this deed to be made contemporaneously with the Company's Initial Public Offer; ‘Options’ means options to acquire Ordinary Shares granted by the Company to an Eligible Person in accordance with the provisions of the Scheme; ‘Option Certificate’ means a certificate evidencing Options, including the Schedule (if any) to such certificate; ‘Ordinary Shares’ means ordinary shares in the capital of the Company; ‘Record Date’ bears the same meaning as it bears in the Listing Rules; and ‘Scheme’ means the Methven 2004 Share Option Scheme; ‘Scheme Member’ means an Eligible Person who has become a member of the Scheme; ‘Scheme Member Undertaking’ means a document which refers to the Scheme and contains an undertaking by a Scheme Member to comply with the terms and conditions of the Scheme and to observe and perform his or her obligations under the Scheme, in or substantially in the form set out in the Schedule to these Rules or in such other form as may be required by the Company from time to time; ‘Subsidiary’ means a subsidiary of the Company as that term is defined by the Companies Act 1993; page ninety nine 19. Glossary of terms The terms and phrases described in this glossary apply to this Offer Document that accompanies it. A$ or AUD Allotment means Australian Dollars. means the allocation, allotment and/or transfer of the Shares and/or Senior Staff Options on or about 29 November 2004 (or such other date as the Company may determine). means AMP Capital Investors (New Zealand) Limited. means the Board of Directors of Methven Limited. means a day on which the NZSX is open for trading. means 5:00 pm 26 November 2004 or such other date as determined by the Company or the Lead Manager. means Methven Limited. means the constitution of Methven to be adopted prior to Listing. means a Director of the Company (and Directors is to be construed accordingly). means earnings before interest and tax. means earnings before interest, tax and amortisation. means earnings before interest, tax, depreciation and amortisation. means those employees of the Company (or any subsidiary) who have been offered Options pursuant to the Senior Staff Option Offer. means the 14,127,971 Shares in the Company offered by the Selling Shareholders pursuant to this Offer Document. means each of AMP Capital Investments No.11 Limited, AMP Capital Investments No.3 Limited, Colin Lindsay Bartlett, Richardson Moses Fala, Stuart George Gray, Johannes Krill, Gary Zirk Nel, and/or the trustees of any trusts to whom such individuals may have transferred their shares prior to Listing and where such individuals are beneficiaries of such trusts. means prospective financial information prepared on the basis of assumptions as to future events which the Directors expect to take place and the actions they expect to take as of the date the financial information was prepared. means Financial Year for the year stated. means ABN AMRO Craigs Limited. means the listing and quotation of the Company’s Shares on the NZSX, expected to be on or about 30 November 2004. means the AMP Capital-backed Management Buy Out of Methven Ltd from MCK Group Pty Limited in 2001. means Methven Limited. means Methven and each of its subsidiaries. means Methven (Australia) Pty Limited and each of its subsidiaries. means the acquisition by Methven, immediately prior to Listing, of the remaining 40% of Methven Australia, details of which are set out on page 16. AMP Capital Board Business Day Closing Date Company or Parent Constitution Director EBIT EBITA EBITDA Eligible Senior Staff Existing Shares Existing Shareholders Forecasts FY Lead Manager Listing Management Buy Out or MBO Methven Methven Group or Group Methven Australia Methven Australia Minority Acquisition page one hundred METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT New Shares means the 11,188,811 million Shares to be issued in and offered by the Company pursuant to this Offer Document. means Net Profit After Tax means the main board operated by New Zealand Exchange Limited. means New Zealand Exchange Limited. means a sharebroking firm authorised to trade shares on the NZSX. means the Listing rules of the NZSX, as they apply from time to time. means the offers of the New Shares and the Existing Shares and the Senior Staff Options made pursuant to this Offer Document. means the date of this Offer Document. means this combined registered prospectus and investment statement dated 4 November 2004. means the price payable by a subscriber for a Share applied for under the Share Offer. means an Eligible Senior Staff Member who has accepted an offer of Senior Staff Options under the Senior Staff Option. means Offer Price per Share divided by earnings per share. means Pencarrow Private Equity Limited and each of its directors. means Plumbers and Craftsmen Plumbers registered with the NZ Plumbing Board at the Offer Date. means the Methven 2004 Share Option Scheme and each of its directors. means the agreement entered into by AMP Capital Investment No. 3 Limited, AMP Capital Investment No. 11 Limited with the Company, the Lead Manager and the NZX dated on or about 2 November 2004. means each of AMP Capital Investments No.11 Limited, AMP Capital Investments No.3 Limited, Colin Lindsay Bartlett, Richardson Moses Fala, Stuart George Gray, Johannes Krill, Gary Zirk Nel. means an option to acquire one share pursuant to the Senior Staff Option Scheme. means the offer of Senior Staff Options to Eligible Senior Managers under this Offer Document. means offers by the Selling Shareholders made to Eligible Senior Staff for the sale of 277,624 Shares in the Company made contemporaneously with the Offer. NPAT NZSX NZX NZX Firm NZX Listing Rules Offer Offer Date Offer Document Offer Price Option Holder Price to Earnings Ratio Promoters Registered Plumbers Scheme Security Agreement Selling Shareholders Senior Staff Option Senior Staff Option Offer Senior Staff Share Offer Senior Staff Application Form means the application form for shares under the Senior Staff Share Offer and Senior Staff Option Offer provided with the individual offers made personally by Methven to Eligible Senior Staff. Share Application Share Application Form Share Offer Share Registrar Share means an application by an investor for shares under the Share Offer. means the Share Application Form appearing on pages 105 and 107 of this Offer Document. means the offer of Shares under this Offer Document. means BK Registries Limited. means each or any of the New Shares and each or any of the Existing Shares, and Shares has a corresponding meaning. means the dividend declared and paid by Methven prior to Listing (by reference to a Record Date of 2 November 2004, and as described on page 16). Special Dividend page one hundred and one 20. Instructions and Terms and Conditions of Senior Staff Option Application - Employees only 1. Applications for Senior Staff Options made under the Senior Staff Option Offer must be made on the Application Form included with the personal offer made by Methven to Eligible Senior Staff members (for shares under the Senior Staff Share Offer and Senior Staff Options under the Senior Staff Option Offer). 2. Read the Offer Document carefully before applying. 3. List your full name, contact address and telephone details. At least one full first name and surname are required for each natural person. 4. Enter your Inland Revenue Department number. If it is a joint application, only one Inland Revenue Department number is required. 5. Applications for shares under the Senior Staff Share Offer must be for that number of shares offered pursuant to an individual offer of shares made under the Senior Staff Share Offer. Payment for any shares so applied for is required in full on application. 6. If you wish to apply for Senior Staff Options under the Senior Staff Option Offer you will need to tick the appropriate box on the Application Form. By ticking this box you will be applying for the same number of Senior Staff Options as you applied for in relation to shares under the Senior Staff Share Offer. 7. Read the declaration carefully and sign and date the Application Form before a witness. The witness will also be required to sign the Application Form and enter his or her full name and address. 8. The completed application form, together with a cheque for the full amount of shares applied for, made out to Methven Limited, should be mailed or delivered to Methven Limited no later than 5:00pm on 26 November 2004. 9. Cheques should be made out to ‘Methven Limited Share Offer’ and crossed ‘Not Transferable’. TERMS AND CONDITIONS OF APPLICATIONS A. By signing the Application Form the applicant acknowledges that his or her application for Senior Staff Options is made subject to the terms and conditions below and as set out in the Offer Document. SENIOR STAFF OPTIONS B. Applications for Senior Staff Options are applications to be issued the number of options indicated on the Application Form upon the terms and conditions set out in the Offer Document dated 4 November 2004 and the Application Form. By signing the Application Form the applicant acknowledges that the Option Application Form was distributed with the Offer Document and that his or her application for Senior Staff Options is made subject to the terms and conditions as set out in the Offer Document and the Application Form. C. By signing the Application Form the applicant undertakes to comply with the terms and conditions of the Methven 2004 Share Option Scheme (the ‘Scheme’) under which the Senior Staff Options are issued.Without limiting the generality of this undertaking the applicant confirms the following matters: - (clause 7.9 of the Scheme): Nothing in the Scheme or issue of the Senior Staff Options is relevant to the terms of the applicant's employment (if any); - (clause 7.10 of the Scheme):The applicant waives any rights to compensation or damages in consequence of the termination of my employment (if any) with the Company or any Subsidiary for any reason whatsoever insofar as those rights arise, or may arise, from the applicant ceasing to be entitled to any Senior Staff Options and/or shares as a result of such termination; - (clause 8 of the Scheme): For the purposes of this undertaking, the applicant's address for service is as set out in the Option Application Form.The notice details given above may be varied by the applicant at any time by notice given in accordance with clause 8 of the Scheme. page one hundred and two METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 21. Instructions and Terms and Conditions of Share Applications and Share Application Forms Applications for Shares made under the Share Offer must be made on the Share Application Form contained in this Offer Document. Applications for Options under the Option Offer must be made on the Senior Staff Offer Application Form sent to Eligible Senior Staff individually. Read the Offer Document carefully before applying for Shares. 1. List your full name, contact address and telephone details. Applications must be in the name(s) of natural persons, companies or incorporated bodies. At least one full first name and surname are required for each natural person. Applications in the name of a minor, trust, fund or estate, business, firm or partnership, club or other unincorporated body cannot be accepted. In those cases, applications must be made in the name(s) of the person(s) who is (are) legal guardian(s), trustee(s), proprietor(s), partner(s) or office bearer(s) as appropriate. A maximum of three applicants may apply jointly. Examples of correct form of registrable names: TYPE OF INVESTOR Individual Company Trusts Deceased Estates Partnerships & Son A/C INSTRUCTION Use given name in full, not initials Use Company title, not abbreviations Do not use the names of the deceased or trust name, use trustee(s) names; all trustees may apply as joint applicants Do not use the names of the deceased, use executor(s) personal names CORRECT FORM John Joseph Jones ABC Limited Susan Jones & John Jones/Susan Jones Family A/C Michael Jones Estate/John Jones A/C Do not use the names of the partnership, use partner(s) personal names John Jones & Michael Jones/John Jones Susan Jones/ABC Tennis Association A/C John Jones Limited/Super Fund A/C Clubs/Unincorporated Bodies Do not use the name of a club etc, use office bearer(s) personal names Superannuation Funds Do not use the name of the fund, use the name of the trustee 2. Enter your Inland Revenue Department number. If it is a joint application, only one Inland Revenue Department number is required. 3. Applications must be for a minimum of 1,500 Shares and thereafter in multiples of 500. Payment is required in full on application. 4. Sign and date the Share Application Form.The Share Application Form must be signed by each applicant. Companies must sign by authorised signatories of that company.The applicant only may sign the application form unless another person has been duly appointed as the attorney of the applicant. If an attorney signs, he/she must complete the section on the bottom of the application and enclose his/her power of attorney. 5. The completed application form, together with a cheque for the full amount applied for, should be mailed or delivered to BK Registries Limited, the Primary Market Participant whose stamp appears on the application form, or the Lead Manager, or any other channel approved by the NZX, in time to be received by BK Registries Limited no later than 5:00pm on 26 November 2004 and, for Registered Plumbers, 19 November 2004. 6. Cheques should be made out to Methven Limited Share Offer and crossed Not Transferable. TERMS AND CONDITIONS OF APPLICATIONS • By signing the Share Application Form, applicants acknowledge that the application form was distributed with the Offer Document and that their application for Shares is made subject to the terms and conditions set out in the Offer Document. • Upon receipt, application monies will be banked pending allotment/transfer.The banking of such monies shall not constitute allotment/transfer of any Shares. • The Directors, in consultation with the Promoters and Lead Manager, will allot/transfer Shares as soon as practicable after the Closing Date. • Subject to minimum shareholding parcels of 1,500 Shares, the Directors in consultation with the Lead Manager reserve the right to allot/transfer Shares in full to any applicant, or to allot any lesser number, or to decline any application.Where the number of Shares allotted/transferred is less than the number of Shares applied for, or no Shares are allotted, surplus application monies will be refunded to the applicant, without interest, within 5 days of the Closing Date. • Shareholding statements will be dispatched to Shareholders as soon as practicable after allotment/transfer but in any event no later than five business days after Closing Date. • Applicants agree that once lodged with Methven, applications for Shares cannot be revoked or withdrawn. • Applicants acknowledge that Shares allotted / transferred to them under the Offer will be allotted / transferred on an ex-dividend basis and carry no right to receive sums arising from dividends declared but unpaid as at the date of transfer. page one hundred and three METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT Share Application Form BROKER’S STAMP METHVEN LIMITED SHARE OFFER SEND TO: BK Registries Limited, P O Box 384, Ashburton To be received by: 5pm on 26 November 2004 (Registered Plumbers, 19 November 2004) 1. APPLICANT(S) TO COMPLETE, BLOCK LETTERS PLEASE Please enter name(s) in full (including all first names) TITLE FIRST NAME(S) FAMILY NAME IRD NUMBER CORPORATE NAME IRD NUMBER PLUMBER REGISTRATION NUMBER (Pursuant to Priority Pool for Registered Plumbers): (Please attach Resident Withholding Tax Exemption Certificate if you have one) POSTAL ADDRESS (including post code) HOME PHONE ( ( ) ) Postcode WORK PHONE EMAIL (optional) 2. APPLICATION - IMPORTANT • Cheques should be made payable to Methven Limited Share Offer • Applications received by BK Registries Limited after 5.00 pm on 26 November 2004 will not be accepted • Applications must be for a minimum of 1,500 Shares at NZ$1.43 per share and thereafter in multiples of 500 and payable in full on application NUMBER OF SHARES APPLIED FOR CHEQUE ATTACHED FOR NZ$1.43 PER SHARE $ 3. DIVIDEND PAYMENTS –If Bank Account Details are not completed, dividend cheques will be posted to the above address If you currently receive interest or dividend payments from BK Registries Limited by direct credit, BK Registries will pay the dividends from the Shares by direct credit to the same account unless you indicate otherwise. If you wish to have your dividends credited to another account or BK Registries do not have your account details please complete this section. Please complete only one option. OPTION 1 - MY NEW ZEALAND BANK ACCOUNT DETAILS: ACCOUNT NAME(S) ACCOUNT NUMBER BANK BRANCH ACCOUNT NUMBER SUFFIX OPTION 2 - MY CASH MANAGEMENT ACCOUNT DETAILS: NAME OF NZX FIRM WHERE CASH MANAGEMENT ACCOUNT HELD CASH MANAGEMENT CLIENT ACCOUNT NUMBER 4. HOLDER NUMBERS If you already hold shares in a New Zealand Company which has BK Registries Limited as its share registrar, please enter below the holder number allocated to you by BK Registries Limited (if known), or if you have been issued a Common Shareholder Number (CSN), please enter it here 5. SIGNATURE(S) OF APPLICANT(S) I/We hereby apply for the number of fully paid ordinary Shares shown above and agree to accept such Shares (or such lesser number as may be allotted) on and subject to the terms and conditions set out in the Offer Document dated 4 November 2004 and on the terms set out in the Application Instructions. SIGNATURE OF APPLICANT SIGNATURE OF APPLICANT SIGNATURE OF APPLICANT DATE DATE DATE 6.CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY I, of HEREBY CERTIFY: 1.THAT, by a Power of Attorney dated the _________ day of _________________________________ (‘Donor’) appointed me his/her/its Attorney on the terms and conditions set out in the Power of Attorney. 2.THAT I have executed the application for Shares printed on this Share Application Form under the Power of Attorney and pursuant to the powers thereby conferred on me. 3.THAT at the date of this certificate I have not received any notice or information of the revocation of that Power of Attorney by the death (or winding up) of the Donor or otherwise. (Name of Attorney) (Address and Occupation of Attorney) Signed at Signature of Attorney this day of 2004 METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT Share Application Form BROKER’S STAMP METHVEN LIMITED SHARE OFFER SEND TO: BK Registries Limited, P O Box 384, Ashburton To be received by: 5pm on 26 November 2004 (Registered Plumbers, 19 November 2004) 1. APPLICANT(S) TO COMPLETE, BLOCK LETTERS PLEASE Please enter name(s) in full (including all first names) TITLE FIRST NAME(S) FAMILY NAME IRD NUMBER CORPORATE NAME IRD NUMBER PLUMBER REGISTRATION NUMBER (Pursuant to Priority Pool for Registered Plumbers): (Please attach Resident Withholding Tax Exemption Certificate if you have one) POSTAL ADDRESS (including post code) HOME PHONE ( ( ) ) Postcode WORK PHONE EMAIL (optional) 2. APPLICATION - IMPORTANT • Cheques should be made payable to Methven Limited Share Offer • Applications received by BK Registries Limited after 5.00 pm on 26 November 2004 will not be accepted • Applications must be for a minimum of 1,500 Shares at NZ$1.43 per share and thereafter in multiples of 500 and payable in full on application NUMBER OF SHARES APPLIED FOR CHEQUE ATTACHED FOR NZ$1.43 PER SHARE $ 3. DIVIDEND PAYMENTS –If Bank Account Details are not completed, dividend cheques will be posted to the above address If you currently receive interest or dividend payments from BK Registries Limited by direct credit, BK Registries will pay the dividends from the Shares by direct credit to the same account unless you indicate otherwise. If you wish to have your dividends credited to another account or BK Registries do not have your account details please complete this section. Please complete only one option. OPTION 1 - MY NEW ZEALAND BANK ACCOUNT DETAILS: ACCOUNT NAME(S) ACCOUNT NUMBER BANK BRANCH ACCOUNT NUMBER SUFFIX OPTION 2 - MY CASH MANAGEMENT ACCOUNT DETAILS: NAME OF NZX FIRM WHERE CASH MANAGEMENT ACCOUNT HELD CASH MANAGEMENT CLIENT ACCOUNT NUMBER 4. HOLDER NUMBERS If you already hold shares in a New Zealand Company which has BK Registries Limited as its share registrar, please enter below the holder number allocated to you by BK Registries Limited (if known), or if you have been issued a Common Shareholder Number (CSN), please enter it here 5. SIGNATURE(S) OF APPLICANT(S) I/We hereby apply for the number of fully paid ordinary Shares shown above and agree to accept such Shares (or such lesser number as may be allotted) on and subject to the terms and conditions set out in the Offer Document dated 4 November 2004 and on the terms set out in the Application Instructions. SIGNATURE OF APPLICANT SIGNATURE OF APPLICANT SIGNATURE OF APPLICANT DATE DATE DATE 6.CERTIFICATE OF NON-REVOCATION OF POWER OF ATTORNEY I, of HEREBY CERTIFY: 1.THAT, by a Power of Attorney dated the _________ day of _________________________________ (‘Donor’) appointed me his/her/its Attorney on the terms and conditions set out in the Power of Attorney. 2.THAT I have executed the application for Shares printed on this Share Application Form under the Power of Attorney and pursuant to the powers thereby conferred on me. 3.THAT at the date of this certificate I have not received any notice or information of the revocation of that Power of Attorney by the death (or winding up) of the Donor or otherwise. (Name of Attorney) (Address and Occupation of Attorney) Signed at Signature of Attorney this day of 2004 METHVEN LIMITED PROSPECTUS AND INVESTMENT STATEMENT 22. Corporate Directory DIRECTORS LEAD MANAGER AND ORGANISING PARTICIPANT TO THE OFFER Richard Cutfield (Chairman) Rick Fala Johannes Krill Phil Lough (Independent Director) Peter Stanes (Independent Director) AUDITORS PricewaterhouseCoopers PricewaterhouseCoopers Tower 188 Quay Street Private Bag 92 162 AUCKLAND Ph: 09 355 8000 Fax: 09 355 8001 SOLICITORS TO THE OFFER ABN AMRO Craigs Limited Farming House 102-104 Spring Street P O Box 13155 TAURANGA Ph: 07 577 6049 Fax: 07 571 8625 OFFICE OF METHVEN LIMITED Simpson Grierson Simpson Grierson Building 92-96 Albert Street Private Bag 92-518 Wellesley Street AUCKLAND Ph: 09 358 2222 Fax: 09 307 0311 SHARE REGISTRY 447 Rosebank Road Private Bag 19996 Avondale AUCKLAND Tel: 09 829 0429 Fax: 09 829 0439 www.methven.biz BK Registries Limited 138 Tancred Street P O Box 384 ASHBURTON Ph: 03 308 8887 Or: 0800 377 388 Fax: 03 308 1311 www.methven.biz